As Board members get ready for their summer holidays and consider which achievements from 2021-22 they want to include in their Annual Reports to tenants, there is an elephant in the room. The elephant has the not very snappy name “Rent-increases-23-and-24”.
A loud sigh of relief sounded across the sector in October 2017 when the government announced the new CPI plus 1 per cent rent settlement, applying to the rent years 2020-25. The dust was blown off business plans and those development numbers started to rise again.
And moving rapidly forward almost five years since the announcement, April 2022’s rent increases were a bracing but hardly unprecedented 4.1%. The Bank of England’s May projection is that in September – the reference month for determining future rent increases- CPI will be 9.1% and by September 2023 it will be 6.6%.
Boards are now looking at their directors of Finance, Development and Customers and wondering what proposals they are going to be presented with in advance of the April 2023 rent increase. Are their execs going to be recommending a 10.1% followed by a 7.6% rent increase at a time of painful austerity when headlines carry stories of people in the fifth richest economy in the world skipping meals because they can’t afford them, self-disconnecting from electricity and gas, and where our current boom industry, tragically, seems to be food banks? Or will the exec team decide that austerity means there should be no rent increase? And if so, will the books be balanced by cutting development ambitions, or by reluctantly saying farewell to a few dozen colleagues or impactful social value projects?
It genuinely looks like Boards are going to be confronted with the dilemma of increasing rents by nearly 20% over the course of the next two years, or doing some serious surgery on their business strategies and plans. If your mission is “help improve the lives of the people living in our homes and in our places” is it mission congruent to take another thousand pounds a year out of their pockets at a time where incomes are largely stagnating?
Of course the other pocket that would be lighter after a hefty increase in rents is the public one – which still pays the rent of more than half of social housing tenants. It would be an optimistic and starry eyed Board that hadn’t added the possibility of a rent cut to its risk register and looked at how it might respond to rent cut scenarios. For those new to the sector who have faith in the robustness of government announcements and think that the current rent increase policy of CPI plus 1% has sacred status, a chat with colleagues who are longer in the tooth may be in order. In 2013 the government announced that rents would increase by CPI plus a half percent for ten years. Less than eighteen months later, the Chancellor surprised us all by announcing a four year rent cut, with the Prime Minister citing cost of living pressures for tenants as one of the reasons.
In the 20 plus years since the introduction of the rent formula, the highest inflationary rent increase was a salutary 6.1% in 2012 – just as the country was in the midst of another few painful years of austerity. 10.1% and 7.6% are unprecedented inflationary rent increases over the course of the last two decades.
The questions for Boards are – given who you are and who you are for, will you make increases at these unprecedented levels? If you do, how will you mitigate the impact for your tenants? If you don’t, what will you do to your business to maintain viability and deliver on your objectives? And of course, what will government do?
Even better, let’s bring the question closer to home – WHAT WILL YOU DO?
Darren Watmough, Principal Consultant, Chisnall House