Thursday, February 26, 2009

Less than zero: housing association business plans, rents and deflation

Earlier this month I mentioned that the new social housing regulator was urging housing associations to check that their business plans were robust in the face of a negative RPI measure of inflation impacting on the rent-setting formula. This week there has been the example of the train operators who have their regulated prices set in relation to RPI too.

I do wonder if housing associations (and, indeed, other social landlords) have realised that things are pretty serious. While CPI inflation is now around 3%, the RPI measure is close to zero – tugged down by falling housing costs. IDS have calculated that the average expectation of seven leading forecasters is RPI inflation reaching as low as minus 2.7% in September 2009 – the month when rents for 2010/11 will be set.

(Of course this will be good news for the tenants who have just been told that their rents in 2009/10 will be rising at an inflation-busting rate as a consequence of the RPI peaking in September 2008.)

How will housing associations cope with that squeeze on their rental revenues? They had better start thinking about it now.

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