Rent Restructuring

The rent restructuring (RR) debate was triggered by the publication of the 2000 Green paper ‘Quality and Choice: A decent home for all’. The following paper is a response to the numerous policy developments and subsequent implications that have resulted from this document. The paper will be presented in two parts. Firstly one is concerned to deal with the policy and the decisions that have been taken by the Labour Government over that last few years. Here I will comment on rationale that lay behind the decision to abolish the old system of rents.

Also I will attempt to uncover why the Government is so keen to seek convergence of rent levels between the two social housing sectors. In the second part of this paper I am more concerned to identify the real life implications of the shift in direction of the policy. Below I will discuss what the policy shift actually means to those organisations and self interest groups affected by it. Particular attention shall be paid to the implications arising from the policy which affect social landlords. Due regard shall be paid here because some landlords believe that a question mark hangs over their future viability.

Another major point of concern for me in this paper is how tenants of social housing will be affected by the changes that will result from rent reform. The Government has suggested that tenants will get a better deal under the new rents system. However it is the case that many tenants associations country wide are reportedly up in arms! This debate is particularly new. RR only began in April 2002. Much of the comment has proved to be particularly subjective. In this paper one will try to read between the lines and attempt to present as balanced an argument as possible.

As mentioned, the intensions of the Government to implement rent reforms were first documented in the April 2000 Green paper. It is perhaps a worthwhile exercise to briefly set out the proposals for RR in their historical context. This is the history of the fair rents system. The ‘fair rents’ belief has underpinned recent rent setting policy. This is relevant because if one studies the legislation the Rent Act 1965, 1977, Finance Act 1972 and the subsequent housing Acts of 1980 and 1988, one can trace the origins of RR as proposed in the 2000 Green paper.

One can also study these pieces of legislation and identify many parallels between them and the new ideas that are behind RR. The Rent Act 1965 put in place the regulatory framework that enabled the setting of fair rents. Fair rent as suggested by Garnet 2000 is not a “real market rent but an administrative arrangement. The idea behind a fair rent is that a rent can relate to the market without abandoning the tenant to the vagaries of unrestrained market forces” (Garnet, 2000:376). Such ideas resonate throughout the RR policy documentation. The 2000 Green paper contained numerous proposals for a wide range of housing issues.

The major claim was that this was a paper that would offer choice. “The aims of the Green paper were simplification, choice, affordability, and efficiency (Department of the Environment, Transport and the Regions (DETR), 2000). The proposals for rent reform can (the government has suggested) be basically understood within the context of the choice agenda. In Chapter 10 of the Green paper 2000 the Government sought consultation on how rent reform might be achieved, constructed and subsequently implemented. Within this chapter, the desire to seek rent convergence between rent levels in both of the social housing sectors was made clear.

It was the “Government’s intension to restructure social rents over a ten year period ensuring that there is comparability between the sectors” (King, 1999: 96). Foreseeing a potential backlash, the Government went to great lengths to reassure all parties concerned that no matter what options were ultimately chosen, rents would always remain affordable. The desire of the April 2000 Green paper is to sell the case for change. However, the authors are constantly attempting to reassure all concerned that change will always be ‘just’ and would be implemented fairly.

The rationale behind ‘Quality and Choice’ was a perceived sense of injustice on the part of the Government about what had gone on before they came to power. The Government believed that the existing housing system was outdated and that it afforded a good deal to nobody. The new rationale was that the cost of social housing should be directly linked to the attributes that tenants favour most in a property. In this respect, the desire on the part of Government was evidenced in the housing policy statement that was published in December 2000. This was the follow up to the April Green paper ‘The way forward for housing’ (DETR, 2000).

Within this document were contained details of the Government’s decisions. Detailed within was the chosen pathway that all social landlords were expected to adhere to when in the process of setting rent levels. The social landlord, whether Local Authority (LA) or Housing Association (HA), was now required to calculate rents differently. Landlords were now required to make calculations which incorporated several housing related variables. These factors would include the size of a property, the value of a property, and also included a calculation based on regional earnings.

The new rationale with regards rent calculation sought to replace the many anomalies that were perceived to be indicative of the old system. It was highlighted by the Government that in the past (under the old system) it was not uncommon for the rent on a one bedroom flat to outstrip the cost of a two or even three bedroom house. The proposed Government objective is that “there should be no arbitrary differences in rents between similar properties in similar areas” (DETR, 2000). This then often “results in confusion to the tenants and landlord alike” (Mauthe, 2000: 305).

The Government has rejected suggestions that their rents policies are part of another agenda. The rationale behind change the Government argues is a desire to bring some sensibility to a flawed and outdated system of setting social rents. For the Government what is right in the 21st century is that social tenants just like anybody else should pay rent on a scale related to what they get. This rationale is based on market economics. The argument follows that it is proper that a tenant living in large property in one of the better locations should pay a higher rate of rents to reflect the favourable circumstances.

The tenant who accepts less favourable circumstances perhaps a smaller property in less desirable location can expect to pay a cheaper rent. Obviously sandwiched in between such statements in the documents are those reassuring statements about fairness and affordability. Seemingly the Government were anticipating the disquiet that rent reform would create amongst some self interest groups. The text in the policy statement stresses how landlords and tenants will be affected. Landlords are partially reassured as the statement promises flexibility. An attempt to reassure tenants also appears.

The housing corporation produced guidance in October 2001 for HA’s. This guidance came in the form of a document entitled: ‘Rent influencing regime: Implementing the rent restructuring framework’. The guidance offered by the housing corporation stressed that HA’s were expected to implement Government reforms. However the document went to some considerable lengths to reassure associations that they have flexibility to fulfil whatever obligations they may have. It was stressed by the Government that social tenants will pay at most no more than inflation plus i?? 2 in any one year.

More details on how this was going to work were detailed in the April of 2000. The document contained advice and guidance for landlords on how to use the rent setting formula to calculate correct rent levels. The maths was as follows. Seventy percent of the rent that a landlord could now charge was to be based on the relative earning capacities of individuals in the local area. The remaining thirty percent of the rental price was to be calculated by means of a reflection of a property’s value. An additional criterion of the rent setting formula was the bedroom factor.

It was to be the case that dependant on how many bedrooms a property had, an additional charge was able to be levied by the landlord. Contained within this statement were the fiscal limits on rents that social landlords would be bound by from April 2002. LA landlords would be expected to raise rents no more that one percent in real terms in any one year. In the HA sector the directive requested that annual rent increases by organisations should be capped at 0. 5 percent in real terms. This was perhaps the time when the implication of RR for the HA sector began to hit home.

The logic behind all this was ending the differential in rent levels that existed between the respective sectors. It is the case that HA rents on a country wide average work out approximately twenty percent more expensive than LA rents. The Government stresses that this is a scenario it does not wish to see continue. The Government believes the gap to be unjustifiable. Thus, it is intended that intervention by means of the rental cap will converge rent levels between the sectors within ten years. Many HA’s are becoming increasingly worried about the implications resulting from RR.

It is claimed that when the full impact of RR is felt for many associations the consequences could be potentially disastrous. This point has been stressed by King (1999). He voiced concern that some associations could go to the wall very quickly whilst others would be forced to merge. Why then is this the case? Why are so many HA’s in such potential trouble and querying their own viability? This is because of the relationships that HA’s have with private finance. Essentially HA’s are private organisations that do public work and provide a social service. It is the case that half of HA’s money is received by means of the public purse.

The other fifty percent is to be found in the private sector. Most HA’s have long term financial obligations with private business and this is why a rent cap is causing so many headaches. HA business plans have been written to include forecasts on future rents that HA’s are no longer in a position to charge. In the past the risk carried by HA’s has always been quite small. This was because many social housing tenants were in receipt of some form of benefits. The meaning of this was that HA’s became quite dependant on the definite source of income that was housing benefit.

Any rent rises in the past would simply be met through housing benefit. Now that rents are to be supervised and arguably managed by central Government this is obviously not an option now. Questions have been raised here regarding Government intervention in the supposed private HA sector. (See Mauthe, 2001). The questioning relates to Government interference in HA finance. With it looking increasingly probable that some high charging HA’s will in real terms have to cut their rents, this has major implications for any projects that HA’s are or were considering.

Namely it is quite likely that HA development programmes will be severely downscaled. This can only have negative implications for all parties concerned. It is also quite plausible that HA’s will have to scale down staff numbers, ultimately this can only have a negative effect on the standard of service provision. Despite the gloom, it is likely that most of the larger HA’s will make arrangements, survive and manage the new situation with which they are faced. However, it is the smaller HA’s who have real question marks hanging over their long term futures.

Many could likely fail, because they simply cannot make ends meet and provide the services expected of them by their tenants. It is the case that many smaller associations will have to merge with larger associations. This will obviously result in a worrying loss of independence. Evidence has emerged (and it has been reported widely in the housing press) that small BME associations are particularly vulnerable. Housing Today magazine was typical “BME HA’s will struggle to carry on and many will have to merge” (Housing Today, 2001). Tenants groups have been vocal in their response to reforms in the social rents system.

Some tenants associations have branded RR the Labour Government’s biggest mistake so far. Some tenants have gone further, suggesting that “Rent reform will be a poll tax on tenants” (Guardian, 2001). The Chairman of the tenants and residents organisation of England brandished the scheme “ill-conceived, contradictory and unfair” (Housing Today, 2001). ‘Inside Housing’ magazine headline title was typical of much of the housing press with its 16th March 2001 headline ‘Tenants up in arms’. It was reported in the Guardian on the 14th March 2001 that something like 710,000 social tenants will likely pay more rent under the new system.

This has led to questions being asked about the longevity of RR. It has been suggested that higher rents might equal a work disincentive. If this is the case and more people opt out of work and opt for benefits the whole policy must be regarded a failure. The Government, however, remains steadfast in its support of the new system. They claim that more not less people will benefit. By striving to close the gap between sector rents “we will offer tenants wider choices and be more equitable” (Mauthe, 2001).

It is also the case that under the new scheme tenants will be more educated so that they understand rent pricing systems more and are aware of their rights as housing tenants. The government also points out that that the system implemented was chosen after much consultation and that it was the best option on the table by some way. The 2000 Green paper Quality and choice: A decent home for all was a groundbreaking document. Rent reforms began in April of 20002. It is at this time too early to evaluate how successful or not RR will prove to be. However, concerns exist, particularly amongst landlords and tenants.

HA landlords are particularly worried. Many feel that there is too much Government intervention. They are also worried about meeting financial obligations and attracting more investment. Tenants groups are also suspicious of the new reforms. It is obviously very early days but affordability issues are worrying many tenants particularly those in the south. The Government understands the implications of RR. They are far reaching, and the future direction of rent reform must be carefully considered on the basis of the evidence that will be collated by our social landlords over the coming years.