Housing experts are warning that landlords face a costs squeeze under the reformed social rent formula as a result of unprecedentedly low inflation rates.
According to Inside Housing:
The consumer price index (CPI) for September has been set at a five-year low rate of 1.2%, falling from 1.5% the previous month.
For 10 years from April 2015 landlords must use a formula of the September rate of CPI plus 1% to set rents, instead of the current formula of the retail price index (RPI), which was set at 2.3%, plus 0.5%.
Because of the low CPI rate, landlords next year will only be able to increase rents by up to 2.2%, compared with 2.8% under the RPI-linked system.
Experts said that the 0.6% gap between the two rent formulas was higher than most landlords had anticipated, and would force organisations to find efficiencies.
Alistair McIntosh, chief executive at consultancy Housing Quality Network, said most of his clients had assumed a rent increase of between 2.5% and 3% in their business plans, meaning the income will be less than expected.
He also said that because repairs services bought in usually increase in line with RPI, there will be an increasing gap between rental income and repairs expenditure.
‘People will have to make serious cuts and improvements in value for money if they are to continue operating. For some organisations the effect will be severe.’
Matthew Warburton, policy advisor at the Association of Retained Council Housing, said: ‘Most councils will go for the full CPI plus 1% formula because it is low in comparison to the uplift in construction costs and wages.
‘It’s not the best news, but it should be within the bounds of what people have planned for.’