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Only half the story Matthew Warburton - 01/11/2013

rent_level_300The consultation paper on future rent policy for social housing published by DCLG yesterday contains few surprises. But it leaves crucial questions unanswered.

 

In relation to council rents the paper proposes revisions to guidance to reflect the decisions announced in the summer to change the maximum annual percentage rent increase from RPI + ½% to CPI +1% from 2015/16 and discontinue the additional £2 a week allowed for convergence, and to make it explicit that landlords may charge higher rents to tenants with a household income over £60,000.

However, CLG guidance on rents is not statutory; councils may lawfully adopt a different local rent-setting policy if they choose. The teeth in government policy on rents belong to DWP, not CLG - and on exactly how DWP policy will be applied in future the paper is largely silent.

As expected, the paper confirms that guidance will remove from 2015/16 the current flexibility to increase rents by an additional £2 a week to allow for convergence to formula rents. Restricting rent increases in this way would have a significant impact on some councils where convergence will not have been achieved by 2014/15, and whose business plans were premised on the assumption that the additional £2 flexibility would continue to apply after 2015 - as DCLG's own self-financing documentation implied it would.

The consultation paper acknowledges that "this policy change will impact more significantly on some landlords than others" (paragraph 47), and points out the where a private registered provider "believes that any aspect of our new policy will impact on their financial viability" they may apply to the Regulator for a time-limited waiver from adherence to policy". There is no parallel opportunity for councils - the possibility that the financial viability of some HRA business plans may be compromised is not discussed, not even to dismiss the possibility.

Government rent-setting policy for councils is only guidance, councils may adopt different local policies if they choose. In particular, they are free to set rents higher than those recommended in guidance. However, they will not receive housing benefit subsidy in respect of the amount by which their average rent exceeds the rent limit set by DWP for each council, which is calculated by reference to the government's rent formula.

However, a few councils have taken the view that this disincentive is outweighed by the additional rent collectable from tenants not receiving HB. The consultation paper confirms that DWP will continue to prescribe rent limits - but as previously these will not be announced in time for councils to take them into account in deciding rent increases.

The introduction of Universal Credit forces a change to these arrangements, but the consultation paper contains no clear statement of the Government's intentions.  "The Government is considering", it says (paragraph 28) "how to ensure that Universal Credit only meets reasonable housing costs for local authority tenants.

An option would be to use the powers it has taken … to refer housing payments to the Rent Officer if they appear to be excessive or are subject to excessive increases". But if the Rent Officer were to decide that a rent was excessive, the only recourse available to DWP is to limit the rent element of the Universal Credit.

The effect would be to move from the current situation where tenants receive HB in relation to the actual rent they pay, and the council meets the shortfall in subsidy, to one where the tenant does not receive enough benefit to pay their actual rent. The potentially devastating impact of this change of policy for tenants is not discussed.

Consultation on the proposals closes on 24 December - although it is unlikely that civil servants will start analysing responses until a few days after that. I would encourage all ARCH members to submit a response, particularly where the financial impact of the proposed changes is significant, and to use the members area on this site to share draft responses with other members. Comments on what should be included in the ARCH response are equally welcome.

 

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