New research by Savills has been published analysing the impact of the rent convergence options proposed in the current consultation from MHCLG.  The research was commissioned by ARCH in collaboration with the Chartered Institute of Housing, National Housing Federation, Local Government Association, National Federation of ALMOs and Councils with ALMOs Group.  The findings will be of use to ARCH member authorities in preparing their responses to the consultation, which closes on 27 August.

MHCLG is currently consulting on options to achieve the convergence of local authority and other social rents to formula rents.  Formula rents are the rents payable by new tenants but not by some existing tenants because of historic government restrictions on rent increases in certain years.  The research analyses the impact of additional rent increases of £1 or £2 a week, as canvassed in the consultation paper, and a third option of an additional £3 a week

The research reports are here:

cih-rents-analysis-convergence-update-august-25

cih-rent-convergence-update-resume-aug25

 

Main findings are:

Average rents

The average local authority rent in 2023.24 was £99.32 whilst the average formula rent was £105.06. The average “gap” between actual and formula rent was £5.74 or 5.47%.

CPI+1% for rents over 10 years with no convergence would result in average rents of £149.21 compared to averageformula rents increasing with CPI+1% at £157.85 by 2035.36.

Rent increases at CPI+1% + various convergence factors combined with reletting voids at formula rent would result in the following:

• £1 / week – c84p short of full convergence by 2035.36
• £2 / week – c13p short of full convergence by 2035.36
• £3 / week – broadly full convergence by 2035.36, within c31p by 2030.31.

Additional rent income

Cumulative additional rent income to 2035/36 is calculated on two alternative assumptions:

• properties becoming void are relet at formula rent
• properties becoming void are relet at average rent

On the first assumption additional rent income sums to:

• £1863 bn with £1 a week increase
• £3107 bn with £2 a week increase
• £3587 bn with £3 a week increase

National HRA projection

CPI+1% rent increases for 10 years (i.e. without convergence) would bring the national HRA into balance, with projected income equal to projected expenditure needs by 2035-36, but there would still be a cumulative deficit – an excess of expenditure needs over rent of nearly £5billion.

Rent convergence at £3 a week leads to a potential cumulative surplus of £0.9billion by 2036.37; at  £2 a week the potential surplus would be £0.4billion.  These options potentially enable all existing stock investment pressures to be addressed with some capacity for additional new development. These are the only scenarios in which the national HRA returns to surplus.

The Government is keen to see how much potential for new development is released by each of the rent convergence options.  But this obviously depends on how much is needed to support investment in the existing stock, particularly as a result of the proposed introduction of Minimum Energy Efficiency Standards and a new Decent Homes Standard, on which it is also currently consulting.