Rents for social housing in Wales will rise by a maximum of 6.5 per cent next year under a settlement announced by climate change minister Julie James today (Wednesday).
The settlement follows extensive consultation with housing associations, local authorities and tenants over the rent increase for 2023/24 in the context of inflation that is far higher than when the five-year rent standard began in 2020/21.
Rents normally rise by the inflation rate in September plus 1 per cent if inflation is between 0 and 3 per cent but CPI inflation this September was 10.1 per cent.
Welsh Government sees the 6.5 per cent increase as the best compromise between the interests of tenants facing a cost of living crisis and landlords who need to invest in their housing stock and services.
Around 75 per cent of tenants have all or part of their rent paid by housing benefit, meaning that some of the savings from a below inflation rent increase will go back to the Westminster Department for Work and Pensions.
Landlords will have the flexibility to reduce or freeze their rents for individual homes or increase them up to a maximum of 6.5 per cent plus £2 a week provided that their overall rents do not rise by more than 6.5 per cent.
According to modelling by Community Housing Cymru and the Welsh Local Government Association, an increase of 6.5 per cent ensures that no landlord will face a budget deficit next year.
As part of the settlement, the minister said she had secured a series of commitments from social landlords including that there will be ‘no evictions due to financial hardship for the term of the rent settlement in 2023-24’ where tenants engage with their landlords.
She explained: ‘I have been clear that no social tenant will experience any change in their rent until April 2023 but I do need to set rents for the next financial year now to give the sector time to plan.
‘From April 2023, the maximum limit which social rents can charge will be 6.5% – an increase well below the rate of inflation. This is the maximum any landlord can charge across all of their properties.
‘No landlord is required to charge the maximum and I know all landlords will carefully consider affordability and set rents as appropriate across their housing stock.
‘Within the overall settlement landlords may freeze, lower or raise individual rents based on a number of local factors of which affordability is a key consideration. The rate is a maximum not a requirement or a target.
‘We know that any increase in social rent may impact those social tenants who pay all or part of their own rent. These tenants, in particular, need to be protected from being placed into financial hardship through trying to cover the costs of keeping a roof over their heads.
‘Our agreement with our social landlords will help do that – protecting and enhancing the provision of good quality housing and vital tenant support services.
‘Finally, our agreement with social landlords builds on existing engagement with tenants in rent-setting decisions, including explaining how income from rent is invested and spent.’
The minister explained more of her thinking about the decision on rents in the context of the cost of living crisis in an interview in the latest issue of WHQ.
Service charges are not covered by the rent standard but landlords will be expected to include them in affordability assessments ahead of announcing any rent increase.
A joint campaign, encouraging tenants to talk to their landlord if they are experiencing financial difficulties and access support available, will be launched across Wales next year.
The UK Government is currently consulting on a series of options for social rent increases in England with a favoured option of 5 per cent, although also including options of 3 per cent and 7 per cent. The Financial Times reports that it is likely to go for a 7 per cent cap, a figure backed by housing organisations but described as ‘too high’ by Shelter.
An impact assessment estimates a 5 per cent cap would reduce social landlords’ rental income by £7.4 billion over the next five years compared to an increase in line with inflation, with 38 per cent of the benefits going to tenants and 62 per cent to the DWP in reduced housing benefit. A 7 per cent cap would reduce rental income by £4.9 billion over five years of which £3 billion would go back to the DWP.
As part of the rent settlement in Wales, social landlords have agreed a series of commitments including:
- No evictions due to financial hardship provided tenants engage with their landlords
- Continuing to provide targeted support to those experiencing financial hardship to access support available
- Building on existing engagement with tenants in rent setting decisions, including explaining how income from rent is invested and spent
- Investing in existing homes to keep them safe, warm and affordable to live in
- Exploring, in partnership with Welsh Government, options to prevent home loss for owner occupiers and those in the private rented sector
- Working in partnership with tenants, Welsh Government, funders and other partners to develop a consistent approach to assessing affordability across the social housing sector in Wales
- Participating in an assurance exercise in April 2023 to reflect on application of the rent policy to date. This will build on the work undertaken by social landlords over the past 3 years, and inform future work to develop a consistent approach to assessing affordability
- A joint campaign to encourage tenants talk to their landlord if they are experiencing financial difficulties and access support available.
Welsh housing organisations recognised the balancing act that the minister had to carry out and encouraged tenants in difficulties to talk to their landlord. However, there was also a warning that the cap means a real terms cut in the main source of income for social landlords.
Stuart Ropke, chief executive of Community Housing Cymru, said:
‘As not for profit landlords, rental income is reinvested into new and existing homes and providing essential support services to tenants, which have become even more vital in supporting tenants through the cost of living crisis.
‘Setting rent is one of the most important decisions that housing associations make and we don’t see permitted rent increases as a target to meet. Housing associations will now set rents locally by engaging with tenants and using affordability tools. They want tenants to feel safe and secure in their home and no one experiencing financial hardship need worry about losing their home, where they work with the housing association. We encourage tenants to talk to their landlord if they are worried about paying their rent.’
Chartered Institute of Housing Cymru director Matt Dicks said:
‘We are living in difficult times with a deep and sustained cost of living crisis having a huge impact on many of the tenants that our members support on a daily basis.
‘We understand this has been a hugely difficult decision for the minister to make in terms of balancing the needs of rent levels that are sustainable for tenants with the need to ensure that housing organisations have sufficient income levels to allow them to continue providing essential services and support to tenants; as well as being able to meet the Welsh Government’s ambitions around building more low-carbon homes at social rent and decarbonising our existing homes.
‘Our members, who work in social housing, have been doing a huge amount of work with tenants and housing providers in response to the cost of living crisis and are continuing to invest in hardship funds to help those struggling the most; supporting local charities and foodbanks; and funding money management and social security advice programmes.
‘We are concerned that given the current rate of inflation and its impact on supply chains, the rent settlement is in effect, a real-terms cut in the main income source for social housing organisations. In order to continue to deliver the high-level of service to tenants, as well as reach the ambitious targets it has set the sector in this Senedd term, the Welsh Government may need to allow more flexibility and the right level of funding, to enable the housing sector to meet these targets.’