​Failure to bring in convergence would negatively impact existing tenants, says government as it is sets out consultation

Government has set out its proposals for reintroducing rent convergence in a consultation paper.

The Ministry for Housing, Communities and Local Government (MHCLG) has today published its plan, promised at the spending review, to reinstate the policy following mounting concern about registered providers’ financial capacity.

Rent convergence was a policy which allowed cheaper rents to rise more quickly to ensure alignment between similar properties regardless of whether they were council or housing association properties. The scrapping of the policy in 2015 has been estimated by the G15 group of housing associations in London to have cost its members £2bn.

In a paper today, the government set out its proposals for reinstating the policy. It said private registered providers have 1.3 million social homes which are below formula, or target rent.

The paper said government “believes that it is right to address the disparity between actual rents and formula rents”.

It said: “This would increase the financial capacity of RPs to invest in new and existing homes. Failing to do so would have adverse consequences for those who would otherwise benefit from that investment.

“This includes existing social housing tenants, where the constraining effect of unconverged rents on RPs’ financial capacity could result in their properties not being maintained at the standard they have every right to expect. It also includes those who are currently homeless or in unaffordable or unsuitable private rented housing, for whom the provision of an affordable, safe and secure home can have a life-changing impact.”

Under the proposals announced today government would permit social rents that are below formula rent to increase gradually to formula rents. Convergence would be ‘strictly optional’ for providers.

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An absolute cash limit will be placed on the additional amount weekly rents can increase each year. The paper is asking whether this should be £1 or £2.

The government said some in the sector have suggested it should be £3, but the government said it will restrict it to £2 at the most “in order to reduce the additional cost to households whose disposable income would be affected and to limit the impact on social security spending”.

MHCLG is also asking whether convergence should be available for providers for the full 10-year period of the rent settlement or for only part of it.

Following convergence rents would the maximum annual rent increase would once again be CPI+1% in line with the 10-year settlement announced in last month’s spending review.

The government last year had appeared lukewarm on reintroducing rent convergence, saying in a consultation paper on rents that the policy ”would reduce the disposable income of tenants who are affected by rent increases and result in higher welfare spending.” However the sector, inluding the National Housing Federation and G15, have campaigned for the policy to be brought back in the light of landlords’ constrained balance sheet capacity.