The National Housing Federation has criticised the government's decision to call on housing associations to reduce rents by 0.9% in 2010/11 to reflect the current bout of deflation as reflected in the Retail Price Index.

The Federation, which had called for a rent freeze, said the decision strikes the wrong balance between the needs of current and future tenants, and the capacity of the housing associations to deliver affordable homes and community services.

It said the decision would deliver a very small short-term benefit to a minority of tenants – as not all would see a benefit due to rent restructuring – while causing substantial long-term damage to the capacity of the sector.

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It warned that reduced rents would lead to the building of fewer homes and cuts to neighbourhood services for years to come – as the reduction in rents next year would be carried over into the underlying rent assumptions for future years.

The Federation also pointed out that a recent survey showed that 69% of housing association tenants would rather forego the proposed rent cut than suffer cuts to services.

Federation Chief Executive David Orr said: "This is simply the wrong decision – which will damage the ability of housing associations to deliver affordable homes and community services for many years to come.

"In an environment where the government’s own figures forecast significant cuts in public expenditure over the coming years, a direct cut to the sector’s capacity to build homes and provide services is unwise."

(CD/KMcA)