Whilst certainty over the rent regime is helpful, the switch from an RPI basis to CPI is likely to have a detrimental effect on housing association rental revenues over the 10 year period from 2015. Over the past 10 years, the cumulative effect of the difference has been that RP rent revenues would have been 2.1% lower under the CPI regime. Based on sector-wide rental revenues from the 2012 global accounts, KPMG analysis indicates that over the 10 year period this could equate to at least £3bn lost to reinvestment into new social housing provision – almost balancing the promised level of capital investment. This could build some 20,000 unsubsidised new 3 bedroom homes.
Capital investment and economic stimulus
The £3.3bn of capital investment over three years is a similar annual investment to the 2011 affordable homes programme, but it is expected to support significantly more new homes than its predecessor. This may impact on RP viability as they are required to stretch balance sheets further in order to deliver with reduced subsidy per unit. No doubt the regulator will have a view on the increased risk implied. In the run-up to the Spending Review, house-building was proposed as a driver for economic recovery. Particularly when taking into account the likely loss from the RPI/CPI change, the numbers involved do not appear to support this.
Supply and demand
The Help to Buy mortgage guarantee scheme is already increasing demand by making it easier for people to buy homes. This is expected to continue. The measures to address the speed of land release from the public sector include changing the incentives for public sector bodies and recognise that local authorities have a part to play in land release. Centralising the monitoring of that through a combination of the HCA, the Shareholder Executive and the Government Property Unit should also be helpful. However, changing incentives can be a complex matter so we only expect the impact to become apparent in the medium term.
Impact on benefits
Without significant additional supply, pressure on market rents will also continue to increase. Rental inflation feeds through to housing benefit, which adds further pressure to the overall benefits bill. This increases the impact of capping Annual Managed Expenditure.
HMRC is to face a budget reduction of 5% despite government increasing their target for raising additional revenue. In addition, the announcement that the Charity Commission is to have its funding further reduced in 2015/16 also points to a trend of government requiring cheaper regulation. Therefore, the opportunity for the HCA to charge fees for its regulation services is to be welcomed provided that they are used to increase the capacity for and quality of regulation.