23 July, 2015
Following the emergency Budget earlier this month the already worrying housing crisis is only going to be put under further strain over the coming years.
The principal concern is of course the shock rent reduction announcement. Social landlords will have to reduce rents by a flat rate of 1% without being able to take into consideration inflation for 4 years from April 2016. This is a drastic U-turn from the ability to increase rents by CPI plus an additional 1% that landlords have been benefitting from under the previous government, since 2013.
Although it is predicated that these cuts could save £1.45 billion particularly from the housing benefit bill, it is expected that landlord's development plans will suffer a serious blow as a direct result and we have already seen RPs putting development plans on hold until the implications are assessed. The coming weeks and months will also no doubt see RPs consolidating and reviewing business plans as a whole. The coming months may well see restructuring, redundancies and sharing of services to keep costs down.
The National Housing Federation has predicted that "at the very least" 27,000 fewer homes will be built and the Office for Budget Responsibility have estimated a 10% reduction in homes being built during this 4 year period. Although landlords will see the rent formula return to them increasing with inflation plus 1% in 2020, the next 5 years are going to be worrying for many landlords. The reduction in development will also have a knock on effect on housing associations' earnings seeing a potential reduction of £3.9billion between April 2016 and 2020.
The cuts to rent are also expected to hinder the new Right to Buy plans. Under the new Right to Buy extension proposals, Councils are under an obligation to sell their most valuable stock once it becomes vacant, with 30% of the proceeds being used to fund the development of more affordable replacement stock and any surplus going towards the Right to Buy discounts. However the cuts to rents could see it being impossible for Councils to build these replacement homes. Many Councils were relying on the increases in rental income to contribute to the development of the replacement homes however, with their rental incomes set to reduce the Chartered Institute of Housing's research reveals Councils could lose around £42billion over the next 30 years.
For further information please contact any member of the Housing & Regeneration (Property) Team on 01772 220022.