Comment: Sue Phillips

The 7% SO rent cap: too little, too late

By Sue Phillips, Founder, Shared Ownership Resources

Shared ownership rent caps clearly have unwelcome financial consequences for housing providers; given the cross-subsidy model whereby receipts from shared ownership fund further housing development. So, what’s the argument for rent caps, and do voluntary commitments to cap shared ownership rent rises at 7% in 2023-24 go far enough?

Let’s start with shared owners’ expectations, something that inevitably informs satisfaction ratings. For households to be eligible, their income must be below a specified upper threshold. But there’s no defined lower threshold. Instead, households undertake an affordability assessment.

The Capital Funding Guide makes it clear that: “Applicants must be able to afford their purchase and sustain their housing costs” [my emphasis]. Marketing campaigns emphasise supposed financial benefits of shared ownership as compared to renting privately or outright purchase.

All in all, entrants to the scheme are implicitly encouraged to anticipate ongoing affordability. Yet they’re also obliged to purchase the maximum share they can afford, leaving little wriggle room if total housing costs rise faster than income.

Many shared owners expressed relief at the National Housing Federation commitment – following the Autumn Statement – to cap shared ownership rent increases at 7% in 2023-24 in line with social rent caps. But others remain anxious. Some simply can’t afford a further 7% increase on top of the cumulative impact of previous annual rent rises at a premium to inflation. Some are amongst the 20% of shared ownership households not covered by the NHF commitment.

Worryingly, households who could stretch to only a small initial share are correspondingly more exposed to the cumulative effect of annual RPI-linked rent increases. It’s a vicious circle: the lower their disposable income, the further the prospect of staircasing recedes, the more vulnerable they are to the effect of annual rent increases. Which in turn decreases their disposable income. The ‘upwards only’ rent review policy creates a neverending treadmill.

Indeed, it’s a peculiarly perverse policy. Research by the University of York found that shared ownership is more expensive than outright purchase from around year 15 onwards, but with a smaller share in equity, providing poor value for money.

Will a 7% (or above) rent increase disproportionately affect women (still on the sharp end of wage inequality), single-income households, single parent households and families? Will it be the last straw for shared owners facing ongoing uncapped liabilities for insurance premiums, waking watch and other building safety remediation costs? Many are trapped in an increasingly unsuitable home with no viable exit route. What about households facing unregulated energy bills for communal heating systems?

Of course, temporarily capping shared ownership rent at 7% is preferable to exclusion from social housing rent caps. But it tackles a symptom for some, but far from all, shared owners without actually addressing fundamental flaws in the underlying model. The argument that housing associations depend on shared ownership rental income to develop more affordable housing offers no comfort to shared owners themselves, as their own homes become increasingly unaffordable.

Recent events have shown that reliance can no longer be placed on shared ownership rent as a bottomless pit of funding for future housing provision. The crosssubsidy model never worked in the best interests of shared owners, and it no longer works particularly well for housing associations. Is it time for a radical rethink?