Re-Lets At Formula Rent And 1% Rent Reduction

Some authorities who have properties which have not yet reached convergence to "Formula Rent" may have to reduce some property rents in April 2016 by more than one percent.  The current Guidance on Rents for Social Housing, effective from April 2015, was intended to provide long term certainty and stability to council tenants and landlords. It was expected to stay in place for ten years. The announcement of a compulsory one percent reduction over the next four years represents a complete U-turn on the policy. For some properties the rent reduction could be greater than one percent.  Where local authorities have not achieved 100% "rent convergence" to Formula Rent, the Guidance encourages councils to move the rent of any property not yet at Formula Rent up to the formula rent when the property is re-let following vacancy. Within the Welfare Reform and Work Bill, there is a provision that if social landlords increase rents on any properties "in year", they will have to be reduced back down again to the pre-increase rent minus 1% from April 2016. Read more on the ARCH website.

Government Presses Ahead With Rent Convergence Plan

The government is pressing ahead with plans to scrap the policy of bringing social rents into line a year earlier than initially planned.  ‘Rent convergence’ – the process of gradually increasing social rents until they meet a ‘target rent’ – will end next April, the CLG has confirmed. In a long-awaited response to its consultation on social housing rents, the CLG upheld plans to limit social rent increased to consumer price index + 1 per cent from April 2015. Currently landlords can charge an extra £2 a week in order to reach target levels. Some landlords have warned the move could cost them tens of millions of pounds in lost income.  However the department stated it would widen the circumstances under which housing associations could apply to the HCA for exemptions from the new rent policy. Read more on Inside Housing.

The Only Way Is Up

Changes to rent-setting seem poised to cripple some councils’ financial plans. It’s that time of year again for those working in council housing departments across the England, a period dominated by spreadsheets as teams prepare business plans for cabinet members to vote on. Buried within these dense documents are the proposed rents for the next financial year. The news is usually the same: rents will rise in line with a government-set formula which is dictated by the rate of inflation. This year, however, is different because the stakes are much higher than usual. While rents will still go up, for the most part, in line with inflation, every deviation in rents by even the tiniest margin above or below the rate of inflation could have a massive impact on the viability of councils’ 30-year business plans. The reason for this is in July last year the government sprung radical changes to its rent-setting policy on social landlords. It announced plans to replace the current rent-setting formula of the retail price index plus 0.5 per cent, plus up to £2 per week, with the consumer price index plus 1 per cent from 2015/16. Read what the implications for rent convergence and lost revenue are as a result on Inside Housing.

CLG under Fire over Rent Plans

The government has come under fire over plans to offer temporary waivers to housing associations financially hit by proposed changes to social rent setting, but not to councils. The CLG published a consultation - Rents for Social Housing from 2015-16 - outlining proposals to end rent convergence - a policy intended to align council and housing association rents through gradual increases - in 2015, earlier than previously anticipated.  Landlords with average social rents that have not yet converged have warned the policy will reduce their income, capacity to build and in the cases of some stock transfer organisations, their financial viability. As a result the CLG stated ‘temporary waivers’ would be granted to some housing associations by the Homes and Communities Agency. However, it offered no such aid to councils which, according to Chartered Institute of Housing figures stand to lose £1.2 billion over the next 10 years as a result of the proposals. Find the consultation either on the Gov UK website or on the Consultations Page in this Blog.

Rent Rules Will Slow Housebuilding Rates

The new government formula which dictates social housing rent increases was announced last month and was welcome for providing some stability for housing providers – but the much quieter announcement that rent convergence will be cut short after 2015 is worrying for a country that desperately needs the development of more homes.  Rent convergence – which allows social landlords to increase rents by an extra £2 to slowly align properties with their target rents and help ensure similar properties charge a similar level of rent – has been in place for more than a decade, but in a letter sent to housing providers last week the CLG declared they are "not minded" to extend the policy. Social landlords have responded to this by claiming that this will cost them hundreds of millions of pounds a year and will impede their ability to build new homes, while councils warned the change will affect their ability to repay debt.  Read more on the Guardian website.

Housing: Rents – Parliamentary Written Answer

David Mowat: To ask the Secretary of State for Communities and Local Government what consideration he has given to extending the timetable for rent convergence between local authority housing and registered social landlords beyond 2015-16.

Andrew Stunell: The Government have confirmed their intention to continue with the last Administration's policy of rent restructuring with convergence in 2015-16 and have no plans to change this.  Rental income assumptions underpin the local authority housing self-financing settlement, which begins on 1 April 2012. This initiative sees the end of the complex and unwieldy housing revenue account subsidy system and returns responsibility for social housing finance, including rents, to local communities.