LGA response to MHCLG’s consultation on how to implement rent convergence

The Local Government Association (LGA) is the national membership body for councils in England, working on their behalf to champion and be the voice of local government, ensuring it has the resources, powers and support to deliver the best possible outcomes.

We are a politically led, cross-party organisation, providing advice, support and services to all local authorities in England and Wales – including non-member councils and combined authorities – on critical issues like social care, housing, and climate change. While headquartered in London, we have a local footprint, regional presence, and national reach, with staff located and working around the country.

Please note: This submission reflects a position agreed by the four LGA political groups that were in place as of August 2025. A Reform UK group has since been constituted within the LGA; however, it will not be formally incorporated into the LGA’s decision-making structures until the start of the new committee year on 1 September 2025. Accordingly, this submission should be read as representing the views of the four previously established political groups.

Key messages

• The Government’s commitment to implementing Social Rent convergence is hugely welcomed and responds to long-standing calls from the LGA and local authorities.
   
• Social Rent convergence should be permitted at a minimum of £2 per week – anything less than this would not return the national Housing Revenue Account projection to a cumulative surplus in 10 years.
   
• Analysis estimates that almost double the number of additional homes could be delivered if convergence was permitted at £2/week (17,764 homes) compared to £1/week (9,214 homes).
   
• However, how the additional rent income from convergence converts into capacity for additional new supply in reality depends on a key factor around the extent to which any additional revenues are reserved for investment into the existing stock.
   
• In particular, the impact of the proposed update to the Decent Homes Standard (DHS) and introduction of Minimum Energy Efficiency Standards (MEES) as set out in consultation documents running at the same time as the rent convergence consultation should not be underestimated.
   
• Local authorities continue to report that there are considerable ongoing financial pressures on Housing Revenue Accounts which are likely to continue to constrain capacity to deliver new supply, even though the 10-year rent settlement and commitment to rent convergence will bring in much needed additional income.
   
• In addition to implementing rent convergence the Government should also:
   
  • Update the New Burdens doctrine so that all new burdens placed on local authority Housing Revenue Accounts are fully assessed and funded.
     
  • Make permanent the preferential borrowing rates through the Public Works Loan Board (PWLB) for social housing and extend to councils without HRAs.
     
  • Give local authorities access to the £2.5 billion of low-interest loans announced at the Spending Review 2025 to boost capacity to invest in new development.
     
  • Increase the grant levels for each individual home in the upcoming new Social and Affordable Homes Programme to increase the viability of social and affordable housing schemes.
     
  • Undertake an urgent review and revision of the current self-financing council housing regime which has been in place since 2012, to ensure it can deliver both current and future requirements for council housing.
     
• It is important to note that whatever rent convergence limit is permitted by the Government that it would be optional for local authorities to apply it. Any decision to do so would need to carefully balance the affordability for tenants with the imperative to invest in the quality and supply of social and affordable housing stock.
   
• Convergence should be implemented from 1 April 2026, rather than from a later date. Introducing convergence at the earliest possible opportunity would allow local authorities to begin securing additional rental income without unnecessary delay.
   
• There should no fixed time limit for how long a convergence mechanism is in place. An ongoing convergence mechanism would give local authorities maximum flexibility to respond to changing economic conditions, helping to maintain affordability for tenants over the long term and enable them to continue to apply convergence until such a time as full convergence to formula rents is achieved on all properties. 
   
• However, if the government is minded to introduce a time limit then the ability to converge should be in place for a minimum of 10 years, which would align with the 10-year rent settlement (in which rents will be permitted to increase by CPI+1 per cent each year).

The LGA’s response to this consultation draws on analysis work that has been undertaken by Savills for the Chartered Institute of Housing (CIH), working in partnership with: the National Housing Federation (NHF), the Local Government Association (LGA), the Association of Retained Council Housing (ARCH), the National Federation of ALMOs (NFA) and the Councils with ALMOs Group (CWAG). 

The analysis models the potential impact of three convergence scenarios – £1, £2, and £3 per week – for both local authority and housing association landlords. It considers the effect on:

• average rents over the next decade
   
• additional rental income generated under each option
   
• capacity to invest in existing homes and deliver new supply
   
• affordability for tenants.

The work is intended to exemplify the additional income and therefore additional investment capacity arising from the application of a convergence policy on top of a stabilised rent policy of CPI+1 per cent for 10 years.

Savills concludes that:

• CPI+1 per cent rent increases for 10 years stabilise net rent income by 2035/36 (i.e. the national Housing Revenue Account position is no longer in annual deficit), though cumulative deficits to that point remain nearly £5 billion. 
   
• If rent convergence is applied for local authorities in which voids are relet at formula rent on top of CPI+1 per cent increases and convergence for existing tenants applies at £2/week, this shows the potential for cumulative surpluses of up to £0.4 billion by 2036/37, potentially enabling all existing stock pressures to be addressed with some capacity for additional development.
   
• However, the projected move to surplus takes effect from 2034/2035, implying that deficits will need to be addressed by resources other than additional rent in the medium-term. With convergence provided for, local authorities would return to surplus earlier with additional subsidy and support to address pressures on the existing stock. 
   
• The injection of additional resources to address immediate and short-term deficits would release further capacity for investment into new supply at an earlier year.

In summary for local authorities:

Out of the two options as outlined, it is considered that Social Rent convergence be permitted at a minimum of £2 per week.

It is clear from the Savills analysis that only convergence at £2 per week will return the national HRA projection to a cumulative surplus in 10 years which is vital to enable local authorities to invest in improving the quality and supply of social and affordable housing.  Conversely, convergence at £1 per week would mean that local authorities would still remain in cumulative deficit after 10 years.

Furthermore, through our engagement with local authorities, it is clear that even £2/week over a period of 10 years would result in properties that still have not reached formula rent in many local authority areas. 

Therefore, consideration should be given to providing additional flexibility for local authorities to be permitted to converge rents at £3/week and/or not introduce a fixed time limit for how long a convergence mechanism is in place, so that local authorities can continue to apply convergence until such a time as full convergence to formula rents is achieved on all properties. 

It is important to note that whatever rent convergence limit is permitted by the Government that it would be optional for local authorities to apply it. Any decision to do so would need to carefully balance the affordability for tenants with the imperative to invest in the quality and supply of social and affordable housing stock. 

The Savills analysis estimates that almost double the number of additional homes could be delivered if convergence was permitted at £2/week (17,764 homes) compared to £1/week (9,214 homes). The analysis assumes that a percentage of the additional income will also be spent on asset management of existing homes. 

However, how the additional rent income from convergence converts into capacity for additional new supply depends on a key factor around the extent to which any additional revenues are reserved for investment into the existing stock (and/or services).

Local authorities continue to report that there are considerable ongoing financial pressures on Housing Revenue Accounts which are likely to continue to constrain capacity to deliver new supply, even though the 10-year rent settlement and commitment to rent convergence will bring in much needed additional income. 

In particular, the impact of the proposed update to the Decent Homes Standard (DHS) and introduction of Minimum Energy Efficiency Standards (MEES) as set out in consultation documents running at the same time as the rent convergence consultation should not be underestimated. The requirement to enhance investment into the existing stock arising from a) the introduction of new elements of the DHS such as floor coverings and increased safety and b) for the confirmed requirement to meet EPC C for all stock by 2030, as well as increased repairs pressures arising from the implementation of Awaab’s Law, are all likely to mean that local authorities will need to allocate additional rental income towards asset management programmes on existing stock. In the absence of new burdens funding from the government for these new requirements, these additional costs will inevitably need to be funded using the additional rental income through rent convergence and the CPI+1 per cent 10-year rent settlement – in turn eroding the potential to deliver the additional homes estimated by Savills. 

To further illustrate the financial pressures facing local authority HRAs, updated analysis by the LGA of the 2025-26 Revenue Account budget data shows that:

• Over one-third (57) HRAs are in a deficit this financial year, representing a deficit of £201 million for these councils.
   
  • This is an increase of one authority from 56 last year; however there was a significant increase in the amount budgeted deficit of £55.7 million, up from £146 million.
     
  • Thirty one HRAs have projected a shortfall every year over the past three years – 19.1 per cent of total HRAs.
     
• Over 1/3 (58) HRAs will hold equivalent to less than 10 per cent of their annual spending in their reserves by the end of 25/26 – well below the national average of 21.7 per cent.
   
• HRA rental income is budgeted to stay the same in real terms this year– whilst costs will increase by 1.2 per cent in real terms.

To further support local authorities to invest in the quality and supply of social affordable homes, the Government should, in addition to the confirmed 10-year rent settlement and commitment to implement rent convergence:

• Update the New Burdens doctrine so that all new burdens placed on local authority Housing Revenue Accounts are fully assessed and funded.
   
• Make permanent the preferential borrowing rates through the Public Works Loan Board (PWLB) for social housing and extend to councils without HRAs.
   
• Give local authorities access to the £2.5 billion of low-interest loans announced at the Spending Review 2025 to boost capacity to invest in new development.
   
• Increase the grant levels for each individual home in the upcoming new Social and Affordable Homes Programme to increase the viability of social and affordable housing schemes.
   
• Undertake an urgent review and revision of the current self-financing council housing regime which has been in place since 2012, to ensure it can deliver both current and future requirements for council housing.

The Savills analysis compares rent increases implied by changes to rent policy to projections of wage inflation over the next 10 years in order to arrive at a view on the impact on affordability to tenants over time.

If convergence leads to rents rising at the rate set out in the analysis (£2/week scenario), the central wage inflation forecast leads to approx. £10/week additional income that needs to be found to meet higher average rents over time. This is principally driven by rents rising at CPI+1 per cent (3 per cent per annum) and wages forecast at 2.0 per cent per annum. 

If wage growth is 'stagnant' and is the equivalent of CPI, the implied additional affordability pressure is c£12/week by year 10. If wage growth keeps pace with the rate of rent increases, the implied additional affordability pressures is c£4/week by year 10. 

However, higher convergence rents in the short-term are potentially able to be matched by higher than CPI wage inflation for wages in the period, indicating that affordability would not be fundamentally affected by convergence as the convergence-period is in the early years. 

Therefore, the longer-term pressure on affordability arises from CPI+1 per cent being higher than wage inflation. 

The majority of social rents are covered by benefits of some kind. On the basis that 65 per cent of rents are covered by benefits and that 55 per cent of tenants are fully covered, affordability pressures are focused onto tenants paying some or all of their rent. For those paying partial rent, increases are likely to be covered by their Housing Benefit/Universal Credit payments. For the minority of tenants paying full rent, the additional pressures arising from faster rent increases with convergence amount to less than £2/week by 2030.

There would be a reduced impact on tenants in a £1/week scenario, but this has not been specifically modelled in the Savills analysis.

It is important to note that whatever rent convergence limit is permitted by the Government that it would be optional for local authorities to apply it. Any decision to do so would need to carefully balance the affordability for tenants with the imperative to invest in the quality and supply of social and affordable housing stock. Further, implementing convergence would, over time, as the consultation sets out, achieve greater fairness between the rents paid by tenants of social rent homes

Local authorities already play a proactive role in supporting tenants experiencing affordability pressures – for example through providing tailored financial advice, facilitating access to hardship funds and signposting tenants to relevant support services. This existing infrastructure would also be available to provide targeted assistance to those most affected by implementation of rent convergence, as and when required. 

Convergence should be implemented from 1 April 2026, rather than from a later date. Introducing convergence at the earliest possible opportunity would allow local authorities to begin securing additional rental income without unnecessary delay. This additional revenue is critical to strengthening the financial sustainability of Housing Revenue Accounts (HRAs) and enabling local authorities to invest in improving the quality and supply of social and affordable housing.

There should no fixed time limit for how long a convergence mechanism is in place. An ongoing convergence mechanism would give local authorities maximum flexibility to respond to changing economic conditions, helping to maintain affordability for tenants over the long term. For example, if inflation were particularly high in a given year, local authorities could choose to apply a lower rental increase, with the assurance that they would have the ability to recover the foregone income in future years. Setting an arbitrary end date for convergence could restrict this flexibility and limit local authorities ability to manage affordability for tenants and financial sustainability of HRAs over time. 

However, if the government is minded to introduce a time limit then the ability to converge should be in place for a minimum of 10 years, which would align with the 10-year rent settlement (in which rents will be permitted to increase by CPI+1 per cent each year). As the consultation rightly points out, if convergence were only available for part of the rent settlement period, this would restrict the amount of additional rental income that local authorities would receive and reduce the number of local authorities that could reach full convergence – recognising that even with £2/week for 10 years, some local authorities would still have properties where rents still had not reached formula rent levels. Additionally, a shorter time limit for convergence would give local authorities less flexibility to respond to short-term cost of living pressures for tenants, for example by pausing or reducing the rate of convergence in a given year, as it would have a greater impact on the financial capacity of HRAs over the long-term as local authorities would be less likely to be able to recoup any foregone income over any remaining limited convergence period.