RSL surpluses fall as RPI-only rents begin to bite

7 Sep 00
Smaller rent increases and new accounting procedures have led to major reductions in the annual surpluses reported by housing associations.

08 September 2000

Many registered social landlords (RSLs) are anticipating government plans to enforce 'retail price index (RPI) only' rent increases from 2002, as forecast in the housing green paper, by restricting rent rises immediately.

Until now, most RSLs have raised rents by up to 1% more than the RPI. Among those now raising rents in line with inflation, or even cutting rents for some tenants, is the Home Group – one of the country's largest RSLs – which has announced a fall in its surplus from £23.7m in 1998/99 to £6.6m last year.

Other RSLs to reveal lower surpluses include London and Quadrant Housing Trust, whose surplus fell from £15.6m to £6.3m, and Orbit Housing Association, whose surplus fell from £6.6m to £1.5m.

London and Quadrant pointed to the introduction in March 2000 of a new Statement of Recommended Practice (Sorp), as well as a new £14m investment programme, as the reasons behind the fall in its surplus.

Under the new Sorp, all RSLs must for the first time include depreciation charges in their accounts. In the case of London and Quadrant, this was worth £1.9m.

Orbit Housing Association said the Sorp had contributed nearly £2m to the £5m reduction in its surplus. But the association has also frozen its rents for five out of the past seven years.

William Sutton Housing Trust, which announced an £880,000 deficit after a £2.5m surplus in 1998/99, was particularly affected by the new depreciation charge because of its large number of older properties, although head of finance David Skinner added that it had not left the trust any worse off.

The Council of Mortgage Lenders has warned that 'RPI-only' increases may affect some RSLs' financial viability. 'There is concern that it could reduce their borrowing power as well as their capacity to service existing debt,' said spokesman Bernard Clarke.

Marion Turner, head of finance policy at the National Housing Federation, said the recent results 'show the sensitivity of the surplus to rates of increase in rent and the tight fiscal environment housing associations are working in'.


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