Social housing rents from April 2020
The Regulator of Social Housing is consulting on the new rent standard to apply from 2020 which is based on the direction from the Secretary of State for Housing, Communities and Local Government and to government's rent policy which fills in additional details.
Like the 2015 Rent Standard the draft 2020 Rent Standard requires RPs to comply with the direction and (new) rent policy and this sets out specific expectations.
The consultation is focused only on the extent to which the draft Rent Standard reflects the direction so we do not anticipate material changes.
The new Rent Standard will apply, as in previous years, to low cost rental accommodation unless it is specifically exempted or the tenant qualifies as a 'high income social tenant' (where the income thresholds remain at £60,000 per tax year).
Generally, applicable exemptions will be shared ownership low cost rental accommodation, intermediate rent accommodation, specialised supported housing, student accommodation, PFI social housing, temporary social housing and care homes.
All of these categories have specific definitions which must be checked before assuming a property is exempt from the regulatory requirements. An ability remains for the Regulator to exempt an RP where compliance would jeopardise the provider's financial viability.
A significant change in the upcoming standard, is that due to the ongoing roll-out of universal credit and the consequent roll-back of the effect of 'limit rents' and the related subsidy system, for the first time it will apply to local authorities. Local authority landlords will therefore need to ensure they meet the standard's requirements unless exempt under the categories listed above, or if the accommodation qualifies as 'relevant local authority accommodation'. What relevant 'local authority accommodation' is hasn't yet been defined, however, the Policy Statement indicates that it is accommodation which the Secretary of State has agreed is exempt. The process for obtaining exemption is expected to follow.
Rent setting in the year following the end of the statutory rent reduction period
For both affordable and social rented properties, the maximum weekly rent for an existing tenant must be capped at the '2020 limit'. Broadly, the 2020 limit is calculated by taking the average weekly rent payable in the final 'relevant year' under the rent reduction legislation, and increasing it by CPI +1%. An existing tenant who moves home is not caught by the 2020 limit provisions.
Rent setting where the 2020 limit does not apply – The maximum social rent for a tenant granted a tenancy for accommodation for the first time is formula rent. Formula rent calculations should follow the method set out in the Policy Statement, which permits flexibility levels of up to 5% for general needs housing and 10% for qualifying supported housing. Rent caps continue to apply.
Rent increases – Annual rent increases are capped at CPI +1%, other than where the tenant's rent exceeds the applicable flexibility level, in which case the maximum increase is limited to CPI.
Rent setting where the 2020 limit does not apply – The maximum rent (inclusive of service charges) for a tenant under a new tenancy is 80% of market level, unless this would result in a rent below formula level, in which case the maximum is formula. A 'new tenancy' in this context is one that is granted to a tenant in relation to accommodation for the first time.
Rent increases – Annual rent increases at affordable rent properties are capped at CPI +1% where a property is re-let to the existing tenant this cap will apply to the new rent.
Some intermediate rents could find themselves caught by the new Rent Standard. This is because, in contrast to previous treatments of this rent category, the 'intermediate rent' exemption is defined. As such, in order to be exempt from the rent standard from April 2020, an intermediate property must satisfy either (1), (2) or (3) below:
- The accommodation was built or acquired by the private registered provider without public assistance;
- is provided on an assured shorthold tenancy (other than a probationary tenancy) or licence, either to a tenant who is not nominated by a local housing authority under section159(2)(c) of the Housing Act 1996, or;
- to a tenant nominated under section 159(2)(c) where any conditions set by the local housing authority regarding the circumstances in which the registered provider may grant a tenancy of intermediate rent accommodation are satisfied in respect of that accommodation, has not previously been let on a social rent basis, and is not affordable rent housing.
- The accommodation is low cost rental accommodation which was funded wholly or in part by public assistance under a programme identified by the Regulator as an intermediate rent accommodation enabling programme, and any conditions under that programme regarding the circumstances in which the accommodation may be let as intermediate rent accommodation are satisfied.
- The accommodation is key worker housing. So long as one of the three tests is satisfied, then the rent standard falls away (although bear in mind other external considerations, such as grant conditions, Section 106 Agreements, policies or business plan assumptions which need lender approval may apply). Notably, the first test only applies to private registered providers, and so would be unavailable to local authorities.
The draft Rent Standard makes it clear that RPs are not free to convert affordable or social rent properties to market rent (except for high income social tenants) or to intermediate rent. Social rent properties cannot be converted to affordable rent without inclusion in a housing supply delivery agreement with Homes England of the Greater London Authority or certain local authority properties. This means that RPs considering active asset management will need to continue transferring or leasing relevant properties to a non RP as part of the process.
The draft Rent Standard reflects the direction and rent policy and so there are few surprises, but a few helpful clarifications. RPs will now be able to plan for their rent increases 2020 onwards.