As the government weighs up the options on its future social housing rents policy, Neil Merrick talks to senior figures in the sector about the ideal scenario, potential threats and the need for long-term certainty. Meanwhile, in Scotland…
Towards the end of last year, council tenants in Aberdeen were asked how they felt about their rents going up by 10%.
Unsurprisingly, more than three quarters of the city’s tenants were opposed, though more than half backed a separate proposal to raise rents for new homes by 15%.
Like many local authorities, Aberdeen City Council is struggling to make ends meet. Last September, with its housing revenue account (HRA) in deficit by £3.1m, it joined the growing list of Scottish councils to declare a housing emergency.
Subsequently, at a meeting in December, council officers recommended that rents should increase this April by 12% – more than originally proposed. But councillors decided that a 7.5% rise was fairer to tenants, and instead voted to dip further into the council’s reserves.
Thirteen councils in Scotland that are struggling to support homeless families have declared housing emergencies. Aberdeen also needs to spend £70m to meet the Scottish Housing Quality Standard and is proposing £55m for new homes.
A £1m fund will help tenants struggling to pay rent during the coming year. Miranda Radley, convener of the council’s housing committee, said: “We’re aware of the difficulties faced by our tenants and understand the impacts that any increase in rent may have.”
Lifeblood
Rent is the lifeblood of social housing, helping landlords not just pay for maintenance and retrofitting, but finance loans for new housing. Many Scottish councils are raising rents by more than inflation, with council rents in Edinburgh rising by 7% each year until at least 2028/29.
Figures collected by the Association of Local Authority Chief Housing Officers show most Scottish councils proposing rises of between 5% and 8% this April. As a result, the average council rent in Scotland is likely to exceed £100 by 2026/27, up from £82.32 in 2023/24.
Social landlords in England may be surprised (and perhaps a little jealous) to know that councils and housing associations north of the border can increase rents without reference to any government edict or formula. The only proviso in Scotland is that tenants are consulted first.
“We’ve always been in favour of [rent] convergence. We’re revisiting the argument to give Angela Rayner as much ammunition as we can so that she can argue the case [in government]”
Matthew Warburton, policy adviser, Association of Retained Council Housing (Arch)
In England, social landlords have navigated a topsy turvy decade where they were required to cut rents by 1% per annum for four years until 2019/20. With inflation in double figures in 2023/24, rent rises were then capped at 7%.
The squeeze on rental income particularly affects local authorities, which generally have fewer finance options. “Rental income is crucial to councils meeting the cost of maintaining homes,” says Matthew Warburton, policy adviser at the Association of Retained Council Housing (Arch). “They need to raise money for decent homes work and to pay off debts during the next 30 years.”
Among councils worst affected is Southwark, which estimates that changes in rent policy since 2012 will cost the London borough £1bn over the next 30 years. But housing associations are also heavily dependent on rents.
Crunching the numbers
According to the National Housing Federation, associations generated £15.2bn from rents in 2022/23 – about two thirds of total turnover. Between 2016 and 2024, it calculates, associations received nearly £3bn less in rent income than if rents had remained at their 2015 level in real terms.
A consultation on future rent policy by the Ministry of Housing, Communities and Local Government closed two days before Christmas. A formula of consumer prices index (CPI) plus 1% is likely to be used to determine rises for at least five years from 2026/27 (as well as in 2025/26) and may be extended to ten years.
But is it enough? A study last year for the Local Government Association by estate agents Savills concluded that using this formula for the next decade will mean that councils’ housing income and expenditure will balance after 30 years but result in shortfalls of between £6bn and £7bn in the meantime.
For local authorities, says one housing director, a consistent rent policy is just as important as the formula itself. Even a policy that ties rent increases to inflation is better than constant changes, as seen during the past decade, he adds.
Rent convergence
But social landlords in England want the government to go further and reintroduce rent convergence, meaning rents are adjusted so tenants in the same local authority area pay similar rents to others with similar-sized properties.
Convergence was introduced by the Labour government in 2002 but then scrapped by the Conservatives in 2015. Councils and housing associations had, prior to 2015, been permitted to raise rents by an additional £2 per week, on top of the inflation-linked formula, so allowing them to move towards so-called ‘target rents’.
“We have a number of social rented properties that are significantly below formula or target rent. Convergence would allow us to charge the same level of rents over time as if they all became void at the same time”
Chris Lakin, assistant director of business planning and development finance, Metropolitan Thames Valley
Over the past decade, convergence has been restricted to homes that are vacant, prior to them being relet. This means new tenants frequently pay higher rent than previous occupants of the same property.
General needs properties owned by local authorities were at least 4.1% short of target rents in 2023/24, says Steve Partridge, head of affordable housing at Savills, meaning councils are missing out on millions of pounds of rental income.
In the case of housing associations, it’s likely to create much-needed extra money for new homes. “Convergence delivers a significant amount of extra resources,” says Partridge. “For associations, it would be more about money for new build rather than survival.”
The NHF agrees. In its submission to the rent policy consultation, it calls for CPI plus 1% over ten years, plus a return to convergence, with landlords permitted to raise rents by a further £3 per week where they’re below target rents.
According to the federation, this would raise an additional £3.5bn over ten years and potentially fund £18bn of extra borrowing while adding 0.6% to the welfare bill. It could also fund 90,000 additional homes.
‘Fairness’
Will Jeffwitz, the NHF’s head of policy, says such increases would create fairness among tenants living in similar properties. But changes would need to be explained effectively, so that tenants were aware why their rents are going up.
“There’s a strong case for convergence, given how committed the government is to building 1.5 million homes,” says Jeffwitz. “Convergence has a strong part to play in achieving that.”
So, is a return to rent convergence likely? Deputy prime minister and housing secretary Angela Rayner is reported to be keen, telling a housing conference in November that she was arguing for it within cabinet. But the rent policy consultation appeared to rule it out, saying it would raise costs for tenants, as well as increasing the welfare bill.
About 70% of tenants in social housing have their rent paid for them through housing benefit or universal credit, meaning the Treasury has a strong interest in limiting rent increases. The cost to individual households must also be borne in mind.
But Ian McDermott, chief executive of Peabody, says convergence might even mean lower rent rises for some tenants, as housing associations would be less likely to apply across-the-board increases linked to inflation.
“It could create the flexibility and scope for providers to limit increases on higher rents while bringing the lowest up by a few pounds a week, particularly in periods of high inflation,” he adds.
Convergence also has the support of local authorities, with Arch and other bodies arguing for the flexibility to raise rents by an extra £2 or £3 per week. “We’ve always been in favour of convergence,” says Matthew Warburton. “We are revisiting the argument to give Angela Rayner as much ammunition as we can so that she can argue the case [in government].”
Back in Scotland
Aberdeen City Council is introducing a premium of 15% for tenants who move into new homes from this April (in line with the wishes of tenants in older properties). Such a move wouldn’t be permitted in England, though social landlords in England have the option of letting homes at affordable or intermediate rent.
Housing association rents rose by an average of 6% in Scotland in 2024/25, up from 5.3% the previous year. Jen Gracie, public affairs manager at the Scottish Federation of Housing Associations, says associations are aware of the hardship facing many households and are trying to strike a balance between affordability and their ability to continue absorbing costs.
The problem is that private landlords are in a broadly similar position, having seen rents capped for two years until March 2024. But ministers are proposing long-term rent caps in the private rented sector via a housing bill making its way through the Scottish Parliament.
With the UK and Welsh governments having ruled out rent caps for private landlords, the divide between the different nations couldn’t be starker. But will social landlords in Scotland continue to enjoy the freedom they do now if private rents are capped?
Any rent formula for social landlords is likely to be fiercely resisted. According to Tony Cain, policy manager at the Association of Local Authority Chief Housing Officers, consultation between landlords and tenants would be meaningless if the Scottish government intervened and effectively set rents. “There’s no place for a third party in the relationship between landlords and tenants,” he says.
Metropolitan Thames Valley – ‘Rent income is the bedrock of everything’
Changes in rent policy during the past decade have cost housing associations such as Metropolitan Thames Valley (MVTH) millions of pounds in lost income.
MVTH estimates that, without the requirement to cut rents by 1% per year for four years after 2016/17, or the 7% rent cap imposed in 2023/24, its rental income today would be about 10%, or £40m, higher.
“Rent income is the bedrock of everything,” says Chris Lakin, MTVH’s assistant director of business planning and development finance. “It gives you the ability to deliver your operations, create a surplus and invest in new stock.”
The problem for MVTH and other landlords is that, when rents are reduced or any cap imposed, the amount of money coming in doesn’t only fall that year, but in subsequent years as well. “There’s a compound effect,” adds Lakin.
While some costs have risen in line with inflation, others associated with property, such as energy, insurance and building costs, have risen by more than the CPI, he adds.
Along with other housing associations, MVTH sees rent convergence as a way of helping to catch up following income losses during the past few years. At present, it only increases rent to a target rent that reflects local property prices and incomes [see main article] when they’re empty – prior to new tenants moving in.
If MVTH could increase rents for some homes by up to £3 per week (on top of CPI plus 1% for all social housing) it would raise an additional £3m per year, rising to £12m after ten years.
“We have a number of social rented properties that are significantly below formula or target rent,” he says. “Convergence would allow us to charge the same level of rents over time as if they all became void at the same time.”
