Living with Living Rent

As Living Rent is readied for a major expansion across Wales, Bill Tanner reports on how housing associations are preparing for the model.

Wales is set for a major expansion of Living Rent, with Community Housing Cymru (CHC) urging Llywodraeth Cymru/Welsh government to offer a long-term settlement that matches the ambition of housing associations.

“The ambition from housing associations is there, and what we now need is certainty and a long-term settlement from Llywodraeth Cymru/Welsh government as a matter of urgency,” says Clarissa Corbisiero, CHC director of policy and external affairs/deputy chief executive.

In February this year, CHC appointed Altair Ltd to undertake research supporting a local approach to setting rent on the basis that, when setting rent locally, landlords in Wales should be considering affordability in the round.

Over February and March 2019, Altair analysed the elements of different affordability models and view their suitability for use in different parts of Wales.

“Inevitably, we found that one size doesn’t fit all,” says Clarissa. “Many associations are considering the Living Rent methodology alongside other wider affordability metrics and are mining available data to support meaningful conversations with tenants.

“Our next step is to work with housing associations to make this ambition a reality.”

CHC acknowledges there is much to be learned from others, including tenant groups’ partner associations in Scotland and elsewhere.

“We also hope that those conversations with tenants and our partners will shine a light on the value we provide across our business, while challenging and exposing ways that we can do things differently,” says Clarissa.

The drivers that have led CHC to develop its thinking on changing the approach to setting rents in Wales are all too familiar.

And a five-year rent settlement that concluded in 2017/18 – with a one-year transition settlement put in place for 2019/20 – represents a significant and challenging change from previous policy.

Then there was the Spending Review and Autumn Statement in 2015, with its restriction on the level of Housing Benefit – or the housing element of Universal Credit – claimed by tenants in social housing to the Local Housing Allowance (LHA) rate.

CHC acknowledges the restriction as sending “shockwaves” through large parts of Wales, as social rent was already higher than LHA rates in many valley and rural areas. This highlighted the need to review rents in the context of affordability.

There have also been concerns about the existing rent policy, particularly the problems that a lack of certainty over long-term rent settlement can cause to forward planning; a lack of autonomy to adjust rent levels across portfolio/different properties, with a resulting impact on viability; and the last-minute decision on the rent settlement, meaning tenants are not adequately informed about justifications for policy changes.

As such, CHC recognises increasing concern that associations will not be able to meet statutory requirements to inform tenants about rental increases based on the market.

“Deciding how much rent to charge, where to charge it, and the impact of doing so is one of the biggest decisions a housing association makes,” says Clarissa. “It goes to the heart of our values as social businesses.

“In Wales, we think that the best and most effective way of doing this is to make those decisions transparently, based on data and in partnership with tenants at a local level.

“We plan to do this by publishing long-term local rent policies,” she says.

Newydd has been developing how it assesses affordability for the past five years, after initially using the Resolution Foundation definition and replacing it with the Joseph Rowntree Foundation living rent model.

“The living rent model was a blessing for our task, as it came with a source of freely available government data,” says finance and resources director Elizabeth Lendering.

When Newydd updated its five-year Corporate Plan in 2016, delivering core services for an affordable living rent was enshrined as a Key Corporate Objective.

Since 2017, Newydd has included services charges when considering affordability.

“What difference has this made? It has influenced our annual rent settlements, made us shine a very bright light on the cost of services, and made affordability a focal point of tenant consultation,” says Elizabeth.

“Generally, rents are affordable when compared to the living rent model.

“However, we struggle to keep rents plus service charges at an affordable level for small flats.

Elizabeth and her team have taken two approaches to this problem: lowering annual rent increases for smaller properties to bring them more in-line with living rent, and scrutinising services.

“New development service charges were becoming a problem,” says Elizabeth, “[so] a Strategic Service Charge Group was established to design out service charges where possible and to reduce service charges on existing stock.”

Going forward, Newydd will continue to develop its approach, assuming the JRF Living Rent equivalence scale is a good proxy for household composition.

“We will be undertaking a review to ensure this is in fact the case,” says Elizabeth.

“We also want to ensure that our policies are fair and transparent and will continue to touch base with our tenant representatives to understand affordability and fairness from their point of view.”

Case Study – Merthyr Valley Homes (MVH)

MVH, a mutual owned and controlled by tenants and employees, had 1,300 different rents for 4,100 properties when set up in 2009.

Following consultation, MVH tenants expressed their preference for rents based on the type and size of the property – essentially the same rent for similar properties. And they wanted rents to be set affordably, fairly, and simply.

In April last year, MVH adopted the Living Rent Model, taking affordability into consideration and ensuring that the rent levels set for each property type do not breach the overall parameter/rent envelope set by Llywodraeth Cymru/Welsh government.

This year, MVH asked tenants for their priorities – with financial help placing high on the list.

MVH believes the best approach it can take to help tenants with their finances is to charge a Living Rent based around average income levels.

In addition, a trauma-informed approach to arrears collection, pre tenancy checks, financial advice, Universal Credit triaging, and income maximisation service all work toward better income recovery.

This has meant a £50,000 reduction in current rent arrears at 31st March 2019.

In terms of actual household income in Merthyr Tydfil, pre-tenancy checks show it was £355.82 in 2018/19 and had increased to £389.96 in 2019/20.

MVH has a large proportion of three-bedroom housing stock, effecting an MVH three-bed rent set at 26.28% of average income in 2018/19 and 24.56% in 2019/20 – an affordability formula that also includes service charges.

The rent for new-build properties is charged at a slightly higher rent based on a sliding scale, depending on the number of bedrooms.

MVH acknowledges there’s more to do to make Living Rents sustainable, but recommends the positive step towards better income recovery, value for money, and fairness to tenants.

Case Study – Trivallis

Trivallis launched its Fair Rent Review project in April last year.

More than 2,200 customers, a statistically significant sample, gave feedback on the factors they felt would form the basis for rents.

57.2% of tenants thought it was fair to base rents on affordability, compared to an average of 40.1% who thought it would be fair to use the traditional desirability factors.

Trivallis decided to set their rents in line with the JRF Living Rent Model, which reflects differences in income levels at a local level and the types of families that are typically allocated different sized properties.

The policy ensures that Trivallis continues to comply with Welsh government policy, and flexibility within the policy ensures there will not be any adverse impact on Trivallis’ long-term financial viability and ability to develop and grow in the future.

The living rent applies to Trivallis’ general needs and sheltered housing tenancies.

While the Living Rent Model establishes a link between rents and a tenant’s ability to afford them, Trivallis’ model has been enhanced to ensure that it is fair and affordable for its tenants by varying rents across Rhondda Cynon Taff (RCT), based on changes in income levels.

For properties with communal areas, if the inclusion of service charge causes the total rent payment to be unaffordable, then a rent cap may be considered.