Frequently Asked Questions: The Social Housing Rent Settlement from 2015

Transcription

1 Updated 15 November 2013 Frequently Asked Questions: The Social Housing Rent Settlement from 2015

2 1. Introduction Following the 2013 Spending Round announcement on the social housing rent settlement from 2015 onwards, we had lots of questions from members asking what it means for them. We published an initial set of FAQs in July 2013 and a further member briefing on rent convergence in September In October 2013 the Department for Communities and Local Government (DCLG) published a consultation on Rents for Social Housing from and a draft Direction on the Rent Standard 2013, also for consultation. The consultation invites views on the proposed rent policy for social housing from 2015 onwards. It sets out the changes to the current rent policy that Government are proposing, namely: Moving from annual increases in weekly rents of RPI + 0.5% to increases of CPI + 1% Removing the flexibility available to landlords to increase weekly rents by an additional 2 per week where the rent is below the rent flexibility level (i.e. the target rent plus the relevant tolerance) and rent cap Making clear that rent policy does not apply where a social tenant household has an income of at least 60,000 a year. Following the Spending Round, strong representations were made by the sector on the consequences of ending rent convergence and the potential knock-on impact on the capacity of some associations to develop new homes. While we continue to welcome the certainty that a 10 year index-lined rent settlement provides, we are disappointed Government have confirmed their intention to pursue the proposal to end rent convergence in the consultation. We will continue to press for the best outcome for the sector throughout the consultation period and in our formal response. Rent policy applies to housing associations through the rent direction issued by the Secretary of State, and the regulatory standard on rent issued by the Regulator. Following the outcome of the consultation, Government will issue a new direction to the Regulator on rent. The Regulator will then consult on changes to its regulatory standard on rent. The consultation closes on the 24 December For the full consultation documents please see the DCLG website - to These updated FAQs do not constitute official guidance and are based on our current understanding of Government policy and nothing should be considered final at this stage.

3 2. Frequently Asked Questions and Answers Q. What did the Government announce on social housing rents in the Spending Round and the subsequent consultation? In the Spending Round the Government announced a 10 year settlement for social rents from 2015/16. From April 2015 social rents can rise annually by the consumer price index (CPI) plus 1%. In a letter to the Federation after the Spending Round and in the recent consultation, DCLG confirmed they do not intend to extend the flexibility for landlords to increase rents by up to an additional 2 above the increase in formula rent, where the rent is below the rent flexibility level (i.e. the target rent plus the relevant tolerance) or rent cap. In short, rent convergence through annual rent increases will end from April 2015 and annual increases in rent will generally be limited to CPI plus 1% regardless of whether the property is at target rent. Social rents will continue to be set on the current basis, where a formula rent is calculated based on the current formula, and using values currently used for national average rent and capital value (as at January 1999 prices) and manual earning levels. DCLG have said they want to maintain the inflation-linked formula, and the values used, to provide stability to tenants and landlords. For full details of the Spending Round announcements please see the National Housing Federation briefing - Q. What impact will moving from RPI + 0.5% to CPI + 1% have on our business? The move to CPI plus 1% will naturally lead to questions as to how this compares with the existing settlement of retail price index (RPI) plus 0.5%. This will depend on future inflation, but over the last 12 months RPI has, on average, been around 0.5% higher than CPI, suggesting the new formula should give a broadly comparable rent increase in the short term. The inflation figures released in September 2013 showed RPI at 3.2% (which will be used to calculate rent increases in April 2014) and CPI at 2.7%. The CPI figure released in September 2014 will be used to calculate rent increases in April In the long-term, the difference between RPI and CPI is more uncertain and current forecasts suggest the gap may grow. Housing associations will need to be mindful of any potential fall in income over the long-term and factor this in to their business planning process accordingly. The National Housing Federation welcomed the certainty that the 10 year rent settlement provides. Annual rises above inflation should give housing associations the confidence and resources to plan for future development. It is also helpful in offering lenders and investors the certainty they need too.

4 Q. Why have Government moved from using RPI to CPI in the new rent settlement? The change to CPI is in line with a move across Government to use this measure, as far as possible, when an inflation index is used in policy. Government have said that in switching from RPI to CPI they also hope to put rents on a more stable footing. They have taken this action following the announcement from the National Statistician that the formula used to produce RPI does not meet international standards. Q. What will an end to rent convergence mean in practice? While this wasn t specifically included in the spending review announcements, Government have now said they are minded to end rent convergence from , meaning from that date housing associations will no longer have the provision to increase rents by 2 per week (on top of the increase in target rent) to help achieve target rent on all properties. As set out in the consultation document, DCLG have said the policy change is intended to ensure all social tenants see their rents increase on the same basis and it will also help control the housing benefit bill. DCLG subsequently wrote to us on this issue and we have published the letter on our website - Target rents will continue to exist after 2015 and the general expectation that housing associations set rents with a view to achieving - as far as possible - conformity with target rent would also still apply. Q. Will all properties be at target rent by 2015? In their letter DCLG said they expect most landlords to have achieved convergence by By that point, the rent convergence policy will have been in place for almost 15 years this is a significant amount of time for landlords to make full use of the rent flexibilities the Government have provided, and most have done so. However, as our recent survey showed, and as acknowledged in the consultation document, much of the housing stock transferred from councils to housing associations was subject to rent protection at the time of transfer. Many housing associations have been unable to use the full period of rent convergence and consequently still have a significant number of properties below target rent. Similarly, some properties transferred had particularly low social rents and even using the full period of flexibility has not afforded them sufficient time to achieve full convergence with target rents. The last time you will be apply to apply the 2 per week increase to rents is in the year Otherwise, you can re-let properties with rents below target rent, at target rent, on vacancy.

5 Q. Will we still be able to revalue properties to rebase target rent? At the moment housing associations can rebase existing valuations, for example to take account of improvements to the property, to recalculate the target rent. A revaluation now would allow an increase in rents already at target by RPI + 0.5% + 2 in April 2014 next year to move towards the new rebased target. As confirmed in the recent consultation, this option to revalue will continue. However, as the CPI + 1% limit will apply on annual rent increases from April 2015, if a revaluation occurs, rents could only catch up to the new target rent on re-let. Q. So what if we will still have a number of properties below target rent after 2015? We know that for many housing associations, particularly recent LSVTs and those where rent protection applied for a number of years, not all properties will be at target rent by Where this is the case we know associations will want to think carefully about the impact this will have on their viability and capacity and business plan assumptions. We understand the lack of provision for increasing rents by 2 per week will raise concerns for a number of housing associations, particularly where it is likely to have an impact on future viability. DCLG have said in the consultation document that they recognise the removal of convergence will impact more significantly on some landlords than others but in general, it would not impact on a landlord s financial viability. It is important to note the responsibility of boards is to protect the solvency and viability of their association and this is reflected in the HCA s Governance and Financial Viability Standard. In addition, paragraph 1.5 of the existing Rent Standard specifically refers to cases where the application of the standard might put a provider at risk of failing to meet existing commitments such as banking or lending covenants, and states that the regulator may allow time for the provider to bring itself into compliance. If the ending of rent convergence could have an impact on your organisation s overall viability then you should have an early conversation with the Regulator, which can issue a waiver from adherence to rent policy to support you to remain financially viable. As is the case currently, the consultation states that before a waiver is provided, an association would be expected to have looked at all other solutions for addressing their concerns, including reducing non-core spending and improving efficiency. If you are in this position then please also contact the Federation so we can take your views into account when liaising with Government and the HCA on this issue. Please contact Catherine.ryder@housing.org.uk. The removal of convergence will have a cumulative impact in terms of lost rental income. This will, inevitably, mean a reduction in the potential capacity that could have been used for development

6 and other activities and we know associations in this position are thinking carefully about the impact this will have on their future plans. Again we have raised this Government and will be discussing this further with them. Q. What about properties above target rent? We know that a number of housing associations currently have properties above target rent. There is no expectation that convergence should be brought forward to achieve target rent by 2015 on these properties. However, the consultation does make clear that rents on these properties should be brought down in line with the relevant target (plus the tolerance if you chose to exercise that flexibility) over time. This could be done by increasing rents by less than CPI + 1% or lowering the rent on re-let when it becomes vacant. For the very small number of housing associations who have a waiver in place with the Regulator, which allows them to continue to charge rents above target for a set period of time, this agreement will continue to apply. Q. What about properties that become vacant after 2015? Can we still change from the previous social rent to target rent when we re-let the property? As confirmed in the consultation, as the concept of target rent still exists, properties can be let at target rent when they come up for re-let and the expectation is that you will move these properties to target rent as soon as possible. However, if you are a developing association, it is clear there will be a greater emphasis on efficiency, asset management and conversions in the new capital investment programme also announced as part of the Spending Round. So, the Government and HCA will be looking for you to use vacant properties to maximise financial capacity for investment in new housing, including through conversions to affordable rent where this will provide cross subsidy for the development of new homes in the programme, in return for Government investment. Q. What about the tolerance to charge 5% above target rent, or 10% for applicable properties, will that still apply from ? As set out in the consultation, Government are not intending to remove the flexibility that housing associations have to use the agreed tolerance to charge rents above target. In practical terms, and in the context of the removal of convergence, this would mean you would be able to charge target rent plus the 5% tolerance, or 10% where relevant, when the property becomes vacant. Q. Will rent caps still apply from ?

7 Rent caps currently set an absolute cash limit on the rent that can be charged, based on the number of bedrooms in a property. Where the rent cap is below target rent for a particular property, it is expected the rent cap will determine the upper limit of the rent that can be charged. In the recent consultation DCLG have said they are considering whether to remove rent caps and are inviting views on this. This would provide landlords with the flexibility to move the rent of properties currently subject to the rent cap up to target rent on re-let. Q. What is the latest position on rents for social tenants with high incomes? In July 2012 the Government published a consultation paper setting out proposals to enable landlords to charge higher rents to social housing tenants with higher incomes. In the 2013 Budget they restated their intention to take this policy forward, by allowing landlords to charge market rent to social tenant households with incomes of at least 60,000 per year. DCLG provided further information on how they intend to implement the policy in their summary of consultation responses, published in July They explained they would take steps towards removing the regulatory controls preventing private registered providers charging market rents to social tenant households on incomes of at least 60,000 per year. It is worth noting that there is currently no intention to make it a mandatory requirement that housing association to adopt this pay to stay policy, rather DCLG will remove the restrictions that currently prevents them from doing so. The summary of responses can be found on the DCLG website - me_social_tenants_-_pay_to_stay.pdf. The recent consultation set out further detail of how DCLG intend to support landlords to implement this policy. Currently housing associations have to adhere to rent regulation, which expects them to set rents for social housing based on the formula, unless a specific exemption is provided. By introducing a new exemption from these expectations for social tenant households on incomes of at least 60,000, this will remove the regulatory control that currently prevents social landlords from charging these tenants market rent. To create this exemption, DCLG have set out in the consultation what they mean by income and household and have invited respondents to say whether they agree with the proposed definitions. The consultation also set out Government s intention to find a legislative opportunity to introduce a requirement for social tenant households on incomes of 60,000 or more to declare this to their landlord, along with appropriate sanctions and other changes to the primary legislation that might be needed. Where a tenant made a declaration, the landlord could decide whether to charge the

8 tenant up to full market rent. The consultation invites respondents to give a view on the proposed self-declaration approach, along with other specific aspects of the policy, such as the treatment of historic grant and the use of any additional rental income generated. Q. How is the Federation responding to the new rent settlement and how can I feed in my views? The Federation will continue to influence Government and the Regulator to get the best outcome for the sector in light of the announcements on the new rent settlement. In the summer we conducted a survey of housing associations on the likely impact of the new rent settlement and in September we wrote to the Treasury and DCLG setting out our concerns on the proposal to end rent convergence. Further details can be found in our September briefing for members on rent convergence - We will be responding on the consultation on Rents for Social Housing from and feeding in our views on the impact of the end of convergence, in particular looking for a solution for those where viability is an issue and making the case around the loss of capacity across the sector. If you have any views on these issues that you would like to feed in to the Federation s consultation response or intelligence on the impact ending convergence is likely to have on your organisation, please get in touch with us (Catherine.ryder@housing.org.uk). You should also look out for the outcome of the consultation on the Rents for Social Housing from and the subsequent Direction on the Rent Standard 2013.