Capping social housing rent increases at 5 per cent a year could cost councils more than £3 billion in five years, the LGA has warned.
In response to a government consultation – which suggests a 5 per cent cap, with a 3 or 7 per cent cap also considered – the LGA, alongside the Association of Retained Council Housing and National Federation of ALMOs, commissioned real estate services company Savills to estimate the loss of income.
It found that a 5 per cent cap would cost £1.16 billion in the first two years, rising to more than £3 billion within five years and potentially £45 billion over the next four decades, as the rent cap changes the baseline for future rent increases.
While councils support moves to keep rents low, rent caps will not directly benefit the majority of council tenants because they receive housing benefit.
Instead, it will be a saving for the Department for Work and Pensions, while councils will have to cope with the additional financial burden of lost income.
The loss of funding would slow down or halt essential house-building projects, key maintenance and improvement works, and retrofitting of existing stock in pursuit of net zero goals and more energy-efficient homes.
The LGA said decisions around social rent should remain with councils to ensure a balance between improvements and affordability for tenants, and the Government will need to provide funding to cover the loss of income.
Cllr David Renard, the LGA’s Housing Spokesperson, said: “With more than one million people on council house waiting lists and the retrofitting of existing housing stock key to the country’s net zero goals, imposing a cap without compensating councils for lost income would have a hugely detrimental impact on those efforts.”
