New rent deal to aid ‘quality and quantity’ of social housing

Annual rent increases capped at up to Consumer Price Index (CPI) inflation +1% for five years from 2020.

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MHCLG has announced a new long-term social housing rent deal – supporting “quality and quantity” by capping rent changes at a sustainable level.

The new rent standard has been confirmed by housing minister Kit Malthouse this afternoon (26th Feb).

Malthouse said the standard “provides councils, housing associations and tenants with certainty”.

The five-year deal comes after the Social Housing Green Paper published last year set out government commitments to work with the sector to rebalance the relationship between residents and landlords, tackle stigma and ensure that social housing can be a stable base that supports social mobility.

Already, £9bn is being invested to deliver thousands more affordable homes, and borrowing restrictions have been lifted so local authorities can build a new generation of council housing.

Today’s announcement follows a consultation last year on capping annual rent increases at up to Consumer Price Index (CPI) inflation +1% for five years from 2020.

The government is now directing the Regulator of Social Housing (RSH) to set this new standard on rents, to come into force on 1st April 2020.

This new standard is pitched as providing housing associations and councils with a stable financial environment to support the delivery of new homes, while also providing tenants with the certainty that they will be protected from excessive real-terms rent increases.

Malthouse also confirmed that government was directing RSH to apply the new rent standard to both councils and housing associations, where previously only housing association rents have been regulated in this way.

“This will further support the principle that all social tenants should receive similar levels of protection,” Malthouse said.

In September last year, MHCLG launched a consultation on a proposed direction from the Secretary of State to the Regulator of Social Housing on social housing rents from 1st April 2020 onwards.

This consultation closed in November.

Overall MHCLG received a total of 157 responses to the consultation – with percentages based to responses to specific questions.

  • 37% of responses were from local authorities or their representative bodies.
  • 18% of responses were from private registered providers or their reprsentative bodies
  • 35% were from individuals or tenant organisations

The survey showed 75% of those who responded to this question agreed that the Regulator’s rent standard should apply to local authorities.

Out of 58 local authorities and their representative bodies who responded to this question, 47 (81%) agreed that the standard should apply to local authorities.

However 19% of those responding to this question disagreed with this proposal.

They were concerned that the proposed application of the rent standard to local authorities was inconsistent with the principles of self-financing and did not provide sufficient control over income.

There were also calls to allow local authorities to increase rents on social rent properties up to the level of formula rent before the rent standard applies, as some charge rents below formula rent.

  • 70% agreed that the same requirements should apply to local authorities and private registered providers

Out of 57 local authorities and their representative bodies who responded to this question, 40 (70%) agreed with this proposal.

To MHCLG this suggests support for the continuation of the principle of a consistent national policy framework for setting social housing rents, applying to both local authorities and private registered providers.

However, a number of respondents said that they did not feel that there was a level playing field between local authorities and private registered providers, and some went on to suggest that local discretion be given to set rents that reflect local circumstances.

  • 57% of those responding agreed with registered providers increasing rents by up to CPI+1% each year

Of those, 86% were from local authorities, private registered providers and their representative bodies. However, within these sectors there were some calls for rent policy to be set beyond 2025 in order to provide greater long-term confidence.

  • 34% of those responding to this question disagreed with the proposal, including 87% of responses from individuals and organisations representing tenants

The main concern was increases in rents being unaffordable for those on benefits and those supporting rental payments themselves.

A small number of respondents were also concerned about the potential for large rent increases should the Consumer Prices Index rise – some asked for the Retail Prices Index with an increase factor of 0.5% to be used instead.

Some landlords advocated the reintroduction of the flexibility to increase the rent on social rent properties each year by an additional amount (over and above CPI+1%) where the rent is below formula rent.

Some respondents from both councils and private registered providers and their representative bodies pointed out that if convergence was re-introduced it would help to generate additional funding for housebuilding. It was also argued that reintroducing the flexibility would make landlords more inclined to set initial rents below formula rent.

Several respondents raised concerns about the definition of the ‘2020 limit’, to be used to calculate maximum rents in the first year after the social rent reduction period. They highlighted that using an average over the final year of the rent reduction period might result in a landlord being required to reduce a rent in 2020 if the property had been re-let at a higher rent level at some point during that year.

  • 69% of those responding to this question agreed with the proposed direction as it relates to social rent. 24% disagreed

Of the 19 responses to this question from individuals, 26% agreed with the proposal but 47% disagreed.

Some respondents argued that the link to 1999 values and earnings data in the calculation of formula rent should be reviewed, to make social rent properties more responsive to current local housing market trends and conditions.

In addition, some respondents objected to the expectation (set out in the draft Policy Statement) that the rent flexibility level should be used in a “balanced way”, on the basis that this would unnecessarily restrict their discretion to respond to local factors.

  • 70% of those responding to this question agreed with the proposed direction as it relates to affordable rent. 19% disagreed, with some stating that affordable rent is “not affordable”

Generally there was support for the intention to ensure that existing tenants in affordable rent properties are not exposed to rent increases in excess of CPI+1% at the start of a new tenancy.

However a number of respondents from the local authority and private registered provider sectors asked for clarification about the definition of “existing tenant” in this context, and in particular whether this would apply to tenants moving into affordable rent properties who were previously tenants of the same landlord.

Some respondents sought greater clarity about the circumstances in which affordable rent may be charged, in particular where this involves the conversion of social rent properties to affordable rent.

  • 69% agreed with the proposed arrangements for making exemptions from the rent standard on financial grounds

16% disagreed.

The largest positive response (in absolute terms) was from councils and their representative bodies, where 41 out of 54 (76%) responses agreed with the proposal.

A number of councils were keen to see details of the process that will be put in place.

Some believed that they should be able to seek an exemption on similar lines to private registered providers whilst others were keen that it focused on specific issues of rent profiling or stock as opposed to management or stewardship.

Some respondents were concerned that exemptions would give landlords an opportunity to avoid complying with the rent standard.

A further area raised was the definition of specialised supported housing, with some respondents seeking a return to the definition set out in the existing rent standard (or a more general widening of the definition).

Some respondents expressed the concern that schemes developed under the definition in the existing rent standard may be excluded under the proposed definition (which is similar to the definition that is already used in the Welfare Reform and Work Act 2016).

In October 2017, MHCLG announced plans to permit registered providers to increase rents on social rent and affordable rent properties by up to CPI+1% each year from 2020, for a period of at least five years.

This proposal was pitched as recognising the need for a stable financial environment to support the delivery of new homes by registered providers.

Government acknowledges the concerns raised about the potential impact on tenants of permitting rent increases of up to CPI+1% each year from 2020, but presses for recognition that most existing tenants will have benefited over the previous four years from a reduction of 1% each year as implemented through the Welfare Reform and Work Act 2016.

In that context, MHCLG believes its proposal strikes the right balance between the interests of existing social housing tenants who pay some or all of their own rent, the need to build more homes, and the importance of ensuring that providers have sufficient income with which to manage and maintain their properties.

MHCLG has stressed in the Policy Statement that CPI+1% is the maximum increase but landlords have discretion to apply a smaller (or indeed no) increase based on local circumstances.

A number of registered providers argued that social rents that are below formula rent should be allowed to increase by an additional amount each year, over and above CPI+1%.

MHCLG is concerned about the impact on tenants and welfare costs if some rents were permitted to increase by an additional amount per week over and above CPI+1%.

Overall, MHCLG believes the proposed CPI+1% limit strikes a fair balance between the interests of landlords, tenants and taxpayers.

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