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Affordable housing review – rent policy

The minister tasked the panel with ‘making recommendations on how a sustainable rent policy can help determine long term affordability for tenants and the viability of existing and new housing developments’.

Key recommendations

  • Welsh Government should implement a five year rent policy from 2020- 21, providing stability for tenants and landlords.
  • Further flexibilities should be introduced into the Welsh Government’s rent formula regime in relation to bungalows (a higher upward differential) in order to better differentiate them from flats and the locational index (a limit on annual adjustment) in line with the recommendations of the Heriot Watt report.
  • There should be a focus on landlords considering Value for Money (VfM) alongside affordability. An explicit annual assessment on cost efficiencies should be part of the rationale for justifying any rent increase.


Current social rent policy was introduced in 2014 for housing associations and 2015 for local authorities. This aimed to remove anomalies between the sectors while maintaining investment capacity in existing and new stock.

Emerging findings from an independent review by Heriot-Watt University are that the policy is meeting its objectives, is accepted by a wide range of stakeholders and should be retained. While some elements should remain under review and be improved, the report also noted that flexibility in the current arrangements was not being maximised by social landlords. According to the report, it was also ‘apparent that some landlords found it convenient to maximise rents within the Welsh Government guidelines and without putting in place an evidenced and nuanced rent policy which paid due regard to tenant affordability.

The report rejected arguments put forward by some landlords that they should have full autonomy in rent setting, arguing that it was hard to see how consistency and fairness could be achieved without some co-ordination. Providing flexibility with an overall framework was the right approach.


There was consensus on flexibility, affordability, on recognising the impact on business plans and viability along with greater tenant involvement. However, the report says that in general local authorities argued for the retention of a rent policy while housing associations wanted freedom to set their own rents. Members of the policy work stream could not reach a consensus but argued for more certainty (longer-term agreements), consideration of affordability taking into account the whole cost of living in the property and improvements to the current system if it continues.

In 2018/19, 22 out of 36 associations and seven out of 11 stock-holding councils increased their rents by the maximum 4.5% allowed under current policy. All of the others increased their rents, with most raising them by more than 3%.

TPAS Cymru surveyed tenants and found that 71% said their rent was affordable (though perceptions of this differed significantly according to whether they were on housing benefit or not) and 51% said service charges were affordable but67% felt that rent was going up faster than income and a freeze on rent increases was needed.

A new framework

The panel concludes that there is ‘no compelling argument for complete freedom for rent setting at this time’. Tenant affordability should be the key driver for rents alongside provider viability rather than the creation of surpluses to fund new development.

It is also ‘clear there had to be a clear balancing between the interests of providers and residents’, noting real concern that rents have increased faster than incomes and ‘concerning’ evidence from the Joseph Rowntree Foundation that average social rents for two-bed homes in the Valleys are unaffordable for 46% of tenants.

Surprisingly, says the report, ‘there was little mention of costs and efficiency as a further factor in the equation’ in the debate on the relationship between rent levels and grant. The panel sees work by the Regulatory Board for Wales on value for money as ‘a step in the right direction’ but adds that: ‘There seemed to be an unwillingness to confront the question of controlling operating costs and to consider their impact on rents.’

The report praises emerging good practice in ‘work by Trivallis and Merthyr Valleys Homes to engage with tenants and seek to understand local affordability issues’. However, it was clear that landlords are not exploiting flexibilities in the current system ‘with too many in effect ‘sheltering’ behind the current policy and failing to develop their own rent policies’. The panel agreed with the Heriot-Watt report on an annual limit on the locational index for any area and on the case for an upward differential for bungalows relative to flats.

Overall, the panel says an annual rent settlement is ‘not helpful’ and calls for a longer-term, five-year policy to run from 2020/21 to 2024/25 and for successive five-year periods. When this in in place, Welsh Government could consider progress on other issues and the case for further freedoms.

The panel says that what the precise rent policy should be is ‘a political decision depending on where Wales wish to be positioned’. However, it believes there is ‘little justification for anything above CPI plus 1%’ given that is what will apply in England from 2020/21.

It concludes:

‘The panel recognises that unless landlords achieve more cost savings then lower rent settlements will mean lower surpluses and thus potentially less capacity for new development. However, a truly sustainable social housing sector has to put tenant affordability as a priority. The recommendations made here offer landlords the potential of a longer term and better settlement and one in which there will be more opportunities to make better use of resources.’

Additional recommendations

  • Some landlords do not appear to fully understand or make use of the policy and the flexibility already provided. The panel agreed with Heriot Watt that the Welsh Government should provide case studies.
  • The panel fully endorsed the view that there should be better, more meaningful, engagement with tenants on rents. This was seen as a high priority for landlords and the regulator.
  • Living rents and other new approaches have potential and housing associations and local authorities should work with Welsh Government to develop these.
  • The Welsh Government and the Regulator should continue to monitor the rent regime on an annual basis and consider the case for further changes before the proposed initial five-year regime concludes in 2024/25.

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