Some authorities who have properties which have not yet
reached convergence to "Formula Rent" may face the prospect of
having to reduce some property rents in April 2016 by more than one
percent if the Welfare Reform and Work Bill is passed as
drafted.
The current guidance on Rents for Social Housing published in
May 2014, and effective from April this year, was intended to
provide long term certainty and stability to council tenants and
landlords. It was expected to stay in place for ten years. The
announcement of a compulsory one percent reduction over the next
four years represents a complete U-turn on a policy that only came
into force in April this year. For some properties in some councils
the rent reduction could be greater than one percent.
At present, where local authorities have not achieved 100% "rent
convergence" to Formula Rent, paragraph 2.17 of the DCLG Guidance on Rents for Social Housing
encourages councils to move the rent of any property not yet at
Formula Rent up to the formula rent when the property is re-let
following vacancy.
Within the Welfare Reform and Work Bill, there is a proposed
provision that if social landlords increase rents on any properties
"in year", they will have to be reduced back down again to the
pre-increase rent minus 1% from April 2016.
We can understand why the government would wish to ensure
councils don't implement an across the board mid-year rent increase
before April 2016. However the wording of the Bill as it stands
seems to suggest that those councils who have individual properties
that are not yet at Formula Rents and who are following current
guidance (as per para 2.17) will be penalised for doing so
in that they will then need to reduce the rent again in April 2016
by more than one percent.
While we may be misinterpreting the wording of the Bill as
drafted, we believe that if the government press ahead with
legislation to force councils to reduce rents there should be an
exemption to ensure that where councils have increased rents of
properties as they have become vacant to Formula Rent "in year"
(in accordance with
current DCLG guidance) then the one percent reduction
should apply to the higher Formula Rent charged to the new tenant
on re-let and not the rent charged to the previous tenant on 1
April.
If the legislation goes ahead, we will also lobby to allow
councils to continue to move the rent of any property, not at
Formula Rent, up to Formula Rent where the property is re-let
following vacancy and then apply the one percent reduction for the
incoming tenant to the new Formula Rent.
John Bibby, ARCH CEO, has been in touch with DCLG
officials to seek clarification on this point. In the meantime,
councils who have properties below Formula Rent and who are
applying the provisions in the current DCLG guidance to increase
rents as those properties become vacant may need to factor this as
a potential risk in their business plan assumptions.