Rents in the three nations
Judy Wayne and Jim Lashmar look at policies on increases in social rents in Wales, England and Scotland
Welsh social landlords had been expecting a new approach to rent setting for some considerable time, so when welsh government consulted on proposed changes in october last year there was some relief that a period of uncertainty had come to an end. the relief quickly turned to some anxiety when the effect on business plans was modelled, particularly when this was combined with the impact of welfare reform.
It is encouraging to note that Welsh Government officials took account of the views and comments of the sector before issuing their final policy intentions just before Christmas.
There have also been significant changes to the setting of social housing rents in England, and we thought that it would be interesting to compare Welsh, English and Scottish rent policies. Scotland, in particular, has a markedly different approach. In Wales and England the Governments are moving from policies based on the Retail Price Index (RPI) to the Consumer Price Index (CPI).
Wales
In October 2013 the Welsh Government issued proposals to move from the basis of setting rent increases at RPI plus 1 per cent to the CPI basis. The proposals also included a process of rent convergence whereby target rent bands are set by Welsh Government on the basis of a local weighted formula.
The original proposals suggested CPI +1 per cent with a cap based on local housing allowance levels but, after consultation with the sector, it was announced in December that, between 2014/15 and 2018/19, the annual uplift will be CPI plus 1.5 per cent, plus up to £2 per week for individual tenants where the landlord is seeking to bring its average weekly rent within the target rent band.
The Welsh formula is therefore more beneficial in the short term where rents are below target bands with the rent restructuring formula allowing more scope to bring rents up to target level. This compares with a historically higher RPI- based increase but no rent restructuring increases.
In addition to setting out details of how rents will increase, Welsh Government has set out its rents policy framework which will apply to housing associations from April 2014 and local authorities from April 2015 (when it is planned that they will exit the housing revenue subsidy system). The intention is for rent policy to ‘consistently reflect variations in the type, size, quality and location of each landlord’s housing stock’.
Also, where a social landlord currently pools rents and service charges, Welsh Government now requires them to start the process of disaggregating service charges from rent and to complete the exercise by March 2016.
Two ‘task and finish’ groups are to be set up to (i) consider the impact of linking rent policy to local housing allowance and (ii) to develop a framework and guidance for service charges to ensure consistency across all sectors.
England
The move to a CPI base for setting rents, from the current RPI plus 0.5 per cent basis, had been under discussion for some time. As part of the 2013 spending round the government announced that from 2015-16 social rents would rise by CPI plus 1 per cent each year for 10 years. The spending review document states that the government will save £540 million in 2017/18 as a result of the formula change.
CPI is generally expected to rise more slowly than RPI over the longer term, as CPI excludes house price inflation. Although the difference between the indicators is currently only 0.5 per cent, economic projections indicate that this gap is likely to increase in future, with a corresponding impact on total rental income in long-term business plans.
In July 2013, the Department for Communities and Local Government further announced that it planned to end the policy of rent convergence, under which registered providers (RPs) and local authorities (LAs) with rents below target are allowed to increase them by an additional £2 per week per year until convergence is reached. Failure to converge is expected to have a material impact on a number of RPs and LAs where convergence has not yet been achieved on a significant proportion of stock, particularly those in high value areas with low historic rents.
Scotland
In contrast with the other governments, the Scottish Government does not stipulate the basis on which social rents should be increased. Scottish RSLs are expected to set their own rent policies, any increases taking account of local benchmarking, local housing allowance, affordability to tenants, and both short- and long-term organisational viability.
Currently, the standard sector assumption for Scottish RSLs is RPI plus 1 per cent with any increases above this level being subject to scrutiny by the Scottish Housing Regulator having regard to the above criterion. With the English and Welsh moving to a CPI basis, it will be interesting to see whether RSLs in Scotland also choose to adopt a CPI base.
Jim Lashmar and Judy Wayne are Altair Directors. Jim can be contacted 07968 616550 and jim.lashmar@altairltd.co.uk and Judy can be contacted on 029 2037 7268/07880 606067 and judy.wayne@altairltd.co.uk