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David Bookbinder: Now the details – an prolonged lease freeze would savage Internet Zero funding

David Bookbinder considers the monetary implications a proposed freeze or cap on social housing rents would have for a housing affiliation’s Internet Zero aspirations.

As at all times after populist bulletins, it’s good to get actual in regards to the implications. A single 12 months’s lease freeze subsequent April might take £660m out of the social housing sector’s funding in Internet Zero and different enhancements. A brief-term sugar hit however long-term monetary suicide and a catastrophe for our efforts to sort out local weather change.

Even earlier than this week’s announcement, many housing associations have been already dealing with having to make reductions in funding of their houses within the subsequent 2-3 years, to handle the mixture of excessive inflation and lease will increase nicely beneath inflation.

That was the message popping out of a membership session GWSF held final Friday, facilitated by marketing consultant Paul McNeill, to take a look at how HA enterprise plans would want to vary dramatically to make sure monetary viability.

The price of residing disaster affecting our tenants and communities is a large preoccupation for our members. As community-based associations, they’ve at all times sought to help native folks to be as resilient as potential when crises hit. We thought Covid would possibly by no means be topped however this disaster now seems to be even worse.

With the probability of inflation being round 14% by the top of the 12 months and a few economists predicting even increased figures for 2023, housing associations had already recognised that lease will increase subsequent 12 months can be considerably beneath this stage as they tried to cushion the blow.

At our session final week, earlier than the lease freeze information, we checked out a state of affairs the place below-inflation lease will increase of seven% in 2023 and 5% in 2024 would result in an affiliation operating out of cash after 5-6 years if it continued with its present funding plans (and even worse for associations which froze lease throughout Covid).

Updating that state of affairs to now think about a potential lease freeze in each April 2023 and 2024, the affiliation runs out of cash in 12 months 4.

For sure, no housing affiliation intends to let that occur. However pulling again on funding in present inventory – and probably in new construct too – is prone to begin occurring very quickly.

Each housing affiliation will probably be figuring out its personal inflation impacts. A really current survey of members indicated that within the final two years they’ve seen a 32% enhance in the price of kitchens, 27% for bogs, 33% for a rewire, and as much as 500% in gas prices. A grim image, even with rental revenue at regular ranges.

The influence of only one 12 months of a lease freeze is chilling. Take a housing affiliation with 1,000 houses:

  • The lease is £4,000 p.a. and so rental revenue is £4m p.a.
  • Let’s suppose that with inflation round 14% subsequent April, the HA had been planning a 7.5% lease rise (i.e. nonetheless taking successful on revenue v outgoings)
  • That might have added £300,000 to rental revenue
  • A freeze takes away that £300k yearly of the 30-year marketing strategy
  • That’s greater than £11m permitting for compounding
  • Grossed as much as cowl 600,000 houses within the social rented sector, that’s £660m, on high of the losses already incurred from having a below-inflation enhance

And as issues stand, greater than two-thirds of that sum would have come from the UK Authorities by way of Housing Profit and Common Credit score, albeit acknowledging that individuals in low paid work are at all times worst hit by lease will increase.

Our members will probably be eager to reassure tenants that getting repairs completed shortly and successfully stays a precedence, because it was throughout Covid. However programmes comparable to kitchen and loo replacements are going to should be urgently reviewed and revised.

And fairly the place it leaves Internet Zero funding is anybody’s guess. It’s onerous to see how associations might perform retrofit and set up renewable heating programs with out being totally funded: they merely gained’t have the money.

But once more the Minister’s telling us that the principle concern is the non-public rented sector, however the response is to make use of a blunt instrument to hit the social sector in the identical means.

A freeze (or a cap) additionally removes an affiliation’s flexibility to seek the advice of tenants on what they assume can be an acceptable compromise between lease and funding ranges. That makes it extremely onerous for upcoming lease consultations to be significant.

A choice on April 2023 actually must be taken nicely earlier than the top of 2022 if landlords are to plan with any certainty. With out a choice, the one choice is to plan for main cuts in funding now.

Very preliminary soundings in regards to the put up 31/3/23 place recommend a willingness to (a) have a look at treating the social sector in a different way from the PRS, and (b) think about choices aside from a freeze. That is, tentatively, promising: we don’t need Internet Zero to turn into the time period used to explain the contents of housing affiliation financial institution accounts. We’d like a big dose of widespread sense if Scotland is to keep away from a large personal objective.

  • David Bookbinder is director on the Glasgow and West of Scotland Discussion board of Housing Associations (GWSF)

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