UK chancellor plans to raise social rents to boost affordable housebuilding
UK chancellor Rachel Reeves has revealed plans to raise social rents by more than inflation. This is in a bid to increase the building of affordable housing across the country and will be set to take place over the next 10 years.
During October’s Budget Reeves aims to introduce her 10-year formula. This would increase annual rents in England by the CPI measure of inflation plus a further 1%. Inflation is currently measured at 2.2% meaning the total change would come to 3.2%.
The aim of this proposal is to encourage an increase in the building of affordable homes through more attractive cash flows for councils and housing associations. This could prove a tempting offer for those councils that are currently struggling with debt burdens or maintenance backlogs.
The government sets rent levels in subsidised social housing using a national formula. Guaranteeing higher rents will delight housing associations but could worsen the cost of living for millions of tenants and could land the government with a much higher benefits bill.
“The sector needs long-term certainty over how rents in social and affordable housing change each year, which means returning to CPI plus 1 per cent — and with absolute clarity that the government intends to stick with that plan,” said one person involved in the discussions.
The previous Conservative government made a similar pledge in the early 2010s, but ministers later reneged on it multiple times. David Cameron’s coalition established a 10-year annual rent agreement in 2012 based on the retail price index, plus 0.5 percent. However, then-chancellor George Osborne abandoned this agreement in 2015, implementing four years of below-inflation increases to reduce housing benefit costs for the Treasury.
More recently, the Conservative government announced a five-year settlement of CPI plus 1 percent in 2020, but was subsequently forced to cap rent increases at 7 percent following a surge in inflation to over 11 percent in 2022. This settlement was extended for one more year in April. While this provided some relief for the 30 percent of the 4 million households in the social housing sector whose rent is not covered by housing benefit, it further strained already cash-strapped providers.
Gavin Smart, chief executive of the Chartered Institute of Housing, the professional body for those in the housing sector, said the multiple changes to the previous 10-year commitment had destabilised the sector. “It is clear that ministers and officials understand that a rent settlement needs to be one that landlords and investors can rely on for a long period,” he added.
Greg Williams, the Head of Business Development at Compariqo, said: “The proposed rent increase formula presents a significant opportunity for housing associations to secure long-term, stable income streams. This increased financial certainty can be leveraged to accelerate development plans, improve existing properties, and enhance services for tenants. However, it’s essential that the government remains steadfast in its commitment to this policy to ensure the sector can plan and invest with confidence.”
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