Journal of Housing and the Built Environment

, Volume 26, Issue 1, pp 85–97

The quasi-market based re-regulation: effects of setting housing association rents in England

Authors

    • Department of Land EconomyUniversity of Cambridge
Policy and Practice

DOI: 10.1007/s10901-010-9204-7

Cite this article as:
Tang, C.P.Y. J Hous and the Built Environ (2011) 26: 85. doi:10.1007/s10901-010-9204-7

Abstract

This paper outlines the current structure of housing association rents in England and examines critically the social rent-setting policy dilemmas. The paper charts the marked change of direction seen since the 1980s, with a switch from a deregulated approach giving housing associations freedom from central control within a clear accounting framework to set rents at least to cover costs, to a more regulated rent-setting system based on individual property values and local earnings levels. Using rental data from housing associations’ Regulatory and Statistical Returns, the study shows that social rents are now set on quasi-market principles that simulate some aspects of a real market reflecting the characteristics of the property, but continuing to be sub-market reflecting the lower household income of social tenants. However, the constraints of the rent-setting formula reduce the capacity of housing associations to undertake proper maintenance and improvement of existing stock. This will become a particular issue for those in London and the North of England where rents now only just cover operational costs.

Keywords

AffordabilityFinancial viabilitySocial housingRental differential

1 Introduction

The advent of neoliberalism since the 1970s has led to a series of deregulatory reforms in the provision of public services to replace “bureaucracy” by “markets” (Boyne and Walker 1999). The social housing sector in Britain, like its counterparts in Europe, has not been immune to the influence of these reforms. Indeed, the “roll back” of the state (Peck and Tickell 2002) in social housing was particularly apparent under the Conservative governments from 1979 to 1997. The impact of neoliberalism in the form of deregulation has led to a reduction of housing subsidy but has not entailed disengagement of government from social housing. Not only has funding for social housing in England become highly centralised, but also a series of quasi-market developments were implemented to replace local authorities, the monopolistic state providers, with housing associations, the independent social housing landlords. The quasi-market changes in the provision of social housing have a direct impact on individual landlords’ rent-setting policies.

This paper therefore explores how government-led social housing reforms have reshaped the rent-setting policy in the English housing association sector. It focuses on two domains—the sectoral and housing associations/tenants. In the sectoral domain, the paper presents evidence on the impact of changes in housing association rent-setting on rent levels and assesses how far housing association rents are close to market levels. Within the housing associations/tenants domain, the paper examines the effects of ‘re-regulated’ rents on the affordability of housing association tenancies and the financial viability of housing associations.

2 Regulatory frameworks and housing association rent-settings

England has a large social housing sector even though the overall quantity of social housing has fallen steadily from 5.2 million in 1981 to 3.9 million in 2007. Local authorities are still the major landlord of social housing, currently providing 51% of homes in the sector; in 1976, they provided 95%. Their role as a provider of social housing has been eclipsed by housing associations, which experienced significant growth from 281,000 to 1.886 million between 1976 and 2007 (Wilcox 2009, Tables 17a and b). There are now around 1,700 housing associations, varying from large asset rich national organisations with many decades of experience in rented housing provision for lower-income households, to small, local, specialist associations with few assets, to the recently established stock transfer associations who received properties (the previous council housing) from local authorities. They provide social housing not only in the form of dwellings for renting, but also low-cost home ownership.

Up until 2002, the two kinds of social landlords in England were regulated in different ways, and the different types of provider-subsidies led to different rent-setting policies. In council housing, subsidies were historically paid as fixed annual amounts per council dwelling, representing a contribution to debt charges and enabling local authorities to set rents at less than full costs. Since 1972, subsidy has moved away from investment towards a greater emphasis on subsidy as a lever on council rents policy. The change of local authority housing financial framework and the introduction of various implicit government policies, particularly the 1989 Local Government and Housing Act, have pushed local authorities to raise council rents towards market levels. Initially, council rents were set on pooled historic-cost principles in which aggregate income from rents, subsidies and other sources was pooled in order to meet aggregate housing expenditure. It meant that the setting of all council rents was conducted on the same basis rather than being determined by the subsidy allowed by a particular Housing Act, or the outstanding debt on the property. But after 1989, they were encouraged to set higher rents that reflected the capital values of their dwellings. As the central government’s primary concern of council rents was always on the average rent charged for the stock rather than the rents of individual dwellings (Walker and Marsh 1998, p. 551), local authorities retained the freedom to set their own rents to reflect the characteristics of properties.

In the case of housing associations, the freedom to set their own rents was terminated in 1972. Since then, the central government has become a primary actor in directing the growth of the housing association sector, changing the funding system of housing associations, and defining how housing associations set their rents.

2.1 Regulation: setting a ‘fair rent’

Before 1972, housing associations had relative autonomy in setting their own rents, and rents were set on a not-for-profit basis. Such control of rents charged was removed when the Housing Act 1972 was introduced. Housing associations were required to charge ‘fair rents’ for their individual properties. ‘Fair rents’ levels were set by local Rent Officers, and were based on what a tenant could pay and what a landlord could accept if there was no shortage of properties to let in the open market. But after 1975, the advent of neoliberalism in the United Kingdom saw the deregulation of social housing which led to the growth of housing associations to replace local authorities as the main state housing apparatus. Later, the 1988 Housing Act further intensified the deregulation process in the housing association sector.

2.2 Deregulation: the market-related rent-setting

The 1988 Housing Act (effective from 1989) not only “re-privatised” housing associations back towards their position before the ‘fair rents’ system was introduced (Randolph 1993), but also began to bring some quasi-market mechanisms, competition and commercialisation, within the housing association sector. The Act changed the financial system to a “mixed funding” regime for all new housing association developments. Associations were forced to compete against each other for the government upfront Social Housing Grant and loans from private funders (banks and building societies) for the capital costs not covered by the grant. Progressively, grant rates had fallen, and since 1989, housing associations have raised over £21.4 billion in private finance (Wilcox 2009, Table 59) and became the primary providers of new social housing.

Associated with this funding change, a new type of tenancy agreement was introduced in the housing association sector, granting associations the freedom to set their own rents for assured (“deregulated”, not subject to rent control) tenancies. Secure tenants, who rented units before January 1989, retained their right to “fair rents” set by the local Rent Officers. At the same time, funding for future major repairs was withdrawn from associations, first for new developments since 1989 and later for all association stock. All these policies meant that rents were deregulated and became more market-oriented. Housing associations had the autonomy to set individual assured tenancy rents for all new lettings so as to generate an overall rental income that could cover the cost of borrowing to finance a scheme together with the actual cost of management and maintenance, and build reserves for long-term repairs. Depending on the amount of capital grants associations received, the amount of development they have undertaken and their previous financial strength, housing associations generally set a much higher level of assured tenancy rents than fair or council rents. In principle, associations were required to keep average assured rents below market, but in parts of the country, some individual rents were very close to private rents (Whitehead 1999).

Clearly, the reduction of capital subsidy for housing associations, the use of private finance to fund new development, the need to build surplus for repair and maintenance and rent deregulation all led to spiralling housing association rents. Between 1989 and 1996, average local authority rents rose by 94% but average housing association rents for assured tenancies, 105% (Fig. 1). Much of the cost of these higher rents was in fact coming back to a different part of government through increased housing benefit bills, causing concern over benefit dependency for social tenants. For those tenants who did not receive benefits, higher rents represented a larger proportion of their income, making them less “affordable” (Bramley 1994). Ultimately, the increase of housing benefit costs from a total of £1.3 billion in 1989 to £5.7 billion in 1997 (Cope 1999, p. 127) in the sector and the success of housing associations being the main providers of new units of social housing led to a reversed move towards a prudential regulation of housing associations.
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Fig. 1

Average weekly housing association rents and local authority rents in England, 1989–2008. Note Average housing association rents for 1989 to 2002 were for assured tenancies only. From 2003 onwards, the averages for housing association rents included both assured and secured tenancy rents. Source Wilcox (2009) Table 72; Dataspring (2003–2008) Table A1

2.3 Re-regulation: setting quasi-market housing association rents

The 1996 Housing Act resumed the regulated regime and established a new regulatory framework for housing associations. The re-regulatory capture (Mullins 1997) saw the increased centralisation of the Housing Corporation (the government’s regulator of all housing associations in England) as a means to improve financial and risk management. Progressively, it has introduced tighter constraints on what housing associations can do in their rent-setting. This was first through “rent bidding”, under which competition for allocations depended not only on the grant requested, but also on the rent levels specified. Then, associations were also told that they would not be eligible for grant at all if their aggregate rental income increased by more than retail price index (RPI) inflation plus one percent. In this way, the Corporation controlled the annual rent increases for all properties in the housing association sector in order to keep rents affordable and also cap and reduce housing benefit costs. In 2000, housing associations were placed under the same “Best Value” (DETR 1998, ch. 7) regime as local authorities. The two kinds of social landlords were now within a single regulatory framework which aimed at promoting the three E’s of economy, effectiveness and efficiency in organisational performance (Cowan and McDermont 2006, p. 113). Later, the performance of housing associations was monitored by the Audit Commission, further institutionalising associations as public sector bodies. The cumulative impact of the re-regulatory regime changed the supposedly independent housing associations into some of the most highly regulated public service organisations in Europe (Ashworth et al. 1999, cited by Walker and van der Zon 2000, p. 193).

Continuing the development of the social housing quasi-market, the central government shifted its focus from production to the demand-side of social housing. Through the Housing Green Paper Quality and Choice: A Decent Home for All (DETR/DSS 2000), the government aimed to transform social tenants from passive recipients of state beneficence to rational choice-oriented consumers who should select housing that most closely matched their self-identified needs and purchasing capacity amongst the various sectors of housing provision. However, the separate trajectories followed by the housing association and local authority financing systems led to a bewildering series of conflicting principles underlying the levels of social rents. Depending on its past financial history, tenants of a local authority might have their rents determined in one of three different ways: (1) a rent guideline related to market levels so that rents of different types of dwelling within an authority’s stock should reflect the type of variations found in both the private and the housing association sectors (Marsh 2001, p. 289); (2) a “damped” guideline related to “discounted” capital values to dampen rent increases in the late 1980s (see Malpass and Warburton 1993, p. 97); or (3) a “limit rent” based on rents as they were in March 1996 to reduce the cost of rent rebates (ODPM 2003, p. 15). For housing association tenants, there was a difference in the treatment of secure (pre-1989) tenants and assured (post-1989) tenants, and between tenants living in dwellings owned by mainstream associations and those owned by stock transfer associations. In the latter, rents were first kept at pre-transfer level, and for the first 5 years after transfer guaranteed at not more than RPI + 1% increase annually. At the end of the 5 years, rents rose by inflation plus one to three percent. The considerable disparities between rents charged by housing associations and local authority landlords (see Fig. 1) as well as disparities within a single social landlord’s stock were viewed as giving inappropriate price signals and little incentive for tenants to become “rational consumers” to optimise their housing consumption (Walker and Marsh 2003, p. 2024). The Green Paper therefore addressed these perceived problems through a new rent-setting formula that simulated market rent-setting while constraining actual rents in relation to local households’ capacities to pay for housing.

The new rent formula, or more precisely the target rent formula, was introduced in April 2002 and ended local rent policy discretion in the social housing sector. All housing associations and local authority landlords were required to calculate a target rent for each of their individual properties and to adjust increases in the actual net rent (rent excluding service charges) so that rents would be within five percent of targets at the end of the restructuring period. Rather than prescribing a definition of what affordable rent levels should be, the target rent formula took the national average rent and then weighted it at 70% to the relative regional affordability of the area (i.e., average local earnings as a share of average national earnings) and the remaining 30% to the relative capital value (i.e., average open market value of the individual unit relative to the national average). The formula included a further element for the number of bedrooms which was correlated with capital value initially from 0.9 to 1.1 in 2002–05, and since then, from 0.9 to 1.4. Housing associations and local authorities were given a 10 or 15 year trajectory towards this common national rent structure. They were also expected to charge the target rent when a property was let or re-let to a new tenant in order to expedite the movement of rents towards their restructured levels. However, to protect tenants from large or sudden rent increases, the government reduced the maximum rate of overall increase in housing association rents and service charges from RPI + 1% to RPI + 0.5% per annum. Also, no individual rent would increase by more than the preceding September’s RPI plus 0.5% plus £2 per week.

Given that the quality of data for local authority rents is relatively poor and housing associations are more concerned with relativities against private rents rather than comparison with council rents (Glennerster et al. 2000, p. 173), the remaining sections will focus on housing association rents. Rental data from the Tenant Services Authority’s (previously the Housing Corporation) Regulatory and Statistical Returns are used to assess how close housing association rents are to market levels and how affordable they are.

3 Quasi-market rents in the housing association sector

3.1 Housing association rents and rents in market tenures

At national level, average housing association rents for assured tenancies rose very sharply during the deregulation period (Fig. 1), an average annual increase of 10% in the seven-year period of 1990 to 1996. The double digits of annual increase were dramatically slowed down to a single digit of one percent between 1997 and 2002 when the Housing Corporation limited any rent increases to one percent above RPI. However, after the introduction of rent restructuring, even with the lowering of the restriction to RPI + 0.5%, the annual rent increase rose slightly to three percent between 2002 and 2008 because housing association rents were more likely to be increased at RPI + 0.5% plus £2 per week in order to move towards target rents. Despite that, Fig. 2 shows clearly that housing association rents were always below private rents and owner occupation costs. Although the gap between housing association rents and rents in market tenures has been widening over time, housing association rents in 2008 were still 80% lower than private rents and 187% below owner occupation costs.
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Fig. 2

Average weekly owner occupation costs, private rents and housing association rents, 1999, 2003 and 2008. Notes Owner occupation costs are the weekly outgoings of owning properties at the lower end of the housing market, which consist of three components: (1) the cost of loan repayment; (2) insurance (mortgage payment protection insurance and building insurance premium); and (3) the imputed cost of loss of interest on the deposit. 2008 average owner occupation cost was not available at time of compilation, thus, 2007 owner occupation cost was used instead. Sources Udagawa and Tang (2008a) Table 2.3, 2008b Table 2.2, Udagawa et al. (2008) Fig. 2.1, Dataspring (2003–2008) Table A2

Regionally, in 1999, London average weekly housing association rent was 29% higher than that in the lowest rent region, Yorkshire and the Humber. By 2008, it was 47% higher. The widening inter-regional rent difference was mainly due to larger rental increases in London than those in the rest of England. London rents were 22% above the England average in 2008 as opposed to 15% in 1999. The spread of differentials became much more closely matched to regional differences in owner occupation costs and private rents (Fig. 2). Thus, at the regional level, the aim of housing association rents varying with some kind of relationship to capital values has been achieved.

Relativities between property sizes in the housing association sector, however, have not mirrored the rental differentials in market tenures. Instead, Fig. 3 reveals that rental differentials between larger and smaller housing association properties have been narrowing after rent restructuring. Even with the introduction of new bedroom weights for larger properties in April 2006, the rate of rent increase for one-bed properties was still larger than that for properties with four or more bedrooms. Such a rental pattern does not resemble those in the owner occupation and private rental sectors. Clearly, location is much more important as a determinant of (or an increased differentiation of) capital values than the size of dwellings. On the other hand, the lesser effect of bedroom weights on rents can ensure affordability for families with children who live in larger-size properties with higher capital values but have relatively lower disposable incomes.
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Fig. 3

Rental differentials between bed sizes in the housing association sector (rent for 2-bed properties = 1.00), 2003 and 2008. Source Based on calculations from 2002/03 and 2007/08 Regulatory Statistical Returns

3.2 Housing association rents and affordable rents

Housing associations should ensure rent levels are “affordable” to their tenants. However, there has never been an officially specified affordable rent; instead, the Housing Green Paper gave a higher weight to local earnings in the target rent formula to ensure that housing association rents were more closely related to local income levels. In the absence of a government definition, the National Housing Federation (the representative of 1,200 housing associations in England) took on the role and defined the affordable rent as 20–22% of the median net income of new tenant households in work (Bramley 1994, p. 104). The Housing Corporation based some of its grant-setting on the basis of rents and recommended that an affordable rent should not be more than one-third of income, after allowing for housing benefit (Glennerster et al. 2000, p. 175). Using income data from the COntinuous REcording (CORE) system for new tenants, Table 1 shows that in all parts of England, except London, housing association rents were affordable according to the Housing Corporation’s definition. They became unaffordable for working households who moved into housing association dwellings in London and the South East if the National Housing Federation’s definition was used. In fact, London was the only region where affordability worsened over the period. This was because while rents rose by nearly 16%, the income of working new tenants rose by less than eight percent.
Table 1

Rent-to-income ratios for housing association new tenants by region, 2003 and 2008

Region

All new tenants

Working tenants

Rent/income

Rent/(income + housing benefit)

Rent/income

Rent/(income + housing benefit)

2003

2008

2003

2008

2003

2008

2003

2008

London

0.41

0.43

0.32

0.34

0.25

0.27

0.24

0.26

South East

0.35

0.34

0.29

0.29

0.24

0.24

0.23

0.23

South West

0.34

0.32

0.29

0.28

0.24

0.23

0.23

0.22

East Midlands

0.34

0.32

0.28

0.28

0.23

0.23

0.22

0.22

East

0.32

0.33

0.28

0.28

0.22

0.23

0.22

0.22

West Midlands

0.34

0.33

0.29

0.28

0.23

0.22

0.22

0.21

Yorkshire and the Humber

0.34

0.32

0.28

0.27

0.23

0.22

0.22

0.21

North West

0.34

0.32

0.29

0.28

0.23

0.22

0.22

0.21

North East

0.33

0.31

0.28

0.27

0.22

0.21

0.21

0.21

ENGLAND

0.35

0.34

0.29

0.29

0.23

0.23

0.22

0.22

Note Housing association rent, income and housing benefit were based on those new tenants who declared their income in the CORE

Source Based on calculations from 2002/03 and 2007/08 CORE

New tenants generally represent only 10% of all existing tenants in the housing association sector (Tang 2009, Table 3). Thus to get a fuller picture of the affordability situation, housing association rents are compared to average lower quartile (gross) earnings of workers in full-time employment. The lower quartile is used because housing association tenants are more likely to have lower incomes even when they are employed. Figure 4 shows that ratios of housing association rent to lower quartile earnings in 2008 were all above 0.25 with the South East having the highest ratio of 0.33. Surprisingly, London had the same ratio of 0.26 as Yorkshire and the Humber and the North East, and this is mainly because Londoners had the highest lower quartile earnings in England.
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Fig. 4

Ratios of housing association rent to lower quarter earnings by region, 2008. Source Based on calculation from 2007/08 Regulatory and Statistical Return and ONS (2008), Table 3.1a

Overall, affordability in the housing association sector is less of an issue than in market tenures, given that housing association rents are generally well below private rents and owner occupation costs (Fig. 2). Also, given the operation of the housing benefit system, the level of housing association rents is of little importance to many benefit recipients. Affordability problems are therefore likely to be concentrated among moderately low-income households, those typically low-paid working households with incomes just above the housing benefit threshold.

4 Quasi-market rents and financial viability of housing associations

The evidence presented so far has confirmed that the target rent formula has created quasi-market housing association rents that, firstly, are below market, secondly, are affordable, and thirdly, are related to capital values of properties and so reflect rent relativities in market tenures between areas but not between dwelling sizes. Because of the narrowing differentials between smaller and larger sized properties over time, in some housing associations, particularly Northern associations in Yorkshire and the Humber owning predominantly larger sized stock, rents had to come down in real terms in the earlier phase of rent restructuring (Tang 2008, Fig. 1a). Also, because of the comparatively low capital values of their properties, the average rental income per unit for Northern housing associations in 2007 was 28% less than for London housing associations and also 17% below total costs (Table 2). This unsustainable position was largely explained by the prevalence of stock transfers, particularly new stock transfers in the North which needed to complete significant re-improvement works in the first 5 years of transfer (Housing Corporation 2008, p. 54). Excluding stock transfer associations, the average total cost was 94% of rental income, leaving a small surplus of six percent for Northern housing associations (ibid, Table 4). Such a balance sheet certainly created financial pressures for these associations as rents are not sufficient to cover the basic cost of outgoings. Clearly, target rents of areas with lower property values are not necessarily viable rents in terms of housing associations’ financial sustainability.
Table 2

Average per unit costs for all housing associations, 2007

 

London

South East

South West

Central

North

Income measures

 Rent income per unit (£)

3,870

3,621

3,198

2,995

2,796

 Voids %

2.4%

2.0%

1.6%

1.9%

2.5%

 Bad debts %

1.1%

0.9%

0.6%

1.0%

1.3%

Cost measure per unit (£)

 Operating costs

3,317

2,697

2,683

2,720

2,862

 Operating costs less depreciation plus capitalised major repairs

3,593

2,648

2,656

2,890

3,275

 Management costs

952

667

624

706

730

 Routine and planned maintenance costs

900

884

831

880

883

 All major repair costs

786

546

848

830

1,218

 Service and support costs

482

365

276

412

318

 Other costs

473

186

77

62

126

Total costs as % of rental income

93%

73%

83%

96%

117%

Source Housing Corporation (2008) Table 3

London housing associations, on the other hand, spent on average the largest amount per unit on management, repair and maintenance of any region in England. Although they benefited from relatively higher rent levels after rent restructuring, their average rental income per unit was only seven percent greater than costs (Table 2), and this percentage remained the same even when stock transfer associations were excluded. The relatively higher level of operation costs in London housing associations may be due to the higher labour costs in the capital (see Fig. 4) as well as larger proportions of flats in their stock and lower-income families in their tenants. This clearly put pressure on London associations to increase rents; however, there are indications that some associations in London and other high property valued regions have exercised some measures to bring down their actual rents. A further examination of how close actual average rents are to target rents at the level of the local authority shows that in 2008, 10 local authority areas in London had actual average rents that were more than 10% below targets (Udagawa 2008). The same was true for the 12 local authority areas in the South East. While housing associations in the South East have a very considerable surplus of rental income over costs (Table 2), those in London, instead of increasing rents, have diversified their business to include a range of non-social housing activities that support the overall income base. In London and in fact throughout the housing association sector, associations’ business models are changing away from one based purely on rental streams to one that is based on both rental income and sales proceeds from shared ownership (or low-cost homeownership) homes. In the past 3 years, 83 traditional housing associations have been reliant on sales proceeds either to generate a surplus or to reduce their losses on rental housing (Tenant Services Authority 2009, p. 59). During 2008, the sector continued to benefit from profit on sales of properties of £577 million even though the level of sales has slowed down (p. 5).

Currently, there is no report on any housing association being at any particular risk of financial un-viability, but the performance of individual associations is masked by aggregation of the data. There is a steadily increasing pressure on associations as they have to balance constrained rental income levels with total costs that often grow faster than RPI. For example, on a per unit basis, management costs were increased by 8.3% in 2007/08 (ibid., p. 7). In contrast, the guideline limit specified by the Housing Corporation for rent increase was 4.1% in the same period. Thus, from a long-term perspective, once rent restructuring comes to an end in 2012, it is questionable whether rent increases of only RPI + 0.5% are going to be viable for associations in London and the North where rents presently only just cover operational costs.

5 Concluding remarks

Contrary to the neoliberal approach to transfer control of public services from “bureaucracy” to “markets”, the social housing sector in England is now within a strong regulatory framework with ever-increasing government intervention to transform social landlords into hybrid organisations with private and public interests. Accordingly, social housing rent levels are determined by the central government and are set on quasi-market principles that simulate some aspects of a real market reflecting the characteristics of the property, but continuing to be below market levels reflecting the lower household income of social tenants. However, the constraints of target rents and the RPI level of rent increases have reduced the capacity of housing associations to undertake proper maintenance and improvement of existing stock, especially for larger sized properties. Furthermore, it is expected that repair costs will continue to rise as housing associations need to ensure that their stock meets the Decent Home Standard by 2010. While RPI has increased dramatically in the last couple of years, it is now more likely to have a similarly dramatic fall. The deflation risk to rental income in 2011 and beyond will inevitably diminish rental returns, not to mention the potential rental arrears and bad debts resulting from increases in rents in 2010 at a guideline limit of 5.5%.

The economic environment has grown increasingly challenging, and the sector is not immune to the factors affecting the rest of the economy. In particular, the housing market falls in 2008 and beyond and the unavailability of new credit have had a significant impact on shared ownership values. Most recently, housing associations have been transferring 9,000 unsold shared ownership properties for use as rental homes (Tenant Services Authority 2009, p. 56). The drop in property sales witnessed over last year presents ongoing challenges for some associations who have come to depend on such revenues to meet interest payments and operating costs, which calls into question the sustainability of such a business model over time.

Under more unfavourable economic conditions, any rent increases will increase public expenditure in the form of housing benefit, an explicit subsidy to meet the difference between property management costs and the amount that a household can afford. Since the implementation of rent restructuring, the number of housing benefit claimants in the housing association sector increased by 34% between 2002 and 2007 (DWP 2007, Table HB1.2), and in May 2009, there were 1.67 million recipients (DWP 2009, Table 4). The number and the size of housing benefit claims will further rise as a result of the current economic recession, with clear implications for rent increases and public expenditure control.

While rents have increased, there seem to be considerable management costs as well, particularly in the case of housing associations in London. The target rent-setting regime which attempts to achieve both market-related price structure and affordability but does not incorporate any element of management and repair costs may endanger longer-term maintenance and operation. This raises the question of whether a “one-model fits all” rent structure is appropriate, or a more flexible approach to rent structures that can accommodate a range of different factors, such as broader income groups, size of housing associations and location. Clearly, what is needed is flexibility and local discretion within a broad regulatory framework that ensures that borrowing covenants, reasonable requirements and promises to tenants and other stakeholders are kept. Also, a more flexible approach to affordability, such as different housing affordability targets for different regions and different household types, recognises the regional variation in living costs and across different life stages. It is unrealistic to have the same affordability and rent targets for each area.

This leads to the concluding observation. The complete removal of local autonomy for local authorities and housing associations in relation to rent-setting counters one of the important corollaries of public service reform, i.e., giving substantial autonomy for housing providers. The stronger the regulatory framework imposed by central government, the more a supposed market resembles a bureaucracy. Also, the rise of national ‘super-league’ housing associations (each owns or manages over 1,000 homes) has made them less distinctive from bureaucratic local authorities (Pawson and Sosenko 2008). There is also a growing possibility that associations will leave the regulated system when they are facing greater regulations to change the constitutional, legal and organisational framework within which associations operate. In the current turbulent operational environments, the challenge for housing associations is to maintain financial health and viability. It is therefore necessary to involve them in formulating and reviewing rent policy so that associations can continually enhance and sustain their capacity to deliver social housing services in England.

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© Springer Science+Business Media B.V. 2010