Rents for Social Housing from 2015

The government issued a consultation paper on rents for social housing from 2015 on 31st October 2013.

The main changes proposed in the consultation paper are:

• Moving from annual increases in weekly rents of Retail Price Index +0.5% (plus up to £2 for social rents), to increases of Consumer Price Index + 1%
• As a result, removing (from 1st April 2015) the flexibility available to landlords to increase weekly social rents each year by an additional £2, above the increase in formula rent, where the rent is below the rent flexibility level and rent cap
• Making clear that rent policy does not apply where a social tenant household has an income of at least £60,000 a year

For many landlords and tenants the change from rent increases of the retail prices index plus 0.5% to the consumer prices index plus 1% will not be significant as the consumer prices index has historically risen at a rate of about 0.5% less than the retail price index. Many landlords and tenants will also welcome the announcement as bringing more certainty to future rent policy in the long-term.

However, where landlords have yet to achieve rent convergence the new approach would prevent them from doing so in future. This mainly affects local authorities that have not been able to converge their rents with formula rents either because of the operation of the ‘caps and limits’ in the existing rent policy framework or because of historic policy decisions. This is especially significant in that the debt settlement with self-financing was based on the assumption that rents would converge and the implementation of the new rent policy would therefore leave those councils with a ‘black hole’ in their self-financed business plans.

The government’s approach for local authorities and registered providers also differs. Registered providers would be able to negotiate waivers with the Homes & Communities Agency whereas in the case f local authorities the new regime will be enforced through the rent rebate subsidy limitation mechanism with ‘rent limits’ being calculated based on the permitted increase in the previous year’s rents rather than on the rent formula.

This spells bad news for landlords whose rents are still below the formula and provides an incentive for landlords in this position to maximise their rent increases in 2014.

It is interesting that the government is considering removing the ‘bedroom caps’. This would result in significant increases in rents in high value areas when dwellings are re-let.

The proposal to increase rents for tenants with high incomes is also contentious with many landlords arguing that it would be unworkable.

The deadline for responses to the consultation is 24th December 2013.

This briefing paper summarises the consultation document and the reactions to it in the sector and draws conclusions.

To download your free copy please click HERE