Reports from both housing and mainstream media suggest that Chancellor Rachel Reeves is preparing to announce a significant increase in social housing rents. This announcement is expected to be a major component of her upcoming October Budget. 

According to the latest forecasts, Reeves plans to introduce a new 10-year formula that will set the framework for social housing rents over the next decade. This change is anticipated to provide a clear projection of rent adjustments from 2025 to 2034.

The proposed formula aims to offer greater stability for local authorities, housing associations, and tenants within the social housing sector. By outlining the rent changes well in advance, the formula is designed to help all parties plan for future adjustments.

This move is expected to impact a wide range of stakeholders in the housing sector, potentially influencing budget planning and financial expectations for both providers and residents of social housing.

According to the Financial Times, based on information from government sources, the new formula for social housing rent increases will be tied to the Consumer Price Index (currently 2.2%) plus an additional 1% each year.

The FT reports that this approach is designed to boost the construction of affordable homes by offering more predictable revenue streams for housing associations and local councils. These bodies are currently facing substantial debt and maintenance challenges. In recent years, local authorities have nearly ceased new home construction, leaving most of the new social housing development to not-for-profit housing associations. The government uses a national formula to determine rent levels in subsidised social housing.

While the guaranteed higher rents may benefit housing associations by improving their financial stability, this move could lead to higher living costs for many tenants and potentially increase government spending on benefits.

A 10-year funding formula for social housing isn’t a new concept. Previously, under former Chancellor George Osborne, a similar 10-year plan was in place. However, this system was discontinued in 2015, leaving a gap in long-term funding stability for social housing projects. The absence of a consistent long-term plan has led to fluctuations and uncertainties in the housing sector.

More recently, a five-year funding settlement was introduced in 2020, linking rent increases to the Consumer Price Index (CPI) plus 1%. This arrangement was intended to provide a degree of predictability for social housing rents. Yet, due to an unexpected rise in inflation in 2022, the government had to intervene, capping rent increases at 7% to mitigate the impact on tenants.

In response to the ongoing challenges in the housing market, Angela Rayner, who serves as both the Deputy Prime Minister and Housing Secretary, has pledged to deliver “rent stability.” Her goal is to facilitate what she describes as the “biggest increase in affordable house building in a generation.” This promise reflects a broader commitment to addressing the housing shortage through more reliable funding mechanisms.

The Labour-led Local Government Association has also weighed in on the issue. They have recently called for a more generous 10-year funding settlement that goes beyond the standard inflation adjustments. This call for an above-inflation increase is aimed at providing local councils and housing associations with the financial certainty needed to plan and execute long-term housing development projects.

Such a move would enable these organisations to better manage their budgets and undertake significant housing projects, addressing both immediate needs and long-term goals. It would also support the broader objective of increasing the supply of affordable housing, which remains a critical issue in many regions.

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