The effects of rent restructuring on social housing in English rural areas

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Journal of Rural Studies 20 (2004) 445–460

The effects of rent restructuring on social housing in English rural areas Bruce Walker* Centre for Urban and Regional Studies, School of Public Policy, University of Birmingham, Birmingham B15 2TT, UK

Abstract This paper discusses the impact of central government’s rent restructuring policy on social housing in rural areas in England. It examines the effect that restructuring will have on the rents set by social landlords in a set of case study areas then considers some of the likely impacts on affordability and on new investment in rural social housing. One of the primary aims of rent restructuring policy is to reduce unjustifiable differences between the rents of similar dwellings in the local authority and Registered Social Landlord sectors locally. This aim seems likely to be achieved. In doing so, it is likely that affordability will be reduced in the local authority sector but enhanced for tenants of some RSLs. However, the reduction in real RSL rents that improve affordability may further constrain RSLs’ ability to invest in new social housing in rural areas. The paper concludes that rent restructuring by itself will not materially improve the housing prospects of the less well off in rural areas. r 2003 Elsevier Ltd. All rights reserved. Keywords: Rural rents; Social housing; Rent policy

1. Introduction This paper is concerned with the effects of rent restructuring on the rents of social housing in rural areas in England. As we discuss below, one of the primary aims of rent restructuring policy is to reduce unjustifiable differences between the rents of similar dwellings in the local authority and housing association (‘Registered Social Landlord’—RSL) sectors locally. In attempting to do so, there is a concern that existing difficulties surrounding the affordability of rural social housing might be exacerbated and that the investment decisions of at least some landlords might be adversely affected. The paper attempts to explore these and related issues by examining the effects that restructuring has on rural rents and by considering, in the light of these effects, some of the likely impacts of restructuring on affordability and investment. The paper proceeds as follows: we first briefly survey some of the recent work on social housing provision in rural areas that is pertinent to the concerns of this paper, before, in Section 3, giving an overview of rent setting in the social rented sector and the issues and debate to *Tel.: +44-121-414-4957. E-mail address: [email protected] (B. Walker). 0743-0167/$ - see front matter r 2003 Elsevier Ltd. All rights reserved. doi:10.1016/j.jrurstud.2003.10.004

which this has given rise. Section 4 explains the government’s rent restructuring policy and Section 5 describes the study on which this paper in part is based. Section 6 presents the results of the analysis of the effects of rent restructuring on the rents of social landlords in rural case study areas, while Sections 7 and 8 respectively consider the some of the implications of these results for the affordability of, and new (RSL) investment in, rural social housing. Section 9 concludes.

2. Social housing in rural areas Recently, Cloke et al (2001) have pointed to the ‘rich heritage’ of research into the housing problems of rural areas and the wide range of issues that this research has encompassed. Hoggart (1997) has identified the main concerns that this work has tried to address: they include, importantly here, the relative under-provision of social housing in rural areas—Yarwood (2002), for example, suggests that social housing makes up only 12% of the stock in rural areas compared to 25% in urban areas. This shortage of supply has been exacerbated by two factors—first, the impact of Right to Buy (RTB) on council housing provision, despite the availability of limited exceptions for a small number of

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rural authorities, and, second, the ‘meagre housing association provision in rural compared to non-rural [areas]’ (Hoggart, 1997, p. 494). RTB has been the major contributor to the significant fall in local authority provision. To take a striking example, two of the local authorities bordering and partly including the Lake District National Park have sold almost 7000 properties since the inception of Right to Buy (Cumbria Rural Housing Trust, 2002). More generally, Milbourne (1998; see also Clark, 1996) points to the ‘dramatic reductions’ in public sector provision in rural areas nationally and as evidenced in his own case study work in Wales, and also comments on the faster rate of sale of higher quality council houses in the villages than in the towns. Such a fall in provision is based on a more patchy provision of rural council housing in the first instance, as a result of the urban oriented nature of the council house building programme and the varied political responses historically to incentives to new provision at the local level (Milbourne, 1998). In respect of RSL housing provision, Clark’s work suggests that RSLs provided over 80% of new social housing in rural areas in the first part of the 1990s (Clark, 1996). However, in relation to RSL provision in non-rural areas, Hoggart (1993) states that: ‘ythe evidence confirms that it is the urban centresywhich are the largest recipient of housing association activity.’ (p. 660) This can be ascribed to a number of factors. Milbourne (1998) suggests that it is the smaller scale of the rural housing association sector that reduces the financial and organisational ability of RSLs to become involved in larger scale schemes. Shucksmith (1990: see also Hoggart, 1997) argues that a contributory factor is the Housing Corporation’s cost yardstick that has, at least historically, placed RSL development in small settlements at a disadvantage. We can note that the combination of this with the move to the greater private financing of RSL schemes, where the risks attached to cost over-runs are significant, are also likely to constrain sectoral supply responses in rural areas. In the light of this, the rise of homelessness that Cloke et al. (2001) have identified in rural areas—albeit ‘hidden’ and taking a different form to that in urban areas—is perhaps not surprising. It also leads the authors to observe that: ‘In [rural] locations, applicants can face a lengthy wait for re-housing and the future prospect of re-housing may be minimal.’ ([6]Cloke et al., 2001, p. 103). As a result: ‘ylow income households are being squeezed out and forced to move to urban areas in search of housing.’ (Rural Development Commission, 1998, p. 5)

Many in the field have thus identified the issue of the excess demand for social housing. Much interesting work has been carried out on how new social rented dwellings might be provided and made affordable (see, for example, Barlow et al., 1994; Gallent, 1997 and Yarwood, 2002) and the policy problem is clearly conceived of as encouraging the additional supply of: ‘yaffordable, accessible housing [that] is needed to alleviate the rural problems of high house prices, low incomes and a lack of social rented housing.’ (Countryside Agency, 1999, p. 28) Relatively little attention appears to have been paid to the affordability of such social housing that currently exists. The assumption might be that providing housing through not-for-profit public or voluntary sector social landlords who determine their rents through policies that reflect their social objectives solves the pricing problem. This is despite evidence that average RSL rents are higher than average local authority rents nationally, (see, for example, DETR/DSS, 2000, Chapter 10 and Section 3 below) and in particular areas (Milbourne, 1998, Walker et al., 2002a) and that the history of council rents in particular since 1980 has been one of year on year increases in excess of RPI. The increasing dependency on housing benefit (HB) of a majority of tenants in the social housing sector as a whole is well known (and its implications are discussed in Section 7 below). This trend reflects not only increasing rents in the sectors but also the sectors’ increased residualisation in terms of the sorts of households that are being housed. In this context the impacts that a change in rent setting method is likely to have on rent levels become an important matter for those concerned with social housing provision in rural areas, given the potential impacts on landlords’ revenues and investment decisions, and on affordability and HB dependency for tenants.

3. Rent setting in social housing 3.1. Determining rents in the local authority sector Local authorities currently own around 17% of the UK housing stock. The finance of this housing has been extensively analysed (see, for example, Hills, 1992; Gibb et al., 1999, for detailed discussions). Briefly, the primary financial objective of local authority landlords in the UK, currently and historically, has been to raise sufficient rent income from their council housing to meet their expenditure, net of any Exchequer revenue subsidy, on that housing. Local authorities’ ability to pool their rents means that, given the aggregate rent income to be generated from the stock, the authority then has to determine the rent to be set for each individual dwelling.

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With some brief historical exceptions, authorities have until now had the freedom to choose how the rent of an individual dwelling is to be set. As a result of the rent setting methods actually used (see Walker and Marsh, 1995, 1998 for discussions), the rent of an individual dwelling has not necessarily reflected the historic cost, current cost or current value of that dwelling. The rent structures produced tend to exhibit limited differentials between the rents of different types and sizes of property, and between properties in different areas within the local authority. It has been estimated that, for example, the average rent of a one bedroom council dwelling was 78% of that of a three bedroom dwelling in England in 1998/99 (Walker and Marsh, 2000).

their development. Although the Corporation provides information on the various definitions of affordability (see, for example, Housing Corporation, 2001), it has not specified what the rent of any new or existing property should be. The Corporation’s primary influence over rents has been an expectation that an RSL’s rents overall will not increase by more than a specified amount each year—RPI + 1.0%, for example, in 2001/2. Given RSLs’ increasing reliance on private finance, the absence of revenue subsidy and the higher proportion of newer properties in the sector, it is perhaps not surprising that average RSL rents nationally currently exceed those of local authorities by about d9 per week.

3.2. Determining rents in the registered social landlord sector

3.3. Social rents—the policy issues

In the UK RSLs currently provide around 6% of the total housing stock. Their expanding role in social housing provision since the late 1980s is the result of explicit government policies that have meant that RSLs have become, effectively, the sole suppliers of new social housing and have increasingly taken over ownership of the local authority stock through large scale voluntary transfer (LSVT). As a result, the government’s Green Paper (DETR/DSS, 2000) anticipated that RSLs would become larger providers than local authorities of new and existing social housing within five years. Since 1989 RSLs have, like local authorities, had the freedom to determine the rent to be set on new tenancies. Also like local authorities, RSLs have been able to pool rents, so that any individual development or scheme does not have to be financially viable in itself and there is no necessary relationship between the rent of an individual property and its costs or its value. As a result it also appears that the relatively narrow rent differentials noted above in respect of local authority are being replicated in the RSL sector. Data provided by Wilcox (2001, Table 68, updated) indicates that the average rent of RSL one bed properties as a percentage of the rents of three bed properties varies regionally in England between 71% and 87%, a range not dissimilar to the figure quoted above for local authority one bed and three bed properties. Since 1989 revenue subsidies have no longer been available on new RSL development. Thus an RSL’s investment decisions have to be taken in the light of grant aid from the Housing Corporation (where available), the RSL’s ability to raise private finance, their own reserves and, until now, the rents that the RSL decides will be charged, given any rent pooling that it undertakes. The Housing Corporation requires rents of new and existing properties to be ‘affordable’ and will take into account the rents to be set for any new properties in deciding upon the level of grant aid for

Rent setting arrangements within social housing have been perceived as a problem by successive governments. The flat rent structures that have emerged within each sector give tenants little incentive to adjust their housing consumption within that sector in the light of the rents set for different properties. This can lead to inefficient use of the stock through, particularly, widespread under-occupation. Research evidence indicates that there may be a significant proportion of households underoccupying in the local authority sector (Barelli, 1992) and it would also appear that the number of ‘trading down’ moves has declined in recent years (Pawson and Sinclair, 2002). The impact of flat rent structures in removing the ‘shopping incentive’ for tenants is also potentially significant in areas where there is high demand for social housing in specific locations (for example, in many rural areas) alongside low demand for stock in other less attractive areas in the same locality. Any such incentives that these rent structures do provide may be further weakened by the HB system. Around two thirds of social tenants nationally receive HB. In the social rented sectors HB fully compensates all recipients for changes in rent where their circumstances have not changed and funds 100% of the rent1 where the claimant’s household income, after allowing for household composition, is equal to or less than the level of Income Support or Job Seekers Allowance. The combination of relatively undifferentiated rents and the operation of the HB system accentuates the lack of a shopping incentive for social renting tenants. This has led Kemp (1998, 2000) and Hills (2001) to argue that the reforms to HB that are required will have little impact 1 Note that in the private rented sector the rents eligible for support through HB are determined by the Rent Officer and may be differ from—i.e. be set at a level below—the rent actually charged by the landlord. Such Rent Officer determinations are rarely required in the social rented sectors and only a handful of RSL rents nationally have ever been referred for such determinations.

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on tenants’ choices if the present pricing structures are not also reformed. The differences in the rents between the social rented sectors in a locality, both on average and for otherwise similar dwellings, pose a second set of problems. First, similar tenants occupying similar dwellings in the same area but renting them from different social landlords might face very different rents. This raises the question of equity between social housing tenants. Second, where such tenants are eligible for HB, tax payers funding the benefit will be required to contribute different amounts to otherwise similar households in similar housing. This raises the question of equity between tax payers and HB recipients. Third, tenants may have a choice of dwellings between the two sectors, as is increasingly the case, for example, in areas of low demand (see, for example, Bramley et al., 2000; Bramley and Pawson, 2002; Policy Action Team 7, 1999). These choices might be affected by the different rents that are set for similar dwellings— rents that are not being set on a ‘coherent’ basis (Wilcox, 1997). Certainly, there is evidence that working households are taking differences in rents between the RSL and local authority sectors into account and that there is a growing concentration of non-working households in receipt of HB on RSL estates that have, in general, higher rents than those of local authorities (Ford et al., 1998). 3.4. Reforming social rents—the debate Before examining the precise form taken by the government’s policy for reforming social rents in England, we can note that there has been an extensive debate in the literature, particularly during the 1980s and early 1990s, concerning both the case for rent restructuring and the form that it should take. Walker and Marsh (2003) have characterised this debate as one that has concentrated on the role that the value of social rented properties should play in rent setting. In particular, contributors such as Hills (1988, 1992) have argued for some form of ‘economic rent’ that would reflect the long-run cost of providing social housing by incorporating some allowance for, among other factors, the opportunity cost of the capital tied up in the dwelling. Others such as Maclennan (1994) and, earlier, the two Inquiries into British Housing (HRH Duke of Edinburgh 1985, 1991) argued for some form of marketrelated rent reflecting a rate of return on the capital (sale) value of the dwelling. However, Walker and Marsh (2003) conclude their brief review by stating that: ‘The effect that the wide range of such, often innovative, work had on the UK government’s policy towards rent setting in social housingyis barely discernible’ and that:

‘ythe final form of the rent restructuring mechanism did not explicitly draw on any clear theoretical perspective from the literature.’ (p. 2027) Hills’ work (Hills, 2000), proposing a rent setting policy based broadly on the running costs of social housing did feature as an option in policy thinking leading up to the implementation of the rent restructuring regime (see DETR/DSS, 2000, Chapter 10) but, as is shown below, does not appear to have influenced the actual mechanism that was chosen.

4. The government’s policy for restructuring social rents in England 4.1. The rent setting formula The Housing Green Paper argued (DETR/DSS, 2000, Chapter 10) that the application of a consistent formula to set the rents of individual dwellings in both the local authority and RSL sectors would remove ‘unjustifiable’ differences in the rents of similar properties while holding rents at an affordable level. Further, by sending the ‘correct’ price (rent) signals to landlords and tenants, rent restructuring should influence the investment decisions of the former and the choices of the latter. We can note that this is a policy designed to harmonise rent setting in the two sectors, conceived of at the national, ‘aggregate’ level. The rent setting formula that has been adopted makes no distinction between social housing in urban and rural areas. It incorporates property values, the number of bedrooms and an adjustment to reflect affordability. It is argued in DETR (2000, para 2.2; hereafter, the Guide) that property values give a good indication of the relative attractiveness to tenants of the size, condition and location of properties. The measure of property values is the market value of the dwelling relative to the national average value of dwellings in the sector—local authority or RSL—in which the dwelling is located. The Guide also suggests that the number of bedrooms a property contains can be used to provide a sensible set of differentials between different sizes of property. Local earnings are taken as an indication of affordability locally that should be reflected in the rents set (Guide, para 1.4). The local earnings measure is that of average manual earnings in the county in which the dwelling is located relative to average national manual earnings. Hence, this affordability measure does not distinguish between rural and non-rural areas within a county and indeed, as Walker and Marsh (2003) have observed, is not among the measures that have been quite extensively discussed in the literature (see, for example, Whitehead, 1991; Chaplin et al., 1994).

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Specifically, under the restructuring formula the rent of a dwelling in both the local authority and RSL sectors is determined by: *

*

70% of the national average rent in the sector weighted by average local (county) earnings relative to national average earnings. This is then adjusted for bedsize, plus 30% of the national average rent in the sector weighted by the value of the individual property relative to the national average property value of the sector in which the dwelling is located

Details of the formula and the values of its parameters are given in Appendix A. The formula sets the ‘target’ rent for each individual property in 2000/1. However, the rent restructuring policy was introduced in 2002/3 and landlords have (up to) 10 years—until 2011/12—in which to implement it fully. The target rents that landlords are expected to meet, therefore, are those that will obtain in 2011/12 after 10 years of the policy’s implementation. Hence, to see the effects of restructuring, it is necessary to estimate the target rents that landlords will be expected to achieve by the year 2011/12. 4.2. Calculating target rents In calculating target rents for 2011/12, it is important to note that all rents—targets and the rents set by landlords—are likely to be affected by the rate of inflation each year. However, the primary purpose of the research discussed here was to examine the effects of restructuring per se on rents not the year-on-year effects of rent increases attributable to the rate of inflation. Therefore the analysis in this paper is mainly carried out in real terms to separate the effects of restructuring on rents from the effects of inflation. However, we present some findings allowing for the estimated effects of restructuring plus inflation—nominal changes in rents— in Section 6.4 below. The rates at which target rents are assumed to increase are shown in Table 1. The real target rent increases 2001/2 through 2003/4 in Table 1 are those that have been already been adopted by central government for policy purposes. From 2004/5

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onwards, the rates of change assumed for this research are those agreed with representatives of the Office of the Deputy Prime Minister. Note that from 2004/5 the assumed real target rent increase of 1.7% for local authorities continues to exceed, but at a higher rate, that assumed for RSLs (0.5%). This is to allow for greater sectoral ‘convergence’ in average rents, given the initially higher average rents in the RSL sector. 4.3. Calculating changes in real rents In moving towards target rents, the government wishes to ensure that restructuring does not impose an undue year on year burden on tenants. Hence, annual rent changes are constrained in both sectors so that the real rent of a property should rise to meet its 2011/12 target where required by no more than 0.5% plus d2 per week per year, and fall where required by no more than (+) 0.5% minus d2 a week per year. The government has made it clear that landlords have discretion over the ‘pace and timing’ of this restructuring within the 2002/3–2011/12 restructuring period (Guide, para 3.18). Since in modelling how real rents change it is not possible to allow for the precise form that each landlord’s discretion over actual rent changes will take, it was assumed that landlords would take the full 10 year implementation period allowed even where the landlord could achieve the target rent, within the constraints identified above, in a shorter period. In January 2002 the Minister determined that upper limits would be applied to the rents of dwellings according to the number of bedrooms in the dwelling. The limits were also incorporated in the modelling, although it transpired that, for almost all of the dwellings in both sectors for which restructured rents were modelled in this study, restructured rents did not abrogate these limits.

5. The rent restructuring study 5.1. Previous studies of rent restructuring To date, there have been relatively few analyses of the impacts of rent restructuring that are in the public domain. An early study was undertaken by HACAS

Table 1 Real increases in target rents: modelling assumptions Target in each year

Local authorities

RSLs

Target in 2001/2 = Target in 2002/3 = Target in 2003/4 = Targets from 2004/5 onwards to 2011/12 are then =

Rent in 2000/1  1.02 Rent in 2001/2  1.01 Rent in 2002/3  1.01 Previous year’s target  1.017

Rent in 2000/1  1.01 Rent in 2001/2  1.005 Rent in 2002/3  1.005 Previous year’s target  1.005

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Chapman Hendy and KPMG (2000) to examine the impact of the restructuring options proposed in the Green Paper on 40 RSLs that were thought likely to face financial viability difficulties due to rents falling under restructuring. However, for reasons of commercial confidentiality, the results of this study could only be reported at the aggregate level. This can give a rather misleading picture of the impacts of restructuring on individual properties and tenants in particular areas. A subsequent study of Black and Minority Ethnic RSLs (HACAS Chapman Hendy, 2002: see also, National Housing Federation, 2002) revealed that, as expected, these organisations appear to be particularly vulnerable to rent reductions under restructuring partly because their stock is over-represented in localities in urban areas having relatively low property values. Again the results of the research could only be reported at the aggregate level. The most detailed study to date is that of Walker et al. (2002a: see also, Walker and Marsh, 2003) which involved six case study areas and 16 social landlords. Their work employed the same methodology as that used for the study discussed in this paper but had the added advantage of an accompanying tenants’ survey that enabled the impacts of restructuring on particular types of household to be analysed. However, that study did not identify the likely impact of rent restructuring in rural areas. While the focus of both the HACAS Chapman Hendy and KPMG (2000) and Walker et al. (2002a) studies are somewhat different from the research that concerns us here, we draw on their results below where appropriate. 5.2. The study of rent restructuring in rural areas The study on which this paper is based was undertaken for the Countryside Agency and the Housing Corporation between August 2001 and July 2002. The primary aim of the study was to examine the impact of rent restructuring on social housing rents across a range of housing markets in rural areas. We were also asked to consider the effects of restructuring on the affordability of rural social housing to existing and future tenants, and the implications for the financial viability of new investment in social housing in rural areas in the light of restructured rents. 5.3. Methods The research employed a case study approach, involving 5 local authorities (District Councils—‘DCs’) retaining all or most of their stock and 6 RSLs all having at least some social housing stock in rural areas. The areas chosen included two, Cumbria and North Yorkshire, which encompassed at least part of the two National Parks in the Counties. The remaining case

studies were conducted in the Counties of East Sussex, Durham and Staffordshire. In County Durham, one DC and two RSLs participated in the study while in the other four Counties one DC and one RSL were included. To preserve anonymity, the DCs are not identified and the RSLs are identified solely by a prefix indicating the County concerned—CB for Cumbria, NY for North Yorkshire, DR for Durham, ST for Staffordshire and ES for East Sussex. Landlords were asked to provide details of their housing stock for 2000/1, and information on property values and the number of bedrooms. In order to identify those dwellings in the stock that are in rural areas the Housing Corporation’s Rural Settlement Gazetteer was used in the first instance. The Gazetteer identifies rural settlements on the basis of population size but it was not always possible to match the locations of the properties on landlords’ databases with the area identifiers in that document. Therefore, landlords’ representatives were also contacted in order to identify the dwellings that they classified as rural for policy or other purposes. Landlords were also asked to supply, where possible, an indication for each property of the HB status of the current occupant. This was intended to facilitate the analysis of the actual impact of restructuring on current tenants. As might be expected, the amount of stock that each landlord has in rural areas varies. This is shown in Table 2. All of the local authority landlords had larger rural stock than the RSLs in the areas that were included in this study. Given the information supplied, it was then possible to model the impact of rent restructuring on rural (and non-rural) dwellings. Table 2 Rural housing stock of participating landlords Case study area/landlord

Rural housing stock

Cumbria District Council CBRSL

1786 16

East Sussex District Council ESRSL

1046 175

North Yorkshire District Council NYRSL

670 36

Durham District Council DRRSL1 DRRSL2

1543 44 73

Staffordshire District Council STRSL

1511 10

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The implications of the results for organisational viability and strategy were also discussed with representatives of participating landlords both informally and at a seminar convened by the Countryside Agency and the Housing Corporation in April 2002.

6. The impact of rent restructuring in rural areas 6.1. Average rents 2000/1 and average target rents 2011/12 Table 3 shows the current (2001/2) average rent and the real average target rents for the properties of participating landlords in rural and non-rural areas. Table 3 indicates that average rents in both rural and non-rural areas are higher among RSLs than among local authorities in all cases. This finding reflects the national picture that average RSL rents currently exceed those of local authorities. Table 3 also shows that four out of the five RSLs that have non-rural stock charge higher rents on average in rural than in non-rural areas. However, four out of five local authorities charge either lower rents on average in rural than in non-rural areas or, in Cumbria and Durham, rents that are broadly the same in the two areas. This finding is of particular interest here. It is known that some local authorities—including at least one in this study—have as a matter of policy set lower rents in rural areas to reflect difficulty of access to facilities, amenities and employment for tenants, and to compensate for the generally lower level of income of tenants in rural areas. Further, in this

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study at least three of the RSLs have undertaken new development in rural areas recently. Other things being equal, rents for new properties will tend to be higher than for the RSL’s existing properties and also higher than for local authority properties. This is particularly likely to be so if, as we return to below, new development is more costly for RSLs in rural areas. Table 3 also suggests that average real target rents in both rural and non-rural areas are much more similar between landlords within areas than rents are currently. In respect of rural areas specifically, the often significant differences between the rural rents of different landlords currently are not replicated in their 2011/12 targets. Indeed, across the rural case study areas the range (maximum minus minimum) of average target rents is d19.90 compared to the range of current rents of over d35.50. This bunching of targets compared to current rents across areas was also noted by Walker et al. (2002a, b, para 3.6) in their study and reflects, in part, the replacement of a variety of rent setting methods with that of a single national formula. The implication here is that, if targets are met, average rents after restructuring will be more similar within and between these rural areas than currently. Next consider the differences between rural and nonrural average target rents for 2011/12 as shown in Table 3 and as summarised in the second column of Table 4 below. It is striking that in only one case, that of the RSL in Cumbria, is the average target rent for rural areas lower than that for non-rural areas. In seven cases out of 10 average target rents are higher in rural areas than in non-rural areas.

Table 3 Average rural and non-rural current rents and real target rents: (d per week) Case study area/ landlord

Average rural rent

Average rural target rent

Average non-rural rent

Average non-rural target rent

Cumbria District Council CBRSL

48.68 57.91

57.73 63.35

48.84 58.16

55.30 65.28

East Sussex District Council ESRSL

44.34 72.06

58.95 60.62

46.48 67.44

54.16 56.09

North Yorkshire District Council NYRSL

48.98 65.58

59.42 53.75

49.36 62.82

51.57 47.32

Durham District Council DRRSL1 DRRSL2

36.49 39.51 56.03

44.87 43.45 51.00

36.51 38.24 51.74

44.73 39.08 42.53

Staffordshire District Council STRSL

44.50 56.20

52.60 56.15

43.43 —

52.54 —

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Table 4 Differences between average current and average target rents in rural and non-rural areas: a summary Case study area/ landlord

Average rural rent compared to average non-rural rent

Average rural target compared to average non-rural target rent

Cumbria District Council CBRSL

Lower Lower

Higher Lower

d9.05 d5.44

d6.46 d7.12

East Sussex District Council ESRSL

Lower Higher

Higher Higher

d14.61
d11.44

d7.68
d11.35

North Yorkshire District Council NYRSL

Higher Higher

Higher Higher

d10.44
d11.38

d2.21
d15.50

Durham District Council DRRSL1 DRRSL2

E Same Higher Higher

E Same Higher Higher

d8.38 d3.94
d5.03

d8.22 d0.84
d9.21

Staffordshire District Council STRSL

Higher —

E Same —

d8.10 E0

d9.11 —

Further, Table 4 shows that in five cases rural rents are not only higher currently than non-rural rents but also that the targets that they are required to meet are also higher than in the non-rural areas. Columns three and four of Table 4 indicate that, if targets are to be met, in only two cases out of 10 (the Cumbrian RSL and the DC in Staffordshire) will rent increases in rural areas be less than those in non-rural areas and only in the case of the East Sussex RSL would the real rent reduction in rural areas exceed that in nonrural areas. In the remaining seven cases rent increases in rural areas are required to be higher, or rent reductions are required to be lower, than in non-rural areas in the locality. The implication that, in general, tenants in rural properties will be facing higher target rents and/or higher increases or lower reductions in rent on average than their non-rural counterparts in most cases if targets are to be met suggests a potentially a redistributive effect from tenants in rural areas to those in other areas. 6.2. Meeting targets—average real rent changes, 2002/3– 2011/12 The differences between target and current rents in rural and non-rural areas shown in Tables 3 and 4 are informative but do not necessarily indicate the actual change in real rents over the ten year restructuring period since, recall, government wishes to constrain annual changes in rent. Table 5 takes this real rent change constraint into account and shows for the rural areas in the study the estimated real rent in 2011/12, the

Average rural target rent minus rural average current rent

Average non-rural target rent minus average non-rural current rent

real rent change over the 10 year restructuring period, and the percentage of each landlord’s stock that is forecast to be within 5% of target by 2011/12. It is clear from Table 5 that three landlords are required to reduce real rents in rural areas and these are all RSLs. The Staffordshire RSL has, on average, to make no change in real rents. In contrast, all local authorities will be required to increase their real rents on average, the largest real increase being d13 per week in the East Sussex DC. This finding accords with that of Walker et al. (2002a, Table 3.4) who found that in their study four out of the five landlords that were required to reduce rents were RSLs and that, outside of London, it was a local authority that was required to increase average rents in real terms by the largest amount. The HACAS Chapman Hendy and KMPG (2000) study of 40 RSLs in which rents were expected to fall under restructuring estimated the median rent reduction as being between 5% and 10%. In this study the fall in real rents in one of the Durham RSLs, DRRSL2, is within this range (9%) but the reduction in the case of both ESRSL and NYRSL is much larger, at around 15%. Walker and Marsh (2003) report similar real rent reductions for an RSL in the South East of between 13% and 19%. As discussed below, real rent reductions of this order might have implications for future investment by such RSLs and, perhaps, for longer run organisational viability. Table 5 also indicates that the landlords required to make the largest rent changes—the East Sussex DC and RSL, and the North Yorkshire RSL—are less likely to be able to ensure that the rents of all of their properties

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Table 5 Average real rural rents in 2011/12, the change in real rural rents, 2002/3–2011/12, and the percentage of properties within 5% of target by 2011/12 Case study area/landlord

Average weekly real rent 2011/12

Average weekly change in real rural rents 2002/3–2011/12

% Properties within 5% of target rent by 2011/12

Cumbria District Council CBRSL

57.73 63.34

+9.05 +5.43

99% 100%

East Sussex District Council ESRSL

57.35 61.55

+13.01
10.51

82% 80%

North Yorkshire District Council NYRSL

53.84 55.42

+4.86
10.16

93% 67%

Durham District Council DRRSL1 DRRSL2

44.86 43.45 51.28

+8.37 +3.94
4.75

E100% 100% 100%

Staffordshire District Council STRSL

53.35 56.20

+8.85 E0

100% 100%

will be within 5% of their target by 2011/12. Indeed, in the case of NYRSL almost a third of dwellings will be outside of the 5% range by that date. These results also suggest that within the East Sussex, North Yorkshire and Durham case study areas tenants of different social landlords in rural areas will experience quite different real increases and decreases in rent over the next 10 years. The first column of Table 5 also confirms the implication, drawn in respect of Table 3 above, that average rents charged by different social landlords in a rural area after restructuring will be more similar than is the case at present. Further, an analysis conducted as part of the study on which this paper is based revealed many examples of apparently similar properties owned by different landlords having more similar rents after restructuring than they do currently. That analysis, taken with the results above, indicates that the government’s objective of bringing about convergence in the rents of landlords locally through rent restructuring is likely to be achieved. 6.3. Average rent changes and the rent changes for individual dwellings The discussion and debate concerning rent restructuring has often been conducted in terms of the sorts of average changes in rents presented above (see, for example, HACAS Chapman Hendy, 2000). However, it is important to recall that the rent restructuring policy is indeed about restructuring rents—i.e. setting them in a different way—not about a different way of increasing

or decreasing average rents. Since the restructuring formula applies to the rent of each individual dwelling, it is the rent changes at the level of the individual dwelling that are likely to have the greatest impacts on tenants and on landlords’ decisions as to the viability of maintaining, improving or developing new properties in particular areas. Table 6 gives a clearer picture of the distribution of real rent changes. Here we take the examples of the local authority and RSL in East Sussex that, recall, have the highest average real rent increase and decrease in the study, and the properties of the Cumbria DC that are located within or around the boundaries of the National Park. Note that the average real rent increase for these rural properties in Cumbria, at d9.54, is somewhat higher than the average for all of the DC’s rural dwellings (d9.05). Table 6 shows in the case of the East Sussex DC that although the average real rent increase is d13.01 over 10 years, only about 17% of properties (tenants) fall within the d10–d15 range of increases that encompasses this average. Some 50% of properties will experience an increase of over d15 a week while a third will experience a real rent change less than the average—6% of properties will actually require a real rent reduction. The position for the RSL is not dissimilar, if somewhat less dramatic: while the majority of properties fall within the -d10 to -d15 range which covers the average d10.51 per week decrease, over a quarter of properties (27%) will require a lower real reduction and around 2% will require a real increase. In the local authority dwellings in the National Park in Cumbria, the implication is again

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Table 6 Pattern of real rent changes in a rural area: DC and RSL in East Sussex and Cumbria DC in the National Park % of properties Weekly real rent change


d10 to
d15
d5 to
d10
d0.01 to
d5 d0 +d0.01 to +d5 +d5 to +d10 +d10 to +d15 +d15 to +d20 > +d20 Total (Number) Average rent change: 2001/2 to 2011/12 a

East Sussex

Cumbria (National Park)

District council

RSL

District council

0 1 5 0a 7 20 17 48 2 100 (1046) +d13.01

71 20 7 0 o1 1 0 0 0 100 (175)
d10.51

0 0 2 0 0 44 26 14 0 100 (819) +d9.54

1 property requires no real rent change.

that while a large proportion of dwellings (44%) will require a real increase within range of the d9.54 average, 40% of properties will require an increase greater than this and a small number of them will require a real decrease of up to d5 a week. Walker et al. (2002a, para 3.17 et seq) found many similar examples of the rent changes for individual properties being significantly different from that suggested by the average rent change for the landlords’ properties as a whole. This has led Walker and Marsh (2003) to point to two implications that we would argue also hold in the case of the rural rent changes considered here. The first is that, clearly, if only average changes are considered, the effects of restructuring may be underestimated. In the rural areas chosen for study here, the average change in rent in real terms over a 10 year period may not appear to be very significant. The highest average real increase in the study, as noted, is d13 a week and the largest average reduction is about d10.50. It is not clear whether (maximum) average increases and decreases of this order would be sufficient to materially affect tenants’ choices and housing opportunities, given that they are likely to be paralleled by real changes in income and benefits over the next decade. However, when the effects of restructuring at the level of the individual property are as varied as these results suggest, individual tenants’ choices of property, area and sector are likely to be more affected, positively or negatively, than would be anticipated solely by reference to the average real rent change. The second implication relates to the way rent changes are presented and discussed before and during implementation. Prior to the introduction of restructuring, most landlords determined and announced annual rent increases in terms of average rent increases. This was quite reasonable when, as has often been the case

over recent years, rent increases are calculated and applied to a landlord’s stock in the form of (RPI plus) the same percentage increase for each property. However, this is likely to be misleading under rent restructuring because of the policy’s impact on the structure of rents as well as on the rent of a particular property. Thus, if only the average changes resulting from restructuring are discussed with local decision makers and tenants there is a danger that the potentially wide and differential effects of the policy on individual properties, and therefore tenants, will be understated. 6.4. The impact of inflation on restructured rents As explained in Section 4, the majority of the analytical work on rent restructuring presented here has been carried out in real terms to isolate the effects of restructuring from the effects of inflation on rents that might be expected even in the absence of a restructuring policy. If incomes, benefits and the prices of other goods and services increase by the rate of inflation, then tenants and landlords should only experience the real effects of restructuring—that is, a maximum (minimum) rent increase (decrease) of +0.5% plus (minus) d2 per week per annum. In any event, predicting the annual rate of inflation over 10 years is, arguably, a hazardous exercise. Nevertheless, in practice tenants and landlords will experience the combined effects of both restructuring and inflation over the next 10 years, and it might be argued that, for tenants in particular, this combined effect might have greater impacts on choice than rent restructuring alone. In order to examine the impacts of inflation on restructured rents, we also modelled restructured rents in nominal terms by including inflation for each landlord in the study. The long run rate of inflation was assumed

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to be 2.5%, reflecting the government’s inflation assumption for public expenditure purposes, and this was included in the target rent increases detailed in Table 1 above and in the calculations of real rent changes. Nominal rent changes were thus assumed to reflect a maximum annual change of a 3% (2.5% plus 0.5%) annual increase, plus or minus d2 per week depending on whether the current rent is above or below its now inflation-adjusted target. Unsurprisingly perhaps, once inflation is included real rent increases translate into larger nominal (i.e. inflation included) increases. This is shown in Fig. 1a. Fig. 1a shows that average real increase of d13 a week in the East Sussex DC becomes a nominal increase of almost d30 a week when inflation is included: the small real increase of under d5 in DRRSL1 is over d15 a week in nominal terms while the Cumbria DC’s nominal increase is over d25 per week compared to the real increase of under d10.

CBRSL

Cumbria DC

N Yorks DC

DRRSL1

Durham DC

£ per week

35 30 25 20 15 10 5 0

E Sussex DC

(a)

455

The pattern in respect of real reductions is perhaps even more illuminating, as shown in Fig. 1b. Fig. 1b shows that in the three cases where RSLs will be required to make reductions in real rent on average, nominal rents on average will rise over the 10 year period, albeit by relatively small amounts. Part of the reason for this lies in the arithmetic result that where a reduction in rent is required but the current rent is a little over d65 per week, applying the formula [(2.5% + 0.5%)
d2] will lead to an increase in the nominal rent. The Stafford RSL has an average current rent very similar to its real average target in 2011/12. Under inflation, the target is increasing by 3% per year: consequently, nominal rents will have to increase by that amount in order to continue to meet targets. The significance of these findings for tenants’ choices under changing rents depends on whether tenants respond to nominal changes rather than real changes in rent and, thus, will make choices of landlord, dwelling and rural/non-rural area that are based on those nominal rents even though their incomes and/or benefit entitlements may also be increasing at, at least, the rate of inflation. Tenants may feel that properties are becoming less affordable even though after discounting inflation the real rent increases are not large. In terms of rent reductions, the finding that on average tenants will not actually experience any reduction in their rent payments in nominal terms may also affect their choices and their perceptions of affordability. As far as tenants who are experiencing real rent reductions but (small) nominal increases are concerned, the supposedly beneficial effect of restructuring in reducing rents may appear to be simply a continuation of the increase in rents as in the past, albeit at a lower rate of increase. Thus, what tenants will perceive and experience as happening under restructuring may be different from the actual effects of the restructuring policy itself.

(b)

20 7. Some implications of rent restructuring for tenants in rural areas

£ per week

15 10 5

7.1. General considerations

0

In considering the impacts of restructuring on the pricing and thus the affordability of social housing in rural areas, we can begin by recalling that, among the case study landlords, restructuring implies that three out of the six RSLs will be required either to reduce their rural rents in real terms and one will be required to make no real change on average. Thus, to the extent that there is currently a problem of how affordable RSLs’ rural properties are for tenants, our results suggest that this might be mitigated in some cases over the next 10 years. On the other hand, all local authorities in the study will be required to increase average real rents in

-5 -10 -15 ESRSL DRRSL2 NYRSL

STRSL

Real Change Nominal Change Fig. 1. (a) Real rent increases and nominal rent increases. (b) Real rent reductions and nominal rent increases.

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rural areas, from which it might be inferred that any problems concerning the current affordability of local authority dwellings in those areas are likely to be exacerbated. However, if real incomes and benefits also increase over time, the effects of the increase in local authority rents might impact less on council tenants than these results might lead us to expect, while the (in general) real decline in RSL rents might prove to be an clear benefit to current RSL tenants and prospective tenants fortunate enough to secure an RSL dwelling in such locations. It is also important to recall that the rent restructuring policy not only seeks to eliminate unjustifiable differences between the rents of similar dwellings in the two areas. It also attempts to create a coherent set of rent differentials between properties of different sizes (through the bedsize factor in the formula) and to determine a rent structure that more closely links ‘yrents and the qualities which tenants value in properties’ (the Guide, para 1.2) through, primarily, the inclusion of property values. The ultimate aim of this, as we have noted, is to face tenants with choices that will be more rational in the sense that a household’s choice of dwelling, or decision about moving or remaining in the current dwelling, or considering a transfer between sectors will be based on a pattern of rents that is itself more rational. This is despite recent evidence to suggest that public sector tenants, in urban areas at least, are reluctant to move even in the face of rents that are more sharply differentiated by property size, value and location (see Walker et al., 2000, 2002b). Where, as in many rural areas, there is little choice between social rented dwellings in the first instance, it can be argued that the impact of restructuring on choice is likely to be even less pronounced. 7.2. The benefit of rent reductions and impact of rent increases on tenants While (real) rent reductions benefit tenants, since they will be paying less than previously for the same dwelling, it is important to be aware that the rent income derived from the dwelling may affect the level of service that a landlord is able to provide. This is primarily an issue of how landlords’ decisions are affected by restructuring, which we consider in Section 8 below. However, it is worth noting here that, as Walker et al. (2002a, para 6.37) discovered and as was the case with some participants in this study, social landlords have often carried out improvements to dwellings that have in the past been paid for by an increase rent, rather than service charges. Thus, some landlords have financed the replacement of central heating boilers, windows and kitchens, for example, by increases in rent designed to pay for these improvements. Under rent restructuring, unless the value of the property increases sufficiently to

have an effect on rent such that the required income for improvements can be generated, this policy will no longer be feasible. The alternative possibility is that some (other) rents in the stock will increase sufficiently under restructuring to provide a surplus that can be used to finance the improvements on properties where the rents have not risen sufficiently. Either way, the link between additional service provision and improvement to a dwelling and the change in rent of that dwelling will be broken. In similar vein, it might be argued that (real) rent increases, while appearing to be an unambiguous cost to tenants, might be offset by their landlord’s ability to improve the level of service as a result. Perhaps more importantly, given the HB system and the number of social housing tenants who have their rents wholly or partly paid by HB, it could be suggested that rent increases in practice will have little impact on tenants’ rent payments. Among the case study landlords, HB data was only consistently available for local authorities, since some RSL tenants, rather than their landlords, receive HB directly and therefore the RSL may be unaware of such tenants’ HB status. Table 7 shows the HB status of rural and non-rural tenants for the four local authorities that were able to provide the data. Since about two thirds of tenants in the social rented sectors nationally receive HB, the table indicates that with the exception of the DC in Durham the incidence of HB receipt is lower among case study local authorities than it is for the nation as a whole. Second, in three out of the four cases—the Durham DC is again the exception—the percentage of tenants receiving HB is somewhat lower among rural than among urban tenants. Since all of the DCs in Table 7 will be expected to increase their rent on average, this suggests that a greater percentage of tenants in rural areas than in both non-rural areas and the country as a whole will actually experience an increase rent payments as a result of restructuring. Nevertheless, Table 7 shows that a significant proportion of rural tenants—at least half, excluding the Staffordshire DC—will not have to pay any increase in rent if their personal circumstances do not change. Thus, it could be argued that there is little cause for concern about the well-being of these tenants in the Table 7 Rural and non-rural local authority tenants in receipt of housing benefit Local authority landlord

% Rural tenants receiving HB

% Non-rural tenants receiving HB

E Sussex DC N Yorks DC Durham DC Staffordshire DC

52 50 65 48

56 60 62 58

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presence of rent increases since the rent that they are actually required to pay will be unaffected. It can be noted immediately that if it is believed that the choices and housing related decisions of a majority of rural tenants will be unaffected by rent changes because of 100% marginal subsidy provided by HB, then it is possible to question why a policy intended to affect those choices is being implemented in these areas. However, we would dispute the contention that HB isolates recipients from concerns over rent levels and rent changes. The previous work referred to earlier (Walker et al., 2002b) concluded that in the public rented sector: ‘ywhether or not a household receives any HB does not appear to affect their moving decisions when they are faced with changes in the relative rents of the alternative dwellings offered.’ (p. 685) The reasons for this can be ascribed to the likelihood that many households, excluding the retired or long term sick perhaps, do not see their receipt of HB as permanent. In particular, younger and/or single person households might be expected to return to the labour market at some point in the (near) future with possible consequences for their HB status. Hence, rent changes might be expected to impact on their possible housing choices in a not dissimilar manner to those tenants who are currently employed and not receiving HB. Significant rent increases might be expected to have at least some negative incentive effects on the decision to return to work, while rent reductions, reducing the significance of rent payments for household budgets in the future, might enhance these incentives. Despite tax and benefit changes that have sought to minimise the disincentive (and maximise the incentive) effects of taking up employment, it is not unreasonable to suggest that ‘adverse’ rent changes might have an impact on household decisions in these respects.

8. Some implications for new housing investment in rural areas 8.1. The viability issue In the great majority of cases, as shown by this study and those of Walker et al. (2002a) and HACAS Chapman Hendy and KPMG (2000), restructuring will have an impact on the aggregate real (and nominal) rental income received by social landlords. In the local authority sector, any change in rental income will in effect be compensated for by the new housing revenue subsidy arrangements. Under this system, in brief, where rental income rises as a result of restructuring, subsidy will be reduced and where income falls it will be increased. The net effect of restructuring on local

457

authorities’ total income from housing should, therefore, be broadly neutral. As no such revenue subsidy exists for RSLs, the impact of restructuring will fall directly on the rental income of these landlords without any offsetting mechanism to compensate for the deficits or to ‘tax’ the surpluses generated. The study by HACAS Chapman Hendy and KPMG (2000, Table 2) estimated that while 18 of the 40 RSLs facing rent reductions under rent restructuring would remain financially viable, six of these would only do so if they undertook ‘corrective strategies’, which included reducing development programmes. Seven RSLs would still be ‘marginal’ in viability terms after employing such strategies while the remaining 15 would not be viable even after employing those strategies if they had to restructure their rents within the 10 year period. Thus, the issue of whether rent restructuring will enhance or impair the financial viability of the organisation is a major issue for the individual RSLs and for the sector as a whole. This has been recognised by the government and the Housing Corporation. RSLs that can show that their financial viability is seriously threatened by restructuring or that implementation will require them to abrogate contractual agreements with lenders or guarantees to tenants may be granted an ‘extension’ by the Corporation, allowing them to delay the introduction of the policy. This also enables the Housing Corporation to avoid possible contradictions in the operation of its Regulatory Code and Guidance (Housing Corporation, 2002, I–X) between the requirements that RSLs ‘must operate viable businesses’ (para 1.1) and that they must meet ‘commitments to lenders and rent restructuring requirements’ (para 1.1a). Such extensions that are granted are subject to annual review and the expectation is clearly that RSLs will adjust their business plans and service agreements over time to allow rent restructuring to be introduced. In the longer run, therefore, those RSLs with extensions will also have to implement the policy. However, it is important to note that, in the short term, where extensions are given to some RSLs locally, but not to others (and not to local authorities), rent structures across social landlords are likely to become no more, and arguably less, coherent than they are at present. None of the RSL representatives in this study with whom this issue was discussed expressed concerns over longer run organisational viability. Rather, their main concerns were over the impact of restructured rents on the ability their RSLs to develop new properties and to refurbish existing dwellings in rural areas. 8.2. New investment under rent restructuring We noted in Section 3 that one of the aims of the restructuring policy is to determine a pattern of rents

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that will prove an effective guide to landlords’ investment decisions. There are questions about how this might work in a social housing context. In a private market, landlords might be expected to invest in the sort of properties that yield higher returns and dis-invest or dispose of those generating low returns. In a social housing context, a policy of investing (solely) in those properties with higher financial returns might have clear detrimental effects on the type, quality and affordability of the housing provided, and on the sort of households who wish to, and can be, housed. A policy of withdrawing investment from, say, housing with low rents and developing only where the rents to be set are relatively high, it could be argued, sits uneasily with the function and objectives of social housing provision. A counter argument is that the grant aid (potentially) available to RSLs undertaking new development or ‘purchase and repair’ activity may offset any tendency for RSLs to invest only where there are high rents or high returns. Under rent restructuring, the restructured rents to be set for the properties being developed are taken into account in determining the grant where awarded. In brief, the higher the restructured rents, the lower the grant aid, other things being equal, and the lower the rents, the higher the grant aid. Hence by compensating landlords through higher grant aid for the lower income generated on a scheme where restructuring requires lower rents, the RSL’s investment decision will not be determined exclusively by the rental income stream from that scheme. While the purpose of this study was not to investigate the operation of the social housing grant (SHG) system, a number of comments were made by the representatives of participating RSLs that suggest that the problems of viable development are not fully solved by this system at present. In particular, it was suggested that rural developments are often costly in terms of the land values that have to paid in rural areas, the design standards imposed because of the nature of the area and the relatively small size of schemes which precludes reaping the benefits of any scale economies in construction or subsequent management. These higher costs have not always been fully reflected in the cost indicators used by the Housing Corporation to determine (in part) the level of grant awarded, as other writers have argued (Section 2 above: see also Rural Development Commission, 1998). Further, it was pointed out, the allocation of SHG is competitive, so that there is clearly no guarantee that grant will be awarded, and, if SHG is awarded, the grant will only cover on average 60–65% of the scheme’s allowable costs. Even though the Housing Corporation’s recent review of cost indicators made a large number of changes to the level of grants that can be awarded in respect of rural development, it is worth noting the comments that an RSL officer made during this study:

‘When it comes to rural development, the real issue is not rent restructuring–it’s the SHG system that’s the problem.’ RSLs are required to make up the difference between scheme costs and SHG, where awarded, either from their reserves and/or through loans secured on the rent income from the scheme. Where a scheme is not financially viable in itself and where RSLs pool at least some of their rents, the rent income from other schemes can also be used to finance the development or secure the loan. As always under rent pooling, this implies that some tenants are cross-subsidising others. However, as important from the perspective of new development, whereas previously RSLs could make their own decisions about the pattern of rents that needed to be set for the stock as a whole in order to finance new investment, under rent restructuring that pattern of rents is determined for them. Consequently, it is only if the rent structure of the stock as a whole is sufficiently favourable to allow cross subsidy, the building up of reserves for investment purposes or to provide additional collateral for private loans that developments that are not financially viable in themselves can be undertaken. During this study, a representative of an RSL informed us that his organisation’s recent new development in rural areas had been financed by extensive use of reserves and through rent pooling. Another RSL participant claimed that a recently developed scheme in a rural area ‘would not have gone ahead now because it would not stack up financially’. Thus the impact of restructuring on the prospects for development by RSLs in rural areas does not seem to be positive. Lower rents raise questions of about the financial viability of new investment. Higher rents may facilitate development but can involve problems of the accessibility and affordability of RSL properties to different types of household.

9. Conclusions The government’s rent restructuring policy represents a major break with the principle of social landlords’ autonomy in rent setting policy. This paper has tried to address the issue of whether the policy is likely to have significant effects in practice as well as in principle in rural areas in England. The main question from the point of view of those concerned with rural housing is whether restructuring will mitigate or accentuate the problems of social housing provision in rural areas. Our results indicate that local authority rents are likely increase while RSL rents are more likely to be reduced. Prima facie at least restructuring is therefore likely to benefit more RSL tenants than council tenants in rural areas. However, the

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finding that some RSLs are likely to experience a decline in real rental income—a finding replicated elsewhere in predominantly non-rural areas (Walker et al., 2002a)— is a mixed blessing given that these are the landlords that are almost exclusively developing social housing in rural areas. For such RSLs, the difficulties of developing in rural areas that they face at present will be increased, unless the grant system compensates adequately for their reduced income. Hence, restructuring might be argued to benefit many current RSL tenants to the detriment of potential future RSL tenants who would have occupied new stock that may not now be provided. Whether rent restructuring will enhance tenants’ choices and lead to a more ‘rational’ use of the stock is also open to question. Certainly, our results suggest that in rural areas the rents in the RSL and local authority sectors locally are likely to become more similar through restructuring. They also indicate that the changes in rent brought about by the policy in real terms and in terms of the average rent change across a landlord’s stock are perhaps not dramatic. Yet the distribution of changes around the average is significant implying that the effects of restructuring on the rent of an individual dwelling and thus on an individual household will be greater than a more aggregated analysis would suggest. This may well have some effects on tenants’ choice of dwelling or their desire to move. However, in any event, a ‘re-sorting’ of tenants within the stock or between the two social sectors requires that there are vacancies—including new additions to the stock—in order to facilitate the process. Vacancies in rural social housing are not a feature of the system at present and, as we have suggested, new development, providing greater flexibility in the use of the stock, is unlikely to be encouraged by restructuring. As with many other aspects of rent restructuring implementation, it is not possible to estimate at present how these processes will resolve themselves over the restructuring period. However, our work suggests that rent restructuring by itself will not materially improve the housing prospects of the less well off in rural areas.

Acknowledgements This paper is based in part on research undertaken for the Countryside Agency and the Housing Corporation. The author is grateful to the Agency and the Corporation for their financial and organisational assistance, and for their advice and most helpful comments received from them during the course of the research and during the preparation of this paper. The valuable comments of anonymous referees are also gratefully acknowledged. However, the arguments and opinions contained in this paper are those of the author alone and, in particular,

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should not be ascribed to the Countryside Agency or to the Housing Corporation.

Appendix A. The Rent Restructuring Formula The formula for determining the target rent of an individual property as of 2000/1 is: Initial Target Rent for Dwelling ‘i’ ¼ ð½f0:70natrentgflocearnc =natearngbedsizeÞ þ ð½0:30natrent½omv99i =natvalÞ; where natrent is the average weekly sector rent in April 2000: d45.60 for local authorities and d53.50 for RSLs, locearnc is average weekly manual earnings in county ‘c’ in 1999, natearn is average weekly national manual earnings in 1999: d316.40, bedsize is weighting for bed size: 0.80 for bedsits, 0.90 for 1 bed, 1.00 for 2 beds, 1.05 for 3 beds and 1.10 for 4 or more beds, omv99i is capital value of dwelling ‘i’ in 1999, natval is average capital value of dwellings in the sector in 1999: d41,350 for local authorities and d49,750 for RSLs. Note that the value for the average RSL rent is actually that for 1999/2000 and thus needs to be increased by the average guideline increase for 2000/1 before using the formula. This gives an average RSL rent of d54.50.

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