The much anticipated Government consultation on rent increases for April 2023 has been published.
The key points to note are:
- It does not change the scope of the Rent Standard, so shared ownership and other exempt tenures are not affected by the proposal, but General Needs rented and most Supported Housing will be. It applies to all RPs; both private RPs and local authorities.
- The government is proposing a cap on rent increases at 5%, but is consulting on alternatives of 3% and 7% and says that it is open to other figures being suggested in response to the consultation.
- Service charges remain outside the formal requirements of the Rent Standard, but the statement that RPs "should endeavour to keep increases for service charges within the limit of rent increases" in the Rent Policy Statement will be amended to reflect the cap as well as the CPI + 1% limit for rents.
- It is a one year only proposal although the consultation asks whether this should be extended to cover 2024/25 increases due to current projections of continued high inflation. The government is promising to consult again in 2023 about rent increases from 2025/26
- The proposal affects existing tenants only – for re-lets the formula rent calculation will continue to increase by CPI + 1% and the rent cap will continue to increase by CPI + 1.5%. Affordable rent setting for re-lets is also unchanged. However, this too is subject to consultation as to whether to extend the principle to re-lets.
- In all other respects the Rent Standard 2020 and the Policy Statement on Social Housing Rents will remain in force and unchanged.
- The consultation ends on 12 October 2022.
Key considerations for RPs
The consultation timetable provides enough time for the government to consider responses and to issue its formal direction to the Regulator and for the Regulator to issue its consultation on proposed changes to the Rent Standard before rent increase notices are sent out. However, in order for the Regulator's consultation to have completed prior to sending out rent increase notices the time for the government to consider consultation responses would be severely limited. It should be recalled that when bringing in the Welfare Reform and Work Act government was willing to require implementation notwithstanding the lack of legal certainty in the lead up given its prior policy statements and it may take a similar approach here.
RPs have been concerned about the high level of inflation and the potential impact on their tenants as well as upon their own costs. They are already into their business planning cycle and will need to plan on the basis of a variety of different caps, but anticipating a significant gap between the rate of cost and rent increases until the response to the consultation is published. Of course, this comes at a time when RP business plans are also under pressure from costs relating to building safety and improving existing housing including taking necessary steps towards zero carbon commitments and rising costs of delivering on planned development pipelines. The government impact statement shows that it is aware of the potential impact of this on other government objectives.
A number of RPs have been investigating mechanisms to try and mitigate the costs to tenants this year without forgoing the 'lost' increases for the life of that tenancy. There is nothing in this consultation to provide any comfort about this except for the promise of further consultation on rent setting from 2025/26 and the government's statements about balancing priorities. Although the consultation does cover the 2024/25 rent year this is in the context of potentially extending the cap rather than allowing any 'catch up' from 2023/24. Although RPs responding to the consultation may want to include scope for mitigation of the proposal through future years alongside evidence of the impact of the policy framing the consideration for 2024/25 in this way indicates a limited government willingness to consider such strategies except as part of the consultation on rents from 2025/26.
Some RPs or sectors may have particular issues. Although Specialised Supported Housing and Temporary Supported Housing are exempt from the proposals other Supported Housing is not. Given the traditionally low margins in this area RPs undertaking a substantial amount of this activity may want to make a business case for exclusion with appropriate evidence.
Providers with substantial exposure to lease costs or funding that is inflation linked will have particular issues to address if they are reliant upon rents that are not exempt from the Rent Standard.
As with the Welfare Reform and Work Act rent reductions this will reduce capacity within the sector and for some RPs this will restrict their ability to undertake new development or to undertake planned improvements. For some this may make continued independent operation unattractive or even financially marginal. As with previous iterations of the Rent Standard there will be a waiver mechanism available to RPs that would have grave financial difficulties as a result of compliance with the proposed cap. However, the Regulator has to date been extremely diligent in ensuring that any applicants have taken every step to avoid having to rely upon a waiver and so RPs should not be sanguine about the likely success of such an approach in the absence of severe need.
