Rents: Proposals for the future

The key proposals set out in the Government’s consultation paper, ‘Rents for social housing 2015 – 2016’, are:

• Moving from annual increases in weekly rents of RPI + 0.5 percentage points (+ up to £2 for social rents), to increases of CPI + 1 percentage point;
• As a result, removing (from 1 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; and
• Making clear that rent policy does not apply where a social tenant household has an income of at least £60,000 a year, so that providers can charge those households higher rent (known as ‘pay to stay’).

The paper then sets out more detail about the changes, particularly about how it would be determined that a household fell within the ‘pay to stay’ category.

Changes to rent setting

We understand the reasons behind the proposed changes and welcome the longer-term certainty that the proposals will give to providers of social housing in relation to rent-setting and business planning, and the opportunity to generate further income for reinvestment in new housing.  However the proposals do have a number of concerning implications for providers, most significantly that the changes (if they went ahead) may be a trigger for funders to seek to re-negotiate funding agreements and covenants.  This would particularly be the case where a provider’s business plan is predicated on the ability to continue to use the current rent increase formula after April 2015, and may have a cost to providers both in terms of the exercise itself and funding.  The consultation paper does recognise that exceptions will be needed and refers to providers seeking waivers.  That flexibility is to be welcomed, although of course it will be interesting to see how those waivers are granted in practice.

In our response to the consultation paper, we:

• Identified that giving providers significant discretion about rent setting (although obviously within the wider context of the Regulatory Framework and (where applicable) any charitable objectives) will mean that increased regulation is required to protect consumers;
• Identified the potential contradiction with tenancy terms and conditions (e.g. where the increase is restricted by reference to RPI) and suggested that the guidance and the approach of the HCA reflects this;
• Asked for clarification as to whether the current 10% tolerance for target rents in supported accommodation will remain – the paper only refers to the 5% tolerance for general needs properties; and
• Suggested that this would be a good opportunity to clarify the meaning of ‘intermediate rent’ and when such rents can be charged, as the current position and guidance is unclear.

Pay to stay

From an implementation perspective, the tenancy agreements granted to residents need to give sufficient flexibility for providers to increase rent to reflect these proposals.  Realistically this really means that if a provider does implement ‘pay to stay’ (providers will not be obliged to) it will only be able to do so for new residents.

All of the proposals for assessment of the £60k threshold (including using the previous tax period and the meaning of ‘household’) and the principle of self-declaration by residents seem logical.  However our comments in response did state that we felt:

• An element of capital should be included in the calculations of income so the position is fair; and
• Further thought and guidance needs to be given regarding sanctions and enforcement behind ‘self-declaration’ for the proposals to have ‘teeth’.

The consultation period on the paper ended on Christmas Eve. We await the Government’s reaction to the responses to the consultation and the final proposals, but hope that these provide sufficient flexibility to providers.

For more information contact Emma Duke on 0121 214 3617 or emma.duke@anthonycollins.com.

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