WIREDGOV

Proposals to reduce rents paid by tenants in social housing in England by 1 per cent a year will cost councils £2.6 billion by 2019/20, new analysis reveals today.

The measure would see the rent reduction come into force from 2016 and last for four years. The cost to councils will rise from £234 million in year one, to £508 million in year two, £795 million in year three, and over £1 billion by 2019/20. By that point the annual funding gap will represent 60 per cent of local government's total housing maintenance budget. Over the four years the total £2.6 billion will be equivalent to the cost of building almost 19,000 new homes. 

The Local Government Association, which represents more than 370 councils in England and Wales, supports moves to keep rents low but is warning the move would hold back councils from helping government build more homes, boost growth and employment and reduce the welfare bill. 

Because around 70 per cent of council tenants receive Housing Benefit, any rent decrease will not impact them directly. Instead it will be reflected in the Department of Work and Pensions' budget, while local councils will have to cope with the additional financial burden.

Town hall leaders are calling for the flexibility and powers to manage their own housing stock to meet the needs of local communities and employers over the long-term, as was intended by government in the 2012 housing reforms.

Cllr Gary Porter, LGA Chairman, said: 

"Many councils have already agreed long-term housing investment plans based on the future rent levels announced in March's Budget. It is right that rents are kept as low as possible, but our analysis shows reducing rents in this way over the next four years will cost councils £2.6 billion by the end of the decade and lead to a further funding gap of £1 billion per year from 2020/21 onwards.

"There are millions of people on social housing waiting lists and councils want to get on with the job of building the new homes that people in their areas desperately need, which is the best way to reduce the Housing Benefit bill and boost growth.

"It is therefore vital that these costs are considered by the Government as part of the wider debate of council funding to avoid the capacity of councils and housing associations to invest in this much-needed housing being put at risk. For instance councils should be able to keep all the receipts from the sales of their own housing stock.

"If we are to see the crucially needed numbers of homes built, councils must have a lead role in housebuilding and be allowed to reinvest in the homes and infrastructure that they are best placed to help deliver. Local authorities could build half a million new homes and transform the lives of hundreds of thousands of families if given greater powers, resources and flexibility."

The LGA has called on government to let councils take a lead role in housebuilding by lifting housing borrowing limits to allow councils to invest in new housing, giving councils the freedom to set Right to Buy discounts, and to retain 100 per cent of all council home sale receipts locally.

• Based on an average cost for a new build council home of £140,000, £2.6 billion would equate to 18,790 homes.
• A gap of around £1 billion per year would develop once the lower rent base of Consumer Price Index (CPI) plus 1 per cent is reintroduced in 2020/21.
• The impact year on year for the next four years is outlined below: