Rent Increases in the Social Housing Sector come into effect after 4 years of Rent Reductions

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01 May, 2020

In October 2017 the government announced its intention to introduce a new policy to permit annual rent increases on both social rent and affordable rent properties. The policy would allow rent increases of up to the consumer price index (CPI) plus 1% from 2020 and would apply for at least 5 years. In practice this currently would mean a 2.7% rent rise. The Government's response to the consultation was issued in February 2019, in which it confirmed that the new policy would proceed and directed the Regulator Social Housing to issue a Rent Standard for 2020-2021.

The Rent Standard came into effect on 1 April 2020 and applies to all registered providers of social housing, this includes local authority registered providers as well as private registered providers.

The new Rent Standard will apply to Local Authority rent increases in the same way as other social rented sector rents, and the government has therefore advised that there is no longer a need to apply the Rent Rebate Subsidy Limitation (RRSL) in England to ensure the increases do not exceed formula rents. The Income-related Benefits (Subsidy to Authorities) Order 1998 will be amended to remove the RRSL provision, for England only, in the 2020 Subsidy Order Amendment (to come into force in Autumn 2020).

To give a background and reason for the change in policy, the following milestones should be noted:

2011 - The Government introduced 'affordable rent', permitting rents (including service charges) to be set at up to 80% of the market rent. This was introduced to enable more homes for each £1 of government investment to be built in a bid to allow more people in housing need to have access to a quality home at sub-market rent.

2015 - The Government allowed social landlords to charge a full market rent if a social tenant household had an annual income of at least £60,000. The aim of this change was to allow landlord to make better use of their social housing rather than require them to provide sub-market rent homes to households that had a relatively high income.

2016 - The Welfare Reform and Work Act 2016 required social landlords to reduce their rents by 1% each year for 4 years, this was named the 'social rent reduction' and applied to both social rent and affordable rent properties. The rent reduction was designed to make welfare spending more sustainable and for the social housing sector to play its part in helping to reduce the deficit.

2020 - The 4 year social rent reduction is now at its end and the policy to allow rents to increase for at least 5 years has been implemented.

Why the change from a reduction to an increase?

With the changes to the benefits system and introduction of Universal Credit, the government has found that not all local authority tenants will be covered by Housing Benefit subsidy payments to local authorities (as is currently the case) and therefore the Limit Rent (a comparison to the average actual rent and a proportional reduction in Housing Benefit Subsidy where the average rent is higher) will not control welfare costs where the tenants are receiving Universal Credit. The policy change will remove the limitation on the Rent Rebate Subsidy that local authorities have been subject to when claiming the housing benefit subsidy.

As always there are two sides to any decision; how this will impact on social housing tenants and what benefit we will see from the rent increase?

As can be expected, there is concern that tenants who currently pay towards their rent could struggle to pay the rent increase, but as a significant proportion of social housing rents are met by either Housing Benefit or Universal Credit, the government believes that the increase of CPI +1% strikes the right balance between protecting the interests of existing social housing tenants who pay their own rent, and the need to build more homes.

The CPI+1% is a ceiling and the rents cannot be increased beyond this and where the 4 year social rent reduction has not yet been completed, as this is a statutory obligation, the reduction will need to be completed before the rent increase policy can be implemented.

The intention is for the first year of the CPI+1% rent increase to be applied to the average weekly rent in the final year of the rent reduction, to give a smooth transition. After the first year the new Rent Standard will require providers not to increase the weekly rent by more than CPI+1% per year. The formula rent will remain unchanged, this sets the initial rent and the increase will apply thereafter. This makes sure there is a consistent approval across all local authorities and private registered providers that the new Rent Standard will apply to.

With the requirement in the 2018 budget for an additional 13,475 affordable homes to be built by March 2022 it is essential that social rents have been reviewed and for an increase to be brought into effect to increase the funding available to local authorities and registered providers to fund new projects to provide the much needed affordable homes.

What impact is COVID19 having on the rent increase policy that came into effect on 1 April 2020?

The challenge in this first month of rent increases appears to be around Universal Credit and difficulty in tenants contacting DWP. The current issue is the high numbers of verification requests for change in circumstances occurring where tenants are reporting a rent increase of less than 3% (the maximum that can be applied this year is 2.7%). The verification process requires a telephone appointment, the booking of which is overwhelming the DWP and causing delays in payments. While this may initially cause tenants to be in rent arrears, once the verification has been completed any arrears should eventually be cleared.

Different councils are applying different policies in the current situation, City of York Council have delayed the rent increase for 3 months but not for tenants paying through Universal Credit or housing benefit as their rent is covered in full. While another council has only increased rents by 2.2% this year rather than the full 2.7% that is permitted, this decision was made in advance of the 1st April with the council advising it was to help it's tenants cope with the rising cost of food and utility bills.

Given the effect COVID19 is having on the economy it may take longer for social housing providers to see the benefits of the rent increases and use the additional funds for the provision of additional affordable homes.

For more information contact Claire Smith in our Housing & Regeneration department via email or phone on 01772 220142. Alternatively send any question through to Forbes Solicitors via our online Contact Form.

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