the effects of rent restructuring on social housing in english rural areas

Journal of Rural Studies 20 (2004) 445–460

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doi:10.1016/j.jr

The effects of rent restructuring on social housing in Englishrural areas

Bruce Walker*

Centre for Urban and Regional Studies, School of Public Policy, University of Birmingham, Birmingham B15 2TT, UK

Abstract

This paper discusses the impact of central government’s rent restructuring policy on social housing in rural areas in England. It

examines the effect that restructuring will have on the rents set by social landlords in a set of case study areas then considers some of

the likely impacts on affordability and on new investment in rural social housing. One of the primary aims of rent restructuring

policy is to reduce unjustifiable differences between the rents of similar dwellings in the local authority and Registered Social

Landlord sectors locally. This aim seems likely to be achieved. In doing so, it is likely that affordability will be reduced in the local

authority sector but enhanced for tenants of some RSLs. However, the reduction in real RSL rents that improve affordability may

further constrain RSLs’ ability to invest in new social housing in rural areas. The paper concludes that rent restructuring by itself

will not materially improve the housing prospects of the less well off in rural areas.

r 2003 Elsevier Ltd. All rights reserved.

Keywords: Rural rents; Social housing; Rent policy

1. Introduction

This paper is concerned with the effects of rentrestructuring on the rents of social housing in rural areasin England. As we discuss below, one of the primaryaims of rent restructuring policy is to reduce unjustifi-able differences between the rents of similar dwellings inthe local authority and housing association (‘RegisteredSocial Landlord’—RSL) sectors locally. In attemptingto do so, there is a concern that existing difficultiessurrounding the affordability of rural social housingmight be exacerbated and that the investment decisionsof at least some landlords might be adversely affected.The paper attempts to explore these and related issuesby examining the effects that restructuring has on ruralrents and by considering, in the light of these effects,some of the likely impacts of restructuring on afford-ability and investment.

The paper proceeds as follows: we first briefly surveysome of the recent work on social housing provision inrural areas that is pertinent to the concerns of this paper,before, in Section 3, giving an overview of rent setting inthe social rented sector and the issues and debate to

21-414-4957.

ess: [email protected] (B. Walker).

e front matter r 2003 Elsevier Ltd. All rights reserved.

urstud.2003.10.004

which this has given rise. Section 4 explains thegovernment’s rent restructuring policy and Section 5describes the study on which this paper in part is based.Section 6 presents the results of the analysis of theeffects of rent restructuring on the rents of sociallandlords in rural case study areas, while Sections 7and 8 respectively consider the some of the implicationsof these results for the affordability of, and new (RSL)investment in, rural social housing. Section 9 concludes.

2. Social housing in rural areas

Recently, Cloke et al (2001) have pointed to the ‘richheritage’ of research into the housing problems of ruralareas and the wide range of issues that this research hasencompassed. Hoggart (1997) has identified the mainconcerns that this work has tried to address: theyinclude, importantly here, the relative under-provisionof social housing in rural areas—Yarwood (2002), forexample, suggests that social housing makes up only12% of the stock in rural areas compared to 25% inurban areas. This shortage of supply has been exacer-bated by two factors—first, the impact of Right to Buy(RTB) on council housing provision, despite theavailability of limited exceptions for a small number of

ARTICLE IN PRESSB. Walker / Journal of Rural Studies 20 (2004) 445–460446

rural authorities, and, second, the ‘meagre housingassociation provision in rural compared to non-rural[areas]’ (Hoggart, 1997, p. 494). RTB has been the majorcontributor to the significant fall in local authorityprovision. To take a striking example, two of the localauthorities bordering and partly including the LakeDistrict National Park have sold almost 7000 propertiessince the inception of Right to Buy (Cumbria RuralHousing Trust, 2002). More generally, Milbourne (1998;see also Clark, 1996) points to the ‘dramatic reductions’in public sector provision in rural areas nationally andas evidenced in his own case study work in Wales, andalso comments on the faster rate of sale of higher qualitycouncil houses in the villages than in the towns. Such afall in provision is based on a more patchy provision ofrural council housing in the first instance, as a result ofthe urban oriented nature of the council house buildingprogramme and the varied political responses histori-cally to incentives to new provision at the local level(Milbourne, 1998).

In respect of RSL housing provision, Clark’s worksuggests that RSLs provided over 80% of new socialhousing in rural areas in the first part of the 1990s(Clark, 1996). However, in relation to RSL provision innon-rural areas, Hoggart (1993) states that:

‘ythe evidence confirms that it is the urbancentresywhich are the largest recipient of housingassociation activity.’ (p. 660)

This can be ascribed to a number of factors.Milbourne (1998) suggests that it is the smaller scaleof the rural housing association sector that reduces thefinancial and organisational ability of RSLs to becomeinvolved in larger scale schemes. Shucksmith (1990: seealso Hoggart, 1997) argues that a contributory factor isthe Housing Corporation’s cost yardstick that has, atleast historically, placed RSL development in smallsettlements at a disadvantage. We can note that thecombination of this with the move to the greater privatefinancing of RSL schemes, where the risks attached tocost over-runs are significant, are also likely to constrainsectoral supply responses in rural areas. In the light ofthis, the rise of homelessness that Cloke et al. (2001)have identified in rural areas—albeit ‘hidden’ and takinga different form to that in urban areas—is perhaps notsurprising. It also leads the authors to observe that:

‘In [rural] locations, applicants can face a lengthy waitfor re-housing and the future prospect of re-housingmay be minimal.’ ([6]Cloke et al., 2001, p. 103).

As a result:

‘ylow income households are being squeezed outand forced to move to urban areas in search ofhousing.’ (Rural Development Commission, 1998,p. 5)

Many in the field have thus identified the issue of theexcess demand for social housing. Much interestingwork has been carried out on how new social renteddwellings might be provided and made affordable (see,for example, Barlow et al., 1994; Gallent, 1997 andYarwood, 2002) and the policy problem is clearlyconceived of as encouraging the additional supply of:

‘yaffordable, accessible housing [that] is needed toalleviate the rural problems of high house prices, lowincomes and a lack of social rented housing.’(Countryside Agency, 1999, p. 28)

Relatively little attention appears to have been paid tothe affordability of such social housing that currentlyexists. The assumption might be that providing housingthrough not-for-profit public or voluntary sector sociallandlords who determine their rents through policiesthat reflect their social objectives solves the pricingproblem. This is despite evidence that average RSL rentsare higher than average local authority rents nationally,(see, for example, DETR/DSS, 2000, Chapter 10 andSection 3 below) and in particular areas (Milbourne,1998, Walker et al., 2002a) and that the history ofcouncil rents in particular since 1980 has been one ofyear on year increases in excess of RPI. The increasingdependency on housing benefit (HB) of a majority oftenants in the social housing sector as a whole is wellknown (and its implications are discussed in Section 7below). This trend reflects not only increasing rents inthe sectors but also the sectors’ increased residualisationin terms of the sorts of households that are beinghoused. In this context the impacts that a change in rentsetting method is likely to have on rent levels become animportant matter for those concerned with socialhousing provision in rural areas, given the potentialimpacts on landlords’ revenues and investment deci-sions, and on affordability and HB dependency fortenants.

3. Rent setting in social housing

3.1. Determining rents in the local authority sector

Local authorities currently own around 17% of theUK housing stock. The finance of this housing has beenextensively analysed (see, for example, Hills, 1992; Gibbet al., 1999, for detailed discussions). Briefly, theprimary financial objective of local authority landlordsin the UK, currently and historically, has been to raisesufficient rent income from their council housing to meettheir expenditure, net of any Exchequer revenue subsidy,on that housing. Local authorities’ ability to pool theirrents means that, given the aggregate rent income to begenerated from the stock, the authority then has todetermine the rent to be set for each individual dwelling.

ARTICLE IN PRESS

1Note that in the private rented sector the rents eligible for support

through HB are determined by the Rent Officer and may be differ

from—i.e. be set at a level below—the rent actually charged by the

landlord. Such Rent Officer determinations are rarely required in the

social rented sectors and only a handful of RSL rents nationally have

ever been referred for such determinations.

B. Walker / Journal of Rural Studies 20 (2004) 445–460 447

With some brief historical exceptions, authorities haveuntil now had the freedom to choose how the rent of anindividual dwelling is to be set. As a result of the rentsetting methods actually used (see Walker and Marsh,1995, 1998 for discussions), the rent of an individualdwelling has not necessarily reflected the historic cost,current cost or current value of that dwelling. The rentstructures produced tend to exhibit limited differentialsbetween the rents of different types and sizes ofproperty, and between properties in different areaswithin the local authority. It has been estimated that, forexample, the average rent of a one bedroom councildwelling was 78% of that of a three bedroom dwelling inEngland in 1998/99 (Walker and Marsh, 2000).

3.2. Determining rents in the registered social landlord

sector

In the UK RSLs currently provide around 6% of thetotal housing stock. Their expanding role in socialhousing provision since the late 1980s is the result ofexplicit government policies that have meant that RSLshave become, effectively, the sole suppliers of new socialhousing and have increasingly taken over ownership ofthe local authority stock through large scale voluntarytransfer (LSVT). As a result, the government’s GreenPaper (DETR/DSS, 2000) anticipated that RSLs wouldbecome larger providers than local authorities of newand existing social housing within five years.

Since 1989 RSLs have, like local authorities, had thefreedom to determine the rent to be set on newtenancies. Also like local authorities, RSLs have beenable to pool rents, so that any individual development orscheme does not have to be financially viable in itselfand there is no necessary relationship between the rentof an individual property and its costs or its value. As aresult it also appears that the relatively narrow rentdifferentials noted above in respect of local authority arebeing replicated in the RSL sector. Data provided byWilcox (2001, Table 68, updated) indicates that theaverage rent of RSL one bed properties as a percentageof the rents of three bed properties varies regionally inEngland between 71% and 87%, a range not dissimilarto the figure quoted above for local authority one bedand three bed properties.

Since 1989 revenue subsidies have no longer beenavailable on new RSL development. Thus an RSL’sinvestment decisions have to be taken in the light ofgrant aid from the Housing Corporation (whereavailable), the RSL’s ability to raise private finance,their own reserves and, until now, the rents that the RSLdecides will be charged, given any rent pooling that itundertakes. The Housing Corporation requires rents ofnew and existing properties to be ‘affordable’ and willtake into account the rents to be set for any newproperties in deciding upon the level of grant aid for

their development. Although the Corporation providesinformation on the various definitions of affordability(see, for example, Housing Corporation, 2001), it hasnot specified what the rent of any new or existingproperty should be. The Corporation’s primary influ-ence over rents has been an expectation that an RSL’srents overall will not increase by more than aspecified amount each year—RPI + 1.0%, for example,in 2001/2.

Given RSLs’ increasing reliance on private finance,the absence of revenue subsidy and the higher propor-tion of newer properties in the sector, it is perhaps notsurprising that average RSL rents nationally currentlyexceed those of local authorities by about d9 per week.

3.3. Social rents—the policy issues

Rent setting arrangements within social housing havebeen perceived as a problem by successive governments.The flat rent structures that have emerged within eachsector give tenants little incentive to adjust their housingconsumption within that sector in the light of the rentsset for different properties. This can lead to inefficientuse of the stock through, particularly, widespreadunder-occupation. Research evidence indicates thatthere may be a significant proportion of householdsunderoccupying in the local authority sector (Barelli,1992) and it would also appear that the number of‘trading down’ moves has declined in recent years(Pawson and Sinclair, 2002). The impact of flat rentstructures in removing the ‘shopping incentive’ fortenants is also potentially significant in areas wherethere is high demand for social housing in specificlocations (for example, in many rural areas) alongsidelow demand for stock in other less attractive areas in thesame locality.

Any such incentives that these rent structures doprovide may be further weakened by the HB system.Around two thirds of social tenants nationally receiveHB. In the social rented sectors HB fully compensatesall recipients for changes in rent where their circum-stances have not changed and funds 100% of the rent1

where the claimant’s household income, after allowingfor household composition, is equal to or less than thelevel of Income Support or Job Seekers Allowance. Thecombination of relatively undifferentiated rents and theoperation of the HB system accentuates the lack of ashopping incentive for social renting tenants. This hasled Kemp (1998, 2000) and Hills (2001) to argue that thereforms to HB that are required will have little impact


on tenants’ choices if the present pricing structures arenot also reformed.

The differences in the rents between the social rentedsectors in a locality, both on average and for otherwisesimilar dwellings, pose a second set of problems. First,similar tenants occupying similar dwellings in the samearea but renting them from different social landlordsmight face very different rents. This raises the questionof equity between social housing tenants. Second, wheresuch tenants are eligible for HB, tax payers funding thebenefit will be required to contribute different amountsto otherwise similar households in similar housing. Thisraises the question of equity between tax payers and HBrecipients. Third, tenants may have a choice of dwellingsbetween the two sectors, as is increasingly the case, forexample, in areas of low demand (see, for example,Bramley et al., 2000; Bramley and Pawson, 2002; PolicyAction Team 7, 1999). These choices might be affectedby the different rents that are set for similar dwellings—rents that are not being set on a ‘coherent’ basis (Wilcox,1997). Certainly, there is evidence that working house-holds are taking differences in rents between the RSLand local authority sectors into account and that there isa growing concentration of non-working households inreceipt of HB on RSL estates that have, in general,higher rents than those of local authorities (Ford et al.,1998).

3.4. Reforming social rents—the debate

Before examining the precise form taken by thegovernment’s policy for reforming social rents inEngland, we can note that there has been an extensivedebate in the literature, particularly during the 1980sand early 1990s, concerning both the case for rentrestructuring and the form that it should take. Walkerand Marsh (2003) have characterised this debate as onethat has concentrated on the role that the value of socialrented properties should play in rent setting. Inparticular, contributors such as Hills (1988, 1992) haveargued for some form of ‘economic rent’ that wouldreflect the long-run cost of providing social housing byincorporating some allowance for, among other factors,the opportunity cost of the capital tied up in thedwelling. Others such as Maclennan (1994) and, earlier,the two Inquiries into British Housing (HRH Duke ofEdinburgh 1985, 1991) argued for some form of market-related rent reflecting a rate of return on the capital(sale) value of the dwelling. However, Walker andMarsh (2003) conclude their brief review by stating that:

‘The effect that the wide range of such, ofteninnovative, work had on the UK government’s policytowards rent setting in social housingyis barelydiscernible’

and that:

‘ythe final form of the rent restructuring mechanismdid not explicitly draw on any clear theoreticalperspective from the literature.’ (p. 2027)

Hills’ work (Hills, 2000), proposing a rent settingpolicy based broadly on the running costs of socialhousing did feature as an option in policy thinkingleading up to the implementation of the rent restructur-ing regime (see DETR/DSS, 2000, Chapter 10) but, as isshown below, does not appear to have influenced theactual mechanism that was chosen.

4. The government’s policy for restructuring social rents

in England

4.1. The rent setting formula

The Housing Green Paper argued (DETR/DSS, 2000,Chapter 10) that the application of a consistent formulato set the rents of individual dwellings in both the localauthority and RSL sectors would remove ‘unjustifiable’differences in the rents of similar properties whileholding rents at an affordable level. Further, by send-ing the ‘correct’ price (rent) signals to landlords andtenants, rent restructuring should influence the invest-ment decisions of the former and the choices of thelatter.

We can note that this is a policy designed toharmonise rent setting in the two sectors, conceived ofat the national, ‘aggregate’ level. The rent settingformula that has been adopted makes no distinctionbetween social housing in urban and rural areas. Itincorporates property values, the number of bedroomsand an adjustment to reflect affordability. It is argued inDETR (2000, para 2.2; hereafter, the Guide) thatproperty values give a good indication of the relativeattractiveness to tenants of the size, condition andlocation of properties. The measure of property values isthe market value of the dwelling relative to the nationalaverage value of dwellings in the sector—local authorityor RSL—in which the dwelling is located. The Guide

also suggests that the number of bedrooms a propertycontains can be used to provide a sensible set ofdifferentials between different sizes of property.

Local earnings are taken as an indication of afford-ability locally that should be reflected in the rents set(Guide, para 1.4). The local earnings measure is that ofaverage manual earnings in the county in which thedwelling is located relative to average national manualearnings. Hence, this affordability measure does notdistinguish between rural and non-rural areas within acounty and indeed, as Walker and Marsh (2003) haveobserved, is not among the measures that have beenquite extensively discussed in the literature (see, forexample, Whitehead, 1991; Chaplin et al., 1994).

ARTICLE IN PRESSB. Walker / Journal of Rural Studies 20 (2004) 445–460 449

Specifically, under the restructuring formula the rentof a dwelling in both the local authority and RSL sectorsis determined by:

* 70% of the national average rent in the sectorweighted by average local (county) earnings relativeto national average earnings. This is then adjusted forbedsize,

* plus 30% of the national average rent in the sectorweighted by the value of the individual propertyrelative to the national average property value of thesector in which the dwelling is located

Details of the formula and the values of its parametersare given in Appendix A.

The formula sets the ‘target’ rent for each individualproperty in 2000/1. However, the rent restructuringpolicy was introduced in 2002/3 and landlords have (upto) 10 years—until 2011/12—in which to implement itfully. The target rents that landlords are expected tomeet, therefore, are those that will obtain in 2011/12after 10 years of the policy’s implementation. Hence, tosee the effects of restructuring, it is necessary to estimatethe target rents that landlords will be expected toachieve by the year 2011/12.

4.2. Calculating target rents

In calculating target rents for 2011/12, it is importantto note that all rents—targets and the rents set bylandlords—are likely to be affected by the rate ofinflation each year. However, the primary purpose ofthe research discussed here was to examine the effects ofrestructuring per se on rents not the year-on-year effectsof rent increases attributable to the rate of inflation.Therefore the analysis in this paper is mainly carried outin real terms to separate the effects of restructuring onrents from the effects of inflation. However, we presentsome findings allowing for the estimated effects ofrestructuring plus inflation—nominal changes in rents—in Section 6.4 below.

The rates at which target rents are assumed toincrease are shown in Table 1.

The real target rent increases 2001/2 through 2003/4in Table 1 are those that have been already been adoptedby central government for policy purposes. From 2004/5

Table 1

Real increases in target rents: modelling assumptions

Target in each year Local autho

Target in 2001/2 = Rent in 2000



Targets from 2004/5 onwards Previous yea

to 2011/12 are then = 1.017

onwards, the rates of change assumed for this researchare those agreed with representatives of the Office of theDeputy Prime Minister. Note that from 2004/5 theassumed real target rent increase of 1.7% for localauthorities continues to exceed, but at a higher rate, thatassumed for RSLs (0.5%). This is to allow for greatersectoral ‘convergence’ in average rents, given theinitially higher average rents in the RSL sector.

4.3. Calculating changes in real rents

In moving towards target rents, the governmentwishes to ensure that restructuring does not impose anundue year on year burden on tenants. Hence, annualrent changes are constrained in both sectors so that thereal rent of a property should rise to meet its 2011/12target where required by no more than 0.5% plus d2 perweek per year, and fall where required by no more than(+) 0.5% minus d2 a week per year.

The government has made it clear that landlords havediscretion over the ‘pace and timing’ of this restructur-ing within the 2002/3–2011/12 restructuring period(Guide, para 3.18). Since in modelling how real rentschange it is not possible to allow for the precise formthat each landlord’s discretion over actual rent changeswill take, it was assumed that landlords would take thefull 10 year implementation period allowed even wherethe landlord could achieve the target rent, within theconstraints identified above, in a shorter period.

In January 2002 the Minister determined that upperlimits would be applied to the rents of dwellingsaccording to the number of bedrooms in the dwelling.The limits were also incorporated in the modelling,although it transpired that, for almost all of thedwellings in both sectors for which restructured rentswere modelled in this study, restructured rents did notabrogate these limits.

5. The rent restructuring study

5.1. Previous studies of rent restructuring

To date, there have been relatively few analyses of theimpacts of rent restructuring that are in the publicdomain. An early study was undertaken by HACAS

rities RSLs

/1 � 1.02 Rent in 2000/1 � 1.01

/2 � 1.01 Rent in 2001/2 � 1.005

/3 � 1.01 Rent in 2002/3 � 1.005

r’s target � Previous year’s target �1.005

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Table 2

Rural housing stock of participating landlords

Case study area/landlord Rural housing stock

Cumbria

District Council 1786

CBRSL 16

East Sussex


ESRSL 175

North Yorkshire


NYRSL 36

Durham


DRRSL1 44

DRRSL2 73

Staffordshire


STRSL 10

B. Walker / Journal of Rural Studies 20 (2004) 445–460450

Chapman Hendy and KPMG (2000) to examine theimpact of the restructuring options proposed in theGreen Paper on 40 RSLs that were thought likely to facefinancial viability difficulties due to rents falling underrestructuring. However, for reasons of commercialconfidentiality, the results of this study could only bereported at the aggregate level. This can give a rathermisleading picture of the impacts of restructuring onindividual properties and tenants in particular areas. Asubsequent study of Black and Minority Ethnic RSLs(HACAS Chapman Hendy, 2002: see also, NationalHousing Federation, 2002) revealed that, as expected,these organisations appear to be particularly vulnerableto rent reductions under restructuring partly becausetheir stock is over-represented in localities in urbanareas having relatively low property values. Again theresults of the research could only be reported at theaggregate level.

The most detailed study to date is that of Walker et al.(2002a: see also, Walker and Marsh, 2003) whichinvolved six case study areas and 16 social landlords.Their work employed the same methodology as thatused for the study discussed in this paper but had theadded advantage of an accompanying tenants’ surveythat enabled the impacts of restructuring on particulartypes of household to be analysed. However, that studydid not identify the likely impact of rent restructuring inrural areas.

While the focus of both the HACAS Chapman Hendyand KPMG (2000) and Walker et al. (2002a) studies aresomewhat different from the research that concerns ushere, we draw on their results below where appropriate.

5.2. The study of rent restructuring in rural areas

The study on which this paper is based was under-taken for the Countryside Agency and the HousingCorporation between August 2001 and July 2002. Theprimary aim of the study was to examine the impact ofrent restructuring on social housing rents across a rangeof housing markets in rural areas. We were also asked toconsider the effects of restructuring on the affordabilityof rural social housing to existing and future tenants,and the implications for the financial viability of newinvestment in social housing in rural areas in the light ofrestructured rents.

5.3. Methods

The research employed a case study approach,involving 5 local authorities (District Councils—‘DCs’)retaining all or most of their stock and 6 RSLs allhaving at least some social housing stock in rural areas.The areas chosen included two, Cumbria and NorthYorkshire, which encompassed at least part of the twoNational Parks in the Counties. The remaining case

studies were conducted in the Counties of East Sussex,Durham and Staffordshire. In County Durham, one DCand two RSLs participated in the study while in theother four Counties one DC and one RSL wereincluded. To preserve anonymity, the DCs are notidentified and the RSLs are identified solely by a prefixindicating the County concerned—CB for Cumbria, NYfor North Yorkshire, DR for Durham, ST for Stafford-shire and ES for East Sussex.

Landlords were asked to provide details of theirhousing stock for 2000/1, and information on propertyvalues and the number of bedrooms. In order to identifythose dwellings in the stock that are in rural areas theHousing Corporation’s Rural Settlement Gazetteer wasused in the first instance. The Gazetteer identifies ruralsettlements on the basis of population size but it was notalways possible to match the locations of the propertieson landlords’ databases with the area identifiers in thatdocument. Therefore, landlords’ representatives werealso contacted in order to identify the dwellings thatthey classified as rural for policy or other purposes.Landlords were also asked to supply, where possible, anindication for each property of the HB status of thecurrent occupant. This was intended to facilitate theanalysis of the actual impact of restructuring on currenttenants.

As might be expected, the amount of stock that eachlandlord has in rural areas varies. This is shown in Table2. All of the local authority landlords had larger ruralstock than the RSLs in the areas that were included inthis study.

Given the information supplied, it was then possibleto model the impact of rent restructuring on rural (andnon-rural) dwellings.


The implications of the results for organisationalviability and strategy were also discussed with repre-sentatives of participating landlords both informally andat a seminar convened by the Countryside Agency andthe Housing Corporation in April 2002.

6. The impact of rent restructuring in rural areas

6.1. Average rents 2000/1 and average target

rents 2011/12

Table 3 shows the current (2001/2) average rent andthe real average target rents for the properties ofparticipating landlords in rural and non-rural areas.

Table 3 indicates that average rents in both rural andnon-rural areas are higher among RSLs than amonglocal authorities in all cases. This finding reflects thenational picture that average RSL rents currently exceedthose of local authorities.

Table 3 also shows that four out of the five RSLs thathave non-rural stock charge higher rents on average inrural than in non-rural areas. However, four out offive local authorities charge either lower rents onaverage in rural than in non-rural areas or, inCumbria and Durham, rents that are broadly the samein the two areas. This finding is of particular interesthere. It is known that some local authorities—includingat least one in this study—have as a matter ofpolicy set lower rents in rural areas to reflect difficultyof access to facilities, amenities and employment fortenants, and to compensate for the generally lowerlevel of income of tenants in rural areas. Further, in this

Table 3

Average rural and non-rural current rents and real target rents: (d per week

Case study area/

landlord

Average

rural rent

Average

rural target ren

Cumbria

District Council 48.68 57.73

CBRSL 57.91 63.35

East Sussex


ESRSL 72.06 60.62

North Yorkshire


NYRSL 65.58 53.75

Durham


DRRSL1 39.51 43.45

DRRSL2 56.03 51.00

Staffordshire


STRSL 56.20 56.15

study at least three of the RSLs have undertakennew development in rural areas recently. Otherthings being equal, rents for new properties willtend to be higher than for the RSL’s existing propertiesand also higher than for local authority properties.This is particularly likely to be so if, as we return tobelow, new development is more costly for RSLs inrural areas.

Table 3 also suggests that average real target rents inboth rural and non-rural areas are much more similarbetween landlords within areas than rents are currently.In respect of rural areas specifically, the often significantdifferences between the rural rents of different landlordscurrently are not replicated in their 2011/12 targets.Indeed, across the rural case study areas the range(maximum minus minimum) of average target rents isd19.90 compared to the range of current rents of overd35.50. This bunching of targets compared to currentrents across areas was also noted by Walker et al.(2002a, b, para 3.6) in their study and reflects, in part,the replacement of a variety of rent setting methods withthat of a single national formula. The implication here isthat, if targets are met, average rents after restructuringwill be more similar within and between these rural areasthan currently.

Next consider the differences between rural and non-rural average target rents for 2011/12 as shown in Table3 and as summarised in the second column of Table 4below. It is striking that in only one case, that of theRSL in Cumbria, is the average target rent for ruralareas lower than that for non-rural areas. In seven casesout of 10 average target rents are higher in rural areasthan in non-rural areas.

)

t

Average

non-rural rent

Average

non-rural target rent

48.84 55.30

58.16 65.28

46.48 54.16

67.44 56.09

49.36 51.57

62.82 47.32

36.51 44.73

38.24 39.08

51.74 42.53

43.43 52.54

— —

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Table 4

Differences between average current and average target rents in rural and non-rural areas: a summary

Case study area/

landlord

Average rural rent compared

to average non-rural rent

Average rural target compared

to average non-rural target rent

Average rural target rent

minus rural average current

rent

Average non-rural target rent

minus average non-rural

current rent

Cumbria

District Council Lower Higher d9.05 d6.46

CBRSL Lower Lower d5.44 d7.12

East Sussex

District Council Lower Higher d14.61 d7.68

ESRSL Higher Higher �d11.44 �d11.35

North Yorkshire

District Council Higher Higher d10.44 d2.21

NYRSL Higher Higher �d11.38 �d15.50

Durham

District Council E Same E Same d8.38 d8.22

DRRSL1 Higher Higher d3.94 d0.84

DRRSL2 Higher Higher �d5.03 �d9.21

Staffordshire

District Council Higher E Same d8.10 d9.11

STRSL — — E 0 —


Further, Table 4 shows that in five cases rural rentsare not only higher currently than non-rural rents butalso that the targets that they are required to meet arealso higher than in the non-rural areas.

Columns three and four of Table 4 indicate that, iftargets are to be met, in only two cases out of 10 (theCumbrian RSL and the DC in Staffordshire) will rentincreases in rural areas be less than those in non-ruralareas and only in the case of the East Sussex RSL wouldthe real rent reduction in rural areas exceed that in non-rural areas. In the remaining seven cases rent increasesin rural areas are required to be higher, or rentreductions are required to be lower, than in non-ruralareas in the locality. The implication that, in general,tenants in rural properties will be facing higher targetrents and/or higher increases or lower reductions in renton average than their non-rural counterparts in mostcases if targets are to be met suggests a potentially aredistributive effect from tenants in rural areas to thosein other areas.

6.2. Meeting targets—average real rent changes, 2002/3–

2011/12

The differences between target and current rents inrural and non-rural areas shown in Tables 3 and 4 areinformative but do not necessarily indicate the actualchange in real rents over the ten year restructuringperiod since, recall, government wishes to constrainannual changes in rent. Table 5 takes this real rentchange constraint into account and shows for the ruralareas in the study the estimated real rent in 2011/12, the

real rent change over the 10 year restructuring period,and the percentage of each landlord’s stock that isforecast to be within 5% of target by 2011/12.

It is clear from Table 5 that three landlords arerequired to reduce real rents in rural areas and these areall RSLs. The Staffordshire RSL has, on average, tomake no change in real rents. In contrast, all localauthorities will be required to increase their real rents onaverage, the largest real increase being d13 per week inthe East Sussex DC. This finding accords with that ofWalker et al. (2002a, Table 3.4) who found that in theirstudy four out of the five landlords that were required toreduce rents were RSLs and that, outside of London, itwas a local authority that was required to increaseaverage rents in real terms by the largest amount.

The HACAS Chapman Hendy and KMPG (2000)study of 40 RSLs in which rents were expected to fallunder restructuring estimated the median rent reductionas being between 5% and 10%. In this study the fall inreal rents in one of the Durham RSLs, DRRSL2, iswithin this range (9%) but the reduction in the case ofboth ESRSL and NYRSL is much larger, at around15%. Walker and Marsh (2003) report similar real rentreductions for an RSL in the South East of between13% and 19%. As discussed below, real rent reductionsof this order might have implications for futureinvestment by such RSLs and, perhaps, for longer runorganisational viability.

Table 5 also indicates that the landlords required tomake the largest rent changes—the East Sussex DC andRSL, and the North Yorkshire RSL—are less likely tobe able to ensure that the rents of all of their properties

ARTICLE IN PRESS

Table 5

Average real rural rents in 2011/12, the change in real rural rents, 2002/3–2011/12, and the percentage of properties within 5% of target by 2011/12

Case study area/landlord Average weekly

real rent 2011/12

Average weekly change in

real rural rents 2002/3–2011/12

% Properties within 5%

of target rent by 2011/12

Cumbria

District Council 57.73 +9.05 99%

CBRSL 63.34 +5.43 100%

East Sussex


ESRSL 61.55 �10.51 80%

North Yorkshire


NYRSL 55.42 �10.16 67%

Durham

District Council 44.86 +8.37 E100%

DRRSL1 43.45 +3.94 100%

DRRSL2 51.28 �4.75 100%

Staffordshire


STRSL 56.20 E0 100%

B. Walker / Journal of Rural Studies 20 (2004) 445–460 453

will be within 5% of their target by 2011/12. Indeed, inthe case of NYRSL almost a third of dwellings will beoutside of the 5% range by that date. These results alsosuggest that within the East Sussex, North Yorkshireand Durham case study areas tenants of different sociallandlords in rural areas will experience quite differentreal increases and decreases in rent over the next 10years.

The first column of Table 5 also confirms theimplication, drawn in respect of Table 3 above, thataverage rents charged by different social landlords in arural area after restructuring will be more similar than isthe case at present. Further, an analysis conducted aspart of the study on which this paper is based revealedmany examples of apparently similar properties ownedby different landlords having more similar rents afterrestructuring than they do currently. That analysis,taken with the results above, indicates that the govern-ment’s objective of bringing about convergence in therents of landlords locally through rent restructuring islikely to be achieved.

6.3. Average rent changes and the rent changes for

individual dwellings

The discussion and debate concerning rent restructur-ing has often been conducted in terms of the sorts ofaverage changes in rents presented above (see, forexample, HACAS Chapman Hendy, 2000). However,it is important to recall that the rent restructuring policyis indeed about restructuring rents—i.e. setting them in adifferent way—not about a different way of increasing

or decreasing average rents. Since the restructuringformula applies to the rent of each individual dwelling, itis the rent changes at the level of the individual dwellingthat are likely to have the greatest impacts on tenantsand on landlords’ decisions as to the viability ofmaintaining, improving or developing new propertiesin particular areas.

Table 6 gives a clearer picture of the distribution ofreal rent changes. Here we take the examples of the localauthority and RSL in East Sussex that, recall, have thehighest average real rent increase and decrease in thestudy, and the properties of the Cumbria DC that arelocated within or around the boundaries of the NationalPark. Note that the average real rent increase for theserural properties in Cumbria, at d9.54, is somewhathigher than the average for all of the DC’s ruraldwellings (d9.05).

Table 6 shows in the case of the East Sussex DC thatalthough the average real rent increase is d13.01 over 10years, only about 17% of properties (tenants) fall withinthe d10–d15 range of increases that encompasses thisaverage. Some 50% of properties will experience anincrease of over d15 a week while a third will experiencea real rent change less than the average—6% ofproperties will actually require a real rent reduction.The position for the RSL is not dissimilar, if somewhatless dramatic: while the majority of properties fall withinthe -d10 to -d15 range which covers the average d10.51per week decrease, over a quarter of properties (27%)will require a lower real reduction and around 2% willrequire a real increase. In the local authority dwellings inthe National Park in Cumbria, the implication is again

ARTICLE IN PRESS

Table 6

Pattern of real rent changes in a rural area: DC and RSL in East Sussex and Cumbria DC in the National Park

% of properties

Weekly real rent change East Sussex Cumbria (National Park)

District council RSL District council

�d10 to �d15 0 71 0

�d5 to �d10 1 20 0

�d0.01 to �d5 5 7 2

d0 0a 0 0

+d0.01 to +d5 7 o1 0

+d5 to +d10 20 1 44

+d10 to +d15 17 0 26

+d15 to +d20 48 0 14

> +d20 2 0 0

Total 100 100 100

(Number) (1046) (175) (819)

Average rent change: 2001/2 to 2011/12 +d13.01 �d10.51 +d9.54

a1 property requires no real rent change.


that while a large proportion of dwellings (44%) willrequire a real increase within range of the d9.54 average,40% of properties will require an increase greater thanthis and a small number of them will require a realdecrease of up to d5 a week.

Walker et al. (2002a, para 3.17 et seq) found manysimilar examples of the rent changes for individualproperties being significantly different from that sug-gested by the average rent change for the landlords’properties as a whole. This has led Walker and Marsh(2003) to point to two implications that we would arguealso hold in the case of the rural rent changes consideredhere. The first is that, clearly, if only average changes areconsidered, the effects of restructuring may be under-estimated. In the rural areas chosen for study here, theaverage change in rent in real terms over a 10 yearperiod may not appear to be very significant. Thehighest average real increase in the study, as noted, isd13 a week and the largest average reduction is aboutd10.50. It is not clear whether (maximum) averageincreases and decreases of this order would be sufficientto materially affect tenants’ choices and housingopportunities, given that they are likely to be paralleledby real changes in income and benefits over the nextdecade. However, when the effects of restructuring atthe level of the individual property are as varied as theseresults suggest, individual tenants’ choices of property,area and sector are likely to be more affected, positivelyor negatively, than would be anticipated solely byreference to the average real rent change.

The second implication relates to the way rentchanges are presented and discussed before and duringimplementation. Prior to the introduction of restructur-ing, most landlords determined and announced annualrent increases in terms of average rent increases. Thiswas quite reasonable when, as has often been the case

over recent years, rent increases are calculated andapplied to a landlord’s stock in the form of (RPI plus)the same percentage increase for each property. How-ever, this is likely to be misleading under rentrestructuring because of the policy’s impact on thestructure of rents as well as on the rent of a particularproperty. Thus, if only the average changes resultingfrom restructuring are discussed with local decisionmakers and tenants there is a danger that the potentiallywide and differential effects of the policy on individualproperties, and therefore tenants, will be understated.

6.4. The impact of inflation on restructured rents

As explained in Section 4, the majority of theanalytical work on rent restructuring presented herehas been carried out in real terms to isolate the effects ofrestructuring from the effects of inflation on rents thatmight be expected even in the absence of a restructuringpolicy. If incomes, benefits and the prices of other goodsand services increase by the rate of inflation, thentenants and landlords should only experience the realeffects of restructuring—that is, a maximum (minimum)rent increase (decrease) of +0.5% plus (minus) d2 perweek per annum. In any event, predicting the annualrate of inflation over 10 years is, arguably, a hazardousexercise. Nevertheless, in practice tenants and landlordswill experience the combined effects of both restructur-ing and inflation over the next 10 years, and it might beargued that, for tenants in particular, this combinedeffect might have greater impacts on choice than rentrestructuring alone.

In order to examine the impacts of inflation onrestructured rents, we also modelled restructured rentsin nominal terms by including inflation for each landlordin the study. The long run rate of inflation was assumed


to be 2.5%, reflecting the government’s inflationassumption for public expenditure purposes, and thiswas included in the target rent increases detailed inTable 1 above and in the calculations of real rentchanges. Nominal rent changes were thus assumed toreflect a maximum annual change of a 3% (2.5% plus0.5%) annual increase, plus or minus d2 per weekdepending on whether the current rent is above or belowits now inflation-adjusted target.

Unsurprisingly perhaps, once inflation is included realrent increases translate into larger nominal (i.e. inflationincluded) increases. This is shown in Fig. 1a.

Fig. 1a shows that average real increase of d13 a weekin the East Sussex DC becomes a nominal increase ofalmost d30 a week when inflation is included: the smallreal increase of under d5 in DRRSL1 is over d15 a weekin nominal terms while the Cumbria DC’s nominalincrease is over d25 per week compared to the realincrease of under d10.

05

101520253035

£ pe

r w

eek

E S

usse

x D

C

Dur

ham

DC

DR

RSL

1

N Y

orks

DC

Cum

bria

DC

CB

RSL

-15

-10

-5

0

5

10

15

20

£ pe

r w

eek

ESRSL DRRSL2 NYRSL STRSL

Real ChangeNominal Change

(a)

(b)

Fig. 1. (a) Real rent increases and nominal rent increases. (b) Real rent

reductions and nominal rent increases.

The pattern in respect of real reductions is perhapseven more illuminating, as shown in Fig. 1b.

Fig. 1b shows that in the three cases where RSLs willbe required to make reductions in real rent on average,nominal rents on average will rise over the 10 yearperiod, albeit by relatively small amounts. Part of thereason for this lies in the arithmetic result that where areduction in rent is required but the current rent is alittle over d65 per week, applying the formula [(2.5% +0.5%) � d2] will lead to an increase in the nominal rent.The Stafford RSL has an average current rent verysimilar to its real average target in 2011/12. Underinflation, the target is increasing by 3% per year:consequently, nominal rents will have to increase by thatamount in order to continue to meet targets.

The significance of these findings for tenants’ choicesunder changing rents depends on whether tenantsrespond to nominal changes rather than real changesin rent and, thus, will make choices of landlord, dwellingand rural/non-rural area that are based on thosenominal rents even though their incomes and/or benefitentitlements may also be increasing at, at least, the rateof inflation. Tenants may feel that properties arebecoming less affordable even though after discountinginflation the real rent increases are not large. In terms ofrent reductions, the finding that on average tenants willnot actually experience any reduction in their rentpayments in nominal terms may also affect their choicesand their perceptions of affordability. As far as tenantswho are experiencing real rent reductions but (small)nominal increases are concerned, the supposedly bene-ficial effect of restructuring in reducing rents mayappear to be simply a continuation of the increase inrents as in the past, albeit at a lower rate of increase.Thus, what tenants will perceive and experience ashappening under restructuring may be different from theactual effects of the restructuring policy itself.

7. Some implications of rent restructuring for tenants in

rural areas

7.1. General considerations

In considering the impacts of restructuring on thepricing and thus the affordability of social housing inrural areas, we can begin by recalling that, among thecase study landlords, restructuring implies that three outof the six RSLs will be required either to reduce theirrural rents in real terms and one will be required tomake no real change on average. Thus, to the extent thatthere is currently a problem of how affordable RSLs’rural properties are for tenants, our results suggest thatthis might be mitigated in some cases over the next 10years. On the other hand, all local authorities in thestudy will be required to increase average real rents in

ARTICLE IN PRESS

Table 7

Rural and non-rural local authority tenants in receipt of housing

benefit

Local authority

landlord

% Rural tenants

receiving HB

% Non-rural tenants

receiving HB

E Sussex DC 52 56

N Yorks DC 50 60

Durham DC 65 62

Staffordshire DC 48 58


rural areas, from which it might be inferred that anyproblems concerning the current affordability of localauthority dwellings in those areas are likely to beexacerbated. However, if real incomes and benefits alsoincrease over time, the effects of the increase in localauthority rents might impact less on council tenantsthan these results might lead us to expect, while the (ingeneral) real decline in RSL rents might prove to be anclear benefit to current RSL tenants and prospectivetenants fortunate enough to secure an RSL dwelling insuch locations.

It is also important to recall that the rent restructuringpolicy not only seeks to eliminate unjustifiable differ-ences between the rents of similar dwellings in the twoareas. It also attempts to create a coherent set of rentdifferentials between properties of different sizes(through the bedsize factor in the formula) and todetermine a rent structure that more closely links‘yrents and the qualities which tenants value inproperties’ (the Guide, para 1.2) through, primarily,the inclusion of property values. The ultimate aim ofthis, as we have noted, is to face tenants with choicesthat will be more rational in the sense that a household’schoice of dwelling, or decision about moving orremaining in the current dwelling, or considering atransfer between sectors will be based on a pattern ofrents that is itself more rational. This is despite recentevidence to suggest that public sector tenants, in urbanareas at least, are reluctant to move even in the face ofrents that are more sharply differentiated by propertysize, value and location (see Walker et al., 2000, 2002b).Where, as in many rural areas, there is little choicebetween social rented dwellings in the first instance, itcan be argued that the impact of restructuring on choiceis likely to be even less pronounced.

7.2. The benefit of rent reductions and impact of rent

increases on tenants

While (real) rent reductions benefit tenants, since theywill be paying less than previously for the same dwelling,it is important to be aware that the rent income derivedfrom the dwelling may affect the level of service that alandlord is able to provide. This is primarily an issue ofhow landlords’ decisions are affected by restructuring,which we consider in Section 8 below. However, it isworth noting here that, as Walker et al. (2002a, para6.37) discovered and as was the case with someparticipants in this study, social landlords have oftencarried out improvements to dwellings that have in thepast been paid for by an increase rent, rather thanservice charges. Thus, some landlords have financed thereplacement of central heating boilers, windows andkitchens, for example, by increases in rent designed topay for these improvements. Under rent restructuring,unless the value of the property increases sufficiently to

have an effect on rent such that the required income forimprovements can be generated, this policy will nolonger be feasible. The alternative possibility is thatsome (other) rents in the stock will increase sufficientlyunder restructuring to provide a surplus that can be usedto finance the improvements on properties where therents have not risen sufficiently. Either way, the linkbetween additional service provision and improvementto a dwelling and the change in rent of that dwelling willbe broken.

In similar vein, it might be argued that (real) rentincreases, while appearing to be an unambiguous cost totenants, might be offset by their landlord’s ability toimprove the level of service as a result. Perhaps moreimportantly, given the HB system and the number ofsocial housing tenants who have their rents wholly orpartly paid by HB, it could be suggested that rentincreases in practice will have little impact on tenants’rent payments.

Among the case study landlords, HB data was onlyconsistently available for local authorities, since someRSL tenants, rather than their landlords, receive HBdirectly and therefore the RSL may be unaware of suchtenants’ HB status. Table 7 shows the HB status of ruraland non-rural tenants for the four local authorities thatwere able to provide the data.

Since about two thirds of tenants in the social rentedsectors nationally receive HB, the table indicates thatwith the exception of the DC in Durham the incidenceof HB receipt is lower among case study localauthorities than it is for the nation as a whole. Second,in three out of the four cases—the Durham DC is againthe exception—the percentage of tenants receiving HB issomewhat lower among rural than among urbantenants. Since all of the DCs in Table 7 will be expectedto increase their rent on average, this suggests that agreater percentage of tenants in rural areas than in bothnon-rural areas and the country as a whole will actuallyexperience an increase rent payments as a result ofrestructuring.

Nevertheless, Table 7 shows that a significantproportion of rural tenants—at least half, excludingthe Staffordshire DC—will not have to pay any increasein rent if their personal circumstances do not change.Thus, it could be argued that there is little cause forconcern about the well-being of these tenants in the


presence of rent increases since the rent that they areactually required to pay will be unaffected.

It can be noted immediately that if it is believed thatthe choices and housing related decisions of a majorityof rural tenants will be unaffected by rent changesbecause of 100% marginal subsidy provided by HB,then it is possible to question why a policy intended toaffect those choices is being implemented in these areas.However, we would dispute the contention that HBisolates recipients from concerns over rent levels andrent changes. The previous work referred to earlier(Walker et al., 2002b) concluded that in the publicrented sector:

‘ywhether or not a household receives any HB doesnot appear to affect their moving decisions when theyare faced with changes in the relative rents of thealternative dwellings offered.’ (p. 685)

The reasons for this can be ascribed to the likelihoodthat many households, excluding the retired or longterm sick perhaps, do not see their receipt of HB aspermanent. In particular, younger and/or single personhouseholds might be expected to return to the labourmarket at some point in the (near) future with possibleconsequences for their HB status. Hence, rent changesmight be expected to impact on their possible housingchoices in a not dissimilar manner to those tenants whoare currently employed and not receiving HB. Signifi-cant rent increases might be expected to have at leastsome negative incentive effects on the decision to returnto work, while rent reductions, reducing the significanceof rent payments for household budgets in the future,might enhance these incentives. Despite tax and benefitchanges that have sought to minimise the disincentive(and maximise the incentive) effects of taking upemployment, it is not unreasonable to suggest that‘adverse’ rent changes might have an impact on house-hold decisions in these respects.

8. Some implications for new housing investment in rural

areas

8.1. The viability issue

In the great majority of cases, as shown by this studyand those of Walker et al. (2002a) and HACASChapman Hendy and KPMG (2000), restructuring willhave an impact on the aggregate real (and nominal)rental income received by social landlords. In the localauthority sector, any change in rental income will ineffect be compensated for by the new housing revenuesubsidy arrangements. Under this system, in brief, whererental income rises as a result of restructuring, subsidywill be reduced and where income falls it will beincreased. The net effect of restructuring on local

authorities’ total income from housing should, there-fore, be broadly neutral.

As no such revenue subsidy exists for RSLs, theimpact of restructuring will fall directly on the rentalincome of these landlords without any offsettingmechanism to compensate for the deficits or to ‘tax’the surpluses generated. The study by HACAS Chap-man Hendy and KPMG (2000, Table 2) estimated thatwhile 18 of the 40 RSLs facing rent reductions underrent restructuring would remain financially viable, six ofthese would only do so if they undertook ‘correctivestrategies’, which included reducing development pro-grammes. Seven RSLs would still be ‘marginal’ inviability terms after employing such strategies while theremaining 15 would not be viable even after employingthose strategies if they had to restructure their rentswithin the 10 year period. Thus, the issue of whetherrent restructuring will enhance or impair the financialviability of the organisation is a major issue for theindividual RSLs and for the sector as a whole.

This has been recognised by the government and theHousing Corporation. RSLs that can show that theirfinancial viability is seriously threatened by restructur-ing or that implementation will require them to abrogatecontractual agreements with lenders or guarantees totenants may be granted an ‘extension’ by the Corpora-tion, allowing them to delay the introduction of thepolicy. This also enables the Housing Corporation toavoid possible contradictions in the operation of itsRegulatory Code and Guidance (Housing Corporation,2002, I–X) between the requirements that RSLs ‘mustoperate viable businesses’ (para 1.1) and that they mustmeet ‘commitments to lenders and rent restructuringrequirements’ (para 1.1a). Such extensions that aregranted are subject to annual review and the expectationis clearly that RSLs will adjust their business plans andservice agreements over time to allow rent restructuringto be introduced. In the longer run, therefore, thoseRSLs with extensions will also have to implement thepolicy. However, it is important to note that, in theshort term, where extensions are given to some RSLslocally, but not to others (and not to local authorities),rent structures across social landlords are likely tobecome no more, and arguably less, coherent than theyare at present.

None of the RSL representatives in this study withwhom this issue was discussed expressed concerns overlonger run organisational viability. Rather, their mainconcerns were over the impact of restructured rents onthe ability their RSLs to develop new properties and torefurbish existing dwellings in rural areas.

8.2. New investment under rent restructuring

We noted in Section 3 that one of the aims of therestructuring policy is to determine a pattern of rents


that will prove an effective guide to landlords’ invest-ment decisions. There are questions about how thismight work in a social housing context. In a privatemarket, landlords might be expected to invest in the sortof properties that yield higher returns and dis-invest ordispose of those generating low returns. In a socialhousing context, a policy of investing (solely) in thoseproperties with higher financial returns might have cleardetrimental effects on the type, quality and affordabilityof the housing provided, and on the sort of householdswho wish to, and can be, housed. A policy ofwithdrawing investment from, say, housing with lowrents and developing only where the rents to be set arerelatively high, it could be argued, sits uneasily with thefunction and objectives of social housing provision.

A counter argument is that the grant aid (potentially)available to RSLs undertaking new development or‘purchase and repair’ activity may offset any tendencyfor RSLs to invest only where there are high rents orhigh returns. Under rent restructuring, the restructuredrents to be set for the properties being developed aretaken into account in determining the grant whereawarded. In brief, the higher the restructured rents, thelower the grant aid, other things being equal, and thelower the rents, the higher the grant aid. Hence bycompensating landlords through higher grant aid for thelower income generated on a scheme where restructuringrequires lower rents, the RSL’s investment decision willnot be determined exclusively by the rental incomestream from that scheme.

While the purpose of this study was not to investigatethe operation of the social housing grant (SHG) system,a number of comments were made by the representativesof participating RSLs that suggest that the problems ofviable development are not fully solved by this system atpresent. In particular, it was suggested that ruraldevelopments are often costly in terms of the landvalues that have to paid in rural areas, the designstandards imposed because of the nature of the area andthe relatively small size of schemes which precludesreaping the benefits of any scale economies in construc-tion or subsequent management. These higher costshave not always been fully reflected in the costindicators used by the Housing Corporation to deter-mine (in part) the level of grant awarded, as otherwriters have argued (Section 2 above: see also RuralDevelopment Commission, 1998). Further, it waspointed out, the allocation of SHG is competitive, sothat there is clearly no guarantee that grant will beawarded, and, if SHG is awarded, the grant will onlycover on average 60–65% of the scheme’s allowablecosts. Even though the Housing Corporation’s recentreview of cost indicators made a large number ofchanges to the level of grants that can be awarded inrespect of rural development, it is worth noting thecomments that an RSL officer made during this study:

‘When it comes to rural development, the real issue isnot rent restructuring–it’s the SHG system that’s theproblem.’

RSLs are required to make up the difference betweenscheme costs and SHG, where awarded, either fromtheir reserves and/or through loans secured on the rentincome from the scheme. Where a scheme is notfinancially viable in itself and where RSLs pool at leastsome of their rents, the rent income from other schemescan also be used to finance the development or securethe loan. As always under rent pooling, this implies thatsome tenants are cross-subsidising others. However, asimportant from the perspective of new development,whereas previously RSLs could make their owndecisions about the pattern of rents that needed to beset for the stock as a whole in order to finance newinvestment, under rent restructuring that pattern ofrents is determined for them. Consequently, it is only ifthe rent structure of the stock as a whole is sufficientlyfavourable to allow cross subsidy, the building up ofreserves for investment purposes or to provide addi-tional collateral for private loans that developments thatare not financially viable in themselves can be under-taken. During this study, a representative of an RSLinformed us that his organisation’s recent new develop-ment in rural areas had been financed by extensive use ofreserves and through rent pooling. Another RSLparticipant claimed that a recently developed schemein a rural area ‘would not have gone ahead now becauseit would not stack up financially’.

Thus the impact of restructuring on the prospects fordevelopment by RSLs in rural areas does not seem to bepositive. Lower rents raise questions of about thefinancial viability of new investment. Higher rents mayfacilitate development but can involve problems of theaccessibility and affordability of RSL properties todifferent types of household.

9. Conclusions

The government’s rent restructuring policy representsa major break with the principle of social landlords’autonomy in rent setting policy. This paper has tried toaddress the issue of whether the policy is likely to havesignificant effects in practice as well as in principle inrural areas in England.

The main question from the point of view of thoseconcerned with rural housing is whether restructuringwill mitigate or accentuate the problems of socialhousing provision in rural areas. Our results indicatethat local authority rents are likely increase while RSLrents are more likely to be reduced. Prima facie at leastrestructuring is therefore likely to benefit more RSLtenants than council tenants in rural areas. However, the


finding that some RSLs are likely to experience a declinein real rental income—a finding replicated elsewhere inpredominantly non-rural areas (Walker et al., 2002a)—is a mixed blessing given that these are the landlords thatare almost exclusively developing social housing in ruralareas. For such RSLs, the difficulties of developing inrural areas that they face at present will be increased,unless the grant system compensates adequately for theirreduced income. Hence, restructuring might be arguedto benefit many current RSL tenants to the detriment ofpotential future RSL tenants who would have occupiednew stock that may not now be provided.

Whether rent restructuring will enhance tenants’choices and lead to a more ‘rational’ use of the stockis also open to question. Certainly, our results suggestthat in rural areas the rents in the RSL and localauthority sectors locally are likely to become moresimilar through restructuring. They also indicate thatthe changes in rent brought about by the policy in realterms and in terms of the average rent change across alandlord’s stock are perhaps not dramatic. Yet thedistribution of changes around the average is significantimplying that the effects of restructuring on the rent ofan individual dwelling and thus on an individualhousehold will be greater than a more aggregatedanalysis would suggest. This may well have some effectson tenants’ choice of dwelling or their desire to move.However, in any event, a ‘re-sorting’ of tenants withinthe stock or between the two social sectors requires thatthere are vacancies—including new additions to thestock—in order to facilitate the process. Vacancies inrural social housing are not a feature of the system atpresent and, as we have suggested, new development,providing greater flexibility in the use of the stock, isunlikely to be encouraged by restructuring.

As with many other aspects of rent restructuringimplementation, it is not possible to estimate atpresent how these processes will resolve themselves overthe restructuring period. However, our work suggeststhat rent restructuring by itself will not materiallyimprove the housing prospects of the less well off inrural areas.

Acknowledgements

This paper is based in part on research undertaken forthe Countryside Agency and the Housing Corporation.The author is grateful to the Agency and the Corpora-tion for their financial and organisational assistance,and for their advice and most helpful comments receivedfrom them during the course of the research and duringthe preparation of this paper. The valuable comments ofanonymous referees are also gratefully acknowledged.However, the arguments and opinions contained in thispaper are those of the author alone and, in particular,

should not be ascribed to the Countryside Agency or tothe Housing Corporation.

Appendix A. The Rent Restructuring Formula

The formula for determining the target rent of anindividual property as of 2000/1 is:

Initial Target Rent for Dwelling ‘i’ ¼ð½f0:70�natrentg�flocearnc=natearng��bedsizeÞ þð½0:30�natrent��½omv99i=natval�Þ;

wherenatrent is the average weekly sector rent in April 2000:

d45.60 for local authorities and d53.50 for RSLs,locearnc is average weekly manual earnings in county

‘c’ in 1999,natearn is average weekly national manual earnings in

1999: d316.40,bedsize is weighting for bed size: 0.80 for bedsits, 0.90

for 1 bed, 1.00 for 2 beds, 1.05 for 3 beds and 1.10 for 4or more beds,

omv99i is capital value of dwelling ‘i’ in 1999,natval is average capital value of dwellings in the

sector in 1999: d41,350 for local authorities and d49,750for RSLs.

Note that the value for the average RSL rent isactually that for 1999/2000 and thus needs to beincreased by the average guideline increase for 2000/1before using the formula. This gives an average RSLrent of d54.50.

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