How can housing organisations minimise the impact of proposed rent caps

Tom Dempster | 16 November 2022

October saw the Government close its 6-week consultation into the proposed rent caps for social housing. Under the proposals, a cap on social housing rent increases would be put in place from April 2023; with the Government consulting on whether rent should firstly be capped, and if so, at what rate – 3%, 5%, or 7%?

Whilst the Government has always regulated social housing rent increases – with this currently set at the Consumer Price Index (CPI) rate plus 1% – any further regulation will have significant impact on both tenants and social housing providers’ ability to increase rents at this level. For example, in current market conditions social housing providers would have been looking at increases at around 11% next year; now this will be capped at a proposed maximum of 7%.

This is essentially a move designed to support tenants as they struggle with rampant inflation, and the associated increase in the cost of living. As part of the Government’s levelling-up agenda, and to support those most at need in society, it is suggested that any cap would save households approximately £300 per year and provide housing stability to 4 million vulnerable families. However, the impact on the providers within the sector is similarly significant. The Department for Levelling up, Housing and Communities (DLUHC) has estimated that the cap will reduce social landlords’ collective budget by £1.3bn in the first year – based on the Government’s preferred 5% cap – and £7bn over the proposed five-year term of the cap. 

With a decision on the consultation due later this year, and with any subsequent legislation coming into effect by next April, we assess the impact of any cap be on social housing providers, and what can they do to mitigate against potential lost revenues?  

To any business, a loss of revenue is significant. Firstly, it throws into doubt some of the financial assumptions on which you have built your strategy. It subsequent affects your ability to offer your desired service to your customers. It creates organisational uncertainty, which in turn effects staff morale. Aligned to this, your ability to reward your staff – both monetarily and through continuous personal development – will typically be impaired, or at the least put under scrutiny. Typically, this creates a perfect storm in which levels of staff engagement and enablement in the organisation are severely dented, leading to dissatisfaction, disengagement, and ultimately a downturn in individual and organisational performance.  

More acutely, and setting within the social housing sector context, such a loss of revenue could potentially derail the sector’s ability to deliver on some of the safety, environmental, and liveability targets they have been striving towards. At the more serious level, such a shortfall in revenue may manifest itself in more instances of neglect that we have witnessed in the Grenfell Tower disaster and the recent Awaab Ishak case. 

 

So, what can social housing providers do to mitigate against the impact of the cap?

Firstly, leaders need to boldly review and re-route organisational strategy. They need to forensically examine the assumptions on which their strategy was built, and critically assess its direction and viability within a new fiscal climate. They must look at where value is created within the strategy and mothball any activities that are not adding value to the organisation, its staff, and crucially their customers. 

Aligned to this they must evaluate their operations. Are these aligned to the new strategic direction, and are activities leveraging maximum value within the system. They must look for where operations can be more efficiently delivered, whether through amalgamating services or centralisation of some functions. Ask also whether you are measuring the right things. What is your definition of success and how are you measuring it? There is no one size fits all solution, but alignment between strategy and operations is absolutely critical to creating and delivering value for customers.

 

Customers are key to this.

Ask customers what is important to them; what do you do that makes a known and material difference to their lives? Understanding your customer base through survey and consultation is a relatively simple way of bringing the customer voice into your strategic decision making. After all, if the customer does not see value, then there should be a strong case for questioning or ceasing certain non-statutory or regulatory activities. 

 

Ask whether you are structured correctly?

Is there the right balance within your organisation between strategic, tactical, or operational roles? Is management so heavy that is impeding your ability to ‘do’? What are your managerial layers and spans, and are these focused on delivering effectively and efficiently to your customers through the creation and of clarity through open communication flows? Clarity in particular is key to performance. Employees need both clarity on task, and also on how their actions feed into the wider strategic direction of an organisation. By developing structures, processes, and systems that create this clarity, then superior performance and efficient operations follow.

 

Finally, culture.

In times of financial prudence, a strong culture is critical. Culture binds an organisation through the visual and non-visual actions of an organisation and its people. It creates a shared sense of purpose and shared values. It ensures all people within your organisation are aligned on the same mission. It is up to leaders to critically evaluate whether the culture within their organisation is driving or hindering performance. A strong, aligned culture can contribute immeasurably to organisational performance, through increased employee engagement and significant discretionary effort. In times of financial strife, this additional effort is needed to galvanise your organisation for the benefit of both the wellbeing of your organisation and ultimately your tenants.      

In conclusion, regardless of the outcome of the consultation, social housing providers can do some proactive things to guard against its impact. Regardless of level of the cap we believe it is prudent to start to look more critically at what your organisation does, and for whom. By focusing on some (or all) of the above, organisations can safeguard themselves against what are likely to be some choppy waters ahead. 

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