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Time for a new rent formula? Matthew Warburton - 21/02/2013

rent_300It's that time of year again - councils are deciding what rent increase to set for 2013. A quick trawl through the housing media and council websites suggests that the great majority have decided to set rent increases in accordance with the usual formula of RPI plus 0.5% plus a convergence factor if still needed.

In some cases members have been advised that they have no option but to apply the formula. But do they? Is it time to look again at rent restructuring and ask whether the policy still makes sense in today's conditions?

It's pretty clear that councils do not have to follow the rent restructuring formula if they choose not to. Section 24 of the Housing Act 1985 enables councils to "make such reasonable charges as they determine" and requires them to review rents from time to time, and make any necessary changes. It also requires them to comply with any standards issued by the Regulator, but none are currently applicable.

The guidance on rent convergence, dating all the way back to 2002, is not statutory, so there are no direct consequences for councils which do not comply. This point is conceded by CLG in paragraph 9 of their Pay to Stay consultation paper, which states: "the Government's rental policy statements have the status of non-statutory guidance. Authorities have the flexibility to set rents at another level, or using another basis, if that appears to them more appropriate to local circumstances."

That leaves the risk of rent rebate subsidy limitation as the only other constraint councils need to consider. But this does not bear on the rents councils choose to set for individual properties, only on the income they can expect to receive from DWP.

The debt adjustment made to launch self-financing assumes, of course, that rents will rise by RPI plus a half per cent and converge by 2015/16, and any decision to increase rents by less than the assumed amounts will have an impact on the resources available to support planned investment.

The risk that welfare reform will push up irrecoverable arrears is another reason for opt for increases above RPI. But the objective of raising enough rent to support necessary and planned investment in a council's housing stock is different from the objectives underlying rent restructuring, and does not necessarily lead to the same policies.

Two main ideas lay behind rent restructuring in the beginning. One was that it was wrong that council and housing association tenants should pay markedly different rents for similar properties in the same area.

The other was that rent differentials between smaller and larger council properties were too narrow, and should be increased to better reflect the perceived value of the properties being occupied. 

But with all new housing association development now premised on affordable rents, tenants and councils are going to have to live with a world without convergence whatever rents they set between now and 2015. And is continuing to crank up the differentials between the rents payable on two and three-bedroom homes the most sensible approach with the bedroom tax looming? Maybe it is time for a re-think.

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