Page last updated at 06:08 GMT, Tuesday, 18 August 2009 07:08 UK

Tenants 'asked to forgo rent cut'

The National Federation is suggesting a rent freeze

Millions of housing association tenants may be asked to give up rent reductions because of financial pressures facing landlords, it is warned.

The National Housing Federation says even a small reduction in rental income could have a big impact on their programme for more social housing.

Rent rises for tenants are linked to inflation as measured by September's retail price index.

A government spokesman said they recognised the concerns.

City analysts are predicting an RPI of at least minus 2% next month, which would mean rents falling next year by nearly £1.40 a week.

Rent freeze

But the federation says the reduction, though small, would impair its members' ability to borrow by the equivalent of 4,000 new homes a year.

"This is bad economics and bad politics," said a federation spokesman.

"We desperately need the new homes. And as the public finances deteriorate we will need more private borrowing to ensure we can continue to build the new homes."

It suggests a freeze on rents instead.

But TAROE - a body which represents tenants and residents associations across England - says its members would only forgo rent reductions if associations could prove it would harm the sector.

Associations, which depend on a mixture of government grants and private borrowing, have found it more difficult to get loans and have had to depend more on government grants.

Matthew Gardiner is chief executive of the Trafford Housing Trust, which owns more than 9,000 homes near Manchester.

He estimates that a 2% rent drop would mean the Trust would lose about £1m in the first year, and would result in it having to "restrict services".

Housing targets

A spokesman for the Department for Communities and Local Government said he recognised that some housing associations were concerned about the possibility of a reduction in their rental income next year.

"We are currently consulting on proposals which will protect housing associations from a drop in rental income of more than 2%," he said, "striking a balance between the interests of tenants and the taxpayer, whilst supporting the need for continued investment in new affordable housing."

Recently Gordon Brown announced an extra £1.5 billion to boost the supply of affordable homes, as well as measures to allow councils to build homes in volume again after years in which housing associations have been the dominant players in the provision of new affordable homes for rent.

However, the impact of the recession on the building industry has put into question the government's aim of building three million new homes by 2020.

The National Housing Federation says 2009 could finish with no more than 80,000 new homes across the public and private sectors - well below the 220-250,000 homes a year needed to achieve the government's target.

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