London Tenants Federation - BRIEFING - July '04

3 YEAR RENT-RESTRUCTURING REVIEW

A Hidden Tax on Council Tenants to benefit RSLs and Money Lenders?

The government introduced rent restructuring in 2001, which affects Housing Revenue Account (HRA) resources available to councils to deliver services to tenants. Changes are being phased in over a 10-year period.

Rents are no longer decided on the basis of local council policy but set according to by a government formula - 70% of which is based on local manual earnings with a bedroom weight and 30% based on local (individual) property values. The government determines the figures for manual earnings and has produced guidelines for the valuation of properties.

There are caps on the rent increases. Rents should not increase by more than £2 per week + Retail Price Index (RPI) + 0.5% a year.

The government's reasons for implementing rent restructuring were, they said, to achieve -

• rents that are affordable and well below those in the private sector
• rents that are fairer and less confusing for tenants;
• a closer link between rents and the qualities that tenants value in properties:
• removal of differences between the rents set by local authorities and those set by Registered Social Landlords.

A government 3-year review of rent restructuring has been carried out recently. Recommendations have been made, which are now out for wider consultation during the period of 14th July - 30th September '04.

Who took part in the rent restructuring review?

Given the governments record in involving tenants in decision making, perhaps we shouldn't be surprised that absolutely no tenants - council or housing association were involved in this review.

London Tenant Federation members will be aware that we wrote to the ODPM on 2 occasions about tenant involvement in the review. In our first letter of May 2003, we asked that a representative of the LTF be involved. In response we were advised that someone from the 'Tenants Sounding Board' would be involved (but with no indication of how that tenant would be accountable to other tenants) and that we should feed our comments through the Association of London Government. We were advised that the ODPM 'hoped to arrange a discussion of emerging findings from the review with interested parties later that year' and that they would keep us in touch with developments. If this discussion took place we were never informed or invited.

We wrote to the ODPM again in March '04 when we found out that the 'Tenants Sounding Board' tenant had not actually attended any of the review meetings. We were advised that the ODPM 'would hope shortly to consult on the findings and any options that might seem appropriate'. They added that they 'would ensure that the London Tenants Federation are fully involved in this process'. It's not clear what they meant by 'ensuring'. Obviously the recommendations are now out for wider consultation, but the ODPM certainly didn't make contact to advise us of this.

Members of this select review group, involved in deciding the future of our rents, included the Housing Corporation, the Local Government Association, the Association of London Government, the National Housing Federation, Department for Works and Pensions, Department of Health and the Council of Mortgage Lenders.

What were the conclusions of the review?

Given that no tenants took part in the review perhaps we shouldn't be too surprised that it concluded that the basic policy is sound. 3 recommendations have been made 'for technical improvements'.

At LTF meetings, members have complained that since the introduction of rent restructuring, huge differences in rents across boroughs are occurring. They have complained that far from reflecting the qualities that we value in properties - like good quality services, rents now simply reflect property values and whether or not we have wealthy neighbours.

There is nothing in the recommendations that recognises or addresses these issues.

The recommendations

1. Higher weights for larger properties.

Higher bedroom weights for three- and four-bed properties, and new, higher weightings for properties with five and six (or more) bedrooms.

(Essentially the proposal is that there needs to be a noticeable difference in the rent charged for different sized properties and that rents need to increase for 3, 4, 5 and 6 bedroom (and more) properties.

The reason given for this proposal is that it signals the greater desirability of a larger property. So if this is the real reason, why not also reduce the rents for 2-bed and smaller flats? Or, is there perhaps another criteria /sub text that is much more about pressure applied by the RSLs and the money lenders present in the review - for more cash for development?

Please read on…………..

2. Harmonisation.

From April 2005, using the same formula for restructuring local authority rents as that currently used for restructuring RSL rents, and adopting the RPI as the inflation measure used in calculating local authority rent increases.

One of the government's aims in rent restructuring is to remove the differences between council and housing association rent levels. One of its motivations for doing this is its desire to reform housing benefit and to pay flat rate standard housing allowances. (please see LTF newsletter 2 for more on this) It will be difficult for them to introduce the changes proposed without harmonising Housing Association and Local Authority rents. Another motivation is perhaps also about fudging the differences between housing associations and local authorities in order to promote stock transfer.

BUT -

Is harmonisation the true motivation in this proposal? If so then couldn't housing association rents have been lowered to council rents?

Some RSLs have apparently complained that limiting rent rises to RPI + 0.5% causes problems and lenders have expressed anxieties. The RSLs have also miraculously produced valuations (of properties) that are 22% higher than the ODPM expected. It is these valuations that local authorities will be expected to adopt. These valuations are apparently not to be queried. To make matters worse, the proposal would also retrospectively increase by 2% the April 2000 start rent in the RSL 'target rent' formula.

Our rents will indefensibly increase because the local authority formula will be changed to this inflated and highly questionable RSL 'target rent' level. Having waved through extra rent rises for 1.7 million RSL tenants this proposal would increase 2.5 million council tenants' rents in the name of 'harmonisation'.

3. Implementation.

Local authorities should ignore the downward limit of RPI + 0.5% minus £2 per week on rent changes, in order to achieve restructuring on all properties for which rents need to fall by 2011/12. The Housing Corporation should also encourage associations to do the same, where their finances permit.

This recommendation relates to rents that end up being reduced by the formula. Of course this doesn't apply in London.

The impact on London council tenants

If these proposals are accepted, we can expect on average that our rents will rise £40 per month (15%) by the end of the rent restructuring period - 2011/2. This is far above the rate of inflation. Increases will of course vary from borough to borough, from £3 per month in Waltham Forest to an increase of £79 per month in Camden.

There are serious consequences. It means life will be much more difficult for pensioners with small occupational pensions who don't qualify for housing benefit - more of their pension will disappear in rent. E.g. a 70 year old pensioner with a total income of £12,000 per year and a current rent of £68 a week will have to pay a third of their net income in rent.

People in work would have to increase their earnings by a lot more than the rent increase to be no worse off. A tenant facing an increase of 14% on a rent of £80 per week would have to increase their earnings by £17 per week.

It will make it much more difficult for those claiming housing benefit to move out of doing so.

So much for dealing with social exclusion!

Who are the winners and who the losers?

It is very obvious from the recommendations in the review, who had the loudest voice amongst those carrying out the review and who the government is most interested in listening to.

Council tenants who were not represented will end up with huge hikes in our rents. We won't even get better services as a result.

We know from the 'Moonlight Robbery' campaign that the government is already takes £1.5 billion more rent money than is returned to councils in allowances (M&M and MRA). This amount will simply increase at the same rate as our rents increase. It's a nice little earner and will comfortably pay for the extra claimed in housing benefit. A kind of tax on the poor to pay for the poorer.

And those who have been heard - the RSLs, unlike councils, they are able to keep any extra rent charged. RSLs will use the increased rent yield to fund further development - new RSL homes. They and the money lenders will gain.

RSL tenants of course, like council tenants were nowhere to be seen between the Housing Corporation and the Council of Mortgage Lender members of the review group. They too will see rent increases and no better service delivery in return.

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