Welsh Tenants Federation Consultation response: Wales Government Rent Setting Review 2011 Welsh Tenants Fed Wales Government Rent Setting Title: Review 2011 Ref: WAG10-12122 Author: Welsh Government Publisher: Welsh Government Publication year: 31 st March 1 st August Size: A4, 23 Cost: Free. Availability: In print Respondent on behalf of WTF: Steve Clarke Welsh Tenants Fed Page 1 8/1/2011
About Us The Welsh Tenants Federation is the representative voice for tenants in Wales. Formed in 1988 we have over 350 member groups consisting of federations, representative tenant & resident associations and panels. The organisation represents tenants and leaseholders in the Local Authority and Housing Association sector. As our member groups cover a range of mixed communities, over the past ten years our membership includes a developing private rented sector within our membership profile. We believe that Wales can lead the way in developing a new less restrictive more vibrant form of renting that extends opportunity while providing adequate protection. The Welsh Government in partnership with the sector can achieve this better if it has sufficient powers and the resources to deliver. Welsh Tenants 2011 We believe that renting provides better opportunities for the economy generally, providing an increase in disposable income meaning that more money is recycled in the local economy or saved/invested for the future. The WTF would wish to see a greater proportion of Wales s housing needs met by rented accommodation particularly given the risks and recent failures attached to home ownership. We believe this can only be achieved by improving the supply of regulated rented accommodation across all the housing markets. In addition, better rights and better rights enforcement will also add to the confidence to rent. We also recognise the benefits of the opportunity to purchase a capital stake in the home embedding the families investment in the community and encouraging thrift and socioeconomic responsibility. We also see stock transfer as an opportunity to improve cooperative principles, encouraging the development of social enterprise resulting in regeneration and better involvement in community life. If you require this document on audio CD please contact us Welsh Tenants Federation Milbourne Chambers Glebeland Street Merthyr Tydfil CF47 8AT Tel: 01685 723922 Fax: 01685 722801 info@welshtenantsfed.org.uk www.welshtenantsfed.org.uk Twitter: TenantsUnite Welsh Tenants Fed Page 2 8/1/2011
Welsh Government Rent Setting Review 2011 Who we consulted The Welsh Tenants Federation s response is based on extensive discussions with tenants throughout Wales. The primary means of this interaction includes: ATTAIN (Accessible Tenant Training And Information Networks) held in the four regions of Wales. A tenant policy forum of experienced tenant advocates. Specific supporting transformation events organised with partners to address specific questions. ATTAIN meetings (attendance) Region Attendance Location South West & 62 Bynea Mid North and Mid 14 Rhyl South East 32 Merthyr Tydfil South West 25 Llanelli Supporting transformation events The Welsh Government Housing directorate and the Welsh Tenants Federation also organised a consultation event Invited form across Wales 52 Cardiff Joint events (Carmarthenshire council) South West 25 Llanelli Written responses In addition to interactions, we received 4 written responses from representative groups. Consultation period ends: 1 st August 2011 Person to contact regarding this response Steve Clarke steve@welshtenantsfed.org.uk Tel 01685 723922 Welsh Tenants Fed Page 3 8/1/2011
Background Information How each sectors rents work Local authority finance A Local Authority Housing Revenue Account (HRA) is essentially a ring-fenced income and expenditure account of transactions relating to Council Housing Stock. Details about the income and expenditure that makes up the HRA are contained in the Local Government and Housing Act 1989 and the Housing Act 1985 while further guidance is contained in Welsh Office circular 33/95. The Housing Revenue Account Subsidy System (HRASS) forms a part of the Housing Revenue Account, it attempts, through estimated calculations, to provide an indication of the level of subsidy required by LAs to maintain their Council House stock. Currently the subsidy (or top-up) for all LAs in Wales is negative and is consequently repaid to HM Treasury under the Devolved Administration Funding policy. The main elements considered in the calculation of the subsidy are income from Rents, Management and Maintenance allowances and Capital Finance charges (borrowing costs). The levels of Rents, Management and Maintenance allowances (MMA) are set annually by the Welsh Government with the aim of breaking even (to achieve financial neutrality of the level of negative subsidy). Consideration is also given to LAs 30-year stock retention business plans when the annual levels are determined and the amount of reserves they hold. It is anticipated that the HRAS as a system will end in the future, thus no longer requiring the Welsh government to participate in the redistribution of positive or negative balances across all LAs in Wales. For the Local Authority sector the Welsh government sets a guideline rent annually for the purposes of housing revenue account subsidy (HRAS) following the publication of the Retail Prices Index rate each December, an additional 1% is added to the RPI to contribute towards improvements. There is also a rent convergence policy which seeks to obtain fairness between local authority rents charged across its stock. It would not be untypical for a LA to have over 400 different rent levels even though these properties may be of similar type and size. The policy therefore seeks to smooth out these differences. Housing Associations Rents for Registered Social Landlords (RSLs) are the main source of income for housing associations providing the necessary funding for private sector borrowing and is fundamental to the sustainability of business plans and meeting Welsh Housing Quality Standards(WHQS). For rent setting purposes the Welsh Government operates a rent benchmark system. The Rent Benchmarking system applies to all Housing Associations registered in Wales and has been in place for a number of years. The system has two parts. A maximum rent for a 3 bed 5 person property and an average rent covering size and property types ranging from a 1 bedroom flat to a 5+ person bedroom house developed by the landlord under social housing grant conditions. Under this system, the different maximum rents charged for six key property types when averaged, should be at, or below, the rent benchmark. The benchmarks apply to all general needs properties though there are a number of specific project types which are excluded, for example, market rented accommodation, and an option to exclude up to 5% of the total stock. Welsh Tenants Fed Page 4 8/1/2011
The rents are shown in a simple table called the rent matrix. This identifies the rent to be charged for a property dependant on: Location Local Authority Area Size number of bedrooms/ maximum occupancy Type House / flat / bungalow / maisonette Group general needs or sheltered Garage an additional charge is added for properties with access to a garage (this is not subject to the benchmark constraint) This system has meant that the differentials between the rents of a 1 bedroom flat and a 3 bed house has become squeezed over time with most housing associations having very flat rent structures. Large Scale Voluntary Transfers (LSVTs) LSVTs can be newly formed housing associations or community mutual that have transferred their stock from a local authority by ballot. Their primary source of income is generated from rents. The LSVT may also receive an annual payment from the Welsh Government to pay for the remaining debt when transferred in the form of a major repairs allowance (MRA). LSVTs may have in place rent guarantee agreements as part of the offer to tenants at transfer. Agreements can be in place for 5 years or more. This provided some assurance in the contract with tenants that rents would not increase beyond RPI +1%. Local Authority properties in the same street, covering the same property type, size and even quality, but have wide disparities in rents charged. Government rent controls The Government seeks to control rent levels because it is acutely aware that people in need of social housing are on the lower end of the income scale. People who are unemployed because of a disability or other factors such as low incomes need to be assured that rents are affordable. Social landlords provide a social function and receive government support to do so, government needs to ensure that payments rents charged and payments through housing benefit does not spiral out of control. Government seeks to control rents to a reasonable level so as it does not impact on government welfare funding in for example housing benefit or impair the landlords ability to maintain properties to an adequate level. It uses the Retail Prices Index as a means of gauging how rents and welfare Benefits increase proportionately with inflation. Retail Prices Index (RPI) RPI is a measure of inflation published monthly by the Office for National Statistics. It measures the change in the cost of a basket of retail goods and services. Set in 1947 to enable economists and government to gauge the official level of inflation, the RPI is still used by the government as a base for various purposes, such as the indexation of pensions, and to gauge social housing rent increases. Anomalies in rents Rents for local authorities and housing associations are therefore set differently and have a range of rents even in the same locality. The contrasts between the sectors are most stark when there are Housing Association and In March 2009 the change in RPI measured over a 12-month period turned negative, indicating an overall annual reduction in prices, for the first time since 1960. The change in RPI in the 12 months ending in April 2009, at -1.2%, was the lowest since records began in 1948. In England Housing Welsh Tenants Fed Page 5 8/1/2011
associations lobbied the government to allow them to freeze rents at current levels rather than reduce them in line with the RPI, but the Treasury concluded that rents should follow RPI down as far as -2%, leading to savings in housing benefit and a reduction in working tenants rents. In February 2011 the RPI jumped to 5.1% putting pressure on the Bank of England to raise interest rates. RPI has been the traditional measure by which landlords increase their rents + 1% to ensure continued investment. Consumer Prices Index (CPI) The Consumer Price Index (CPI) is the official measure of inflation of consumer prices in the United Kingdom. It is also called the Harmonised Index of Consumer Prices (HICP). CPI and RPI both measure the average changes month-to-month in prices of 600 consumer goods and services purchased in the UK, although there are differences in coverage and methodology. Unlike the RPI, the CPI takes the geometric mean of prices to aggregate items at the lowest levels, instead of the arithmetic mean. This means that the CPI will generally be lower than the RPI. The rationale is that this accounts for changes in consumer spending behaviour as a result of differences in price changes amongst products. According to the Office of National statistics (ONS), this difference is the largest contributing factor to the differences between the RPI and the CPI. SAP Ratings and EPcerts The Standard Assessment Procedure (SAP) 2001, is the UK Government's recommended method system for measuring the energy rating of residential dwellings. The SAP is used to fulfil building regulations which now require the display of an energy rating in any relevant dwelling. The Standard Assessment Procedure typically reflects the theoretical annual energy costs per unit of space as well as the expected costs of water heating. SAP rating is a home energy rating that seeks to calculate a score between 1 to 100+ for the annual energy cost due to: the built structure of the home its heating and hot water system internal lighting any renewable technologies used in the home. The higher the number the lower the fuel running costs, with 100 representing zero energy cost. Dwellings with a rating in excess of 100 are net exporters of energy. The Welsh Housing Quality Standard has a target SAP rating of 65. When a property turns over or is re-let to a new tenant, the landlord is required to issue an Energy Performance Certificate (EPC or EP cert) which indicates the SAP rating for the property. The Certificate has a banding system to inform the tenant of the average rating. CPI is the measure adopted by the Government for its UK inflation target. In June 2010 the Chancellor announced the Government's intention to use the CPI for the price indexation of benefits, tax credits and public sector pensions from April 2011 it is expected to include housing costs in the future. Welsh Tenants Fed Page 6 8/1/2011
In simple terms SAP calculations allow comparison of the energy running costs of dwellings anywhere, in a similar manner to the well-known comparison of fuel economy in cars expressed in miles per gallon. This is achieved because the calculations are predominantly location independent and are based upon a notional standard occupancy that overcomes variations associated with physical location and the differing ways in which people utilise their homes.. Some landlords have purchased software systems such as NHER (National Home Energy Rating) which takes into account other factors such as shelter and orientation and so it is argued is a better indicator of likely running costs. The SAP measure is therefore an independent assessment which can be a desk bound assessment based on the type of property. Service charges The review did not cover service charges. Many local authorities are working on de-pooling their service charges. Pooling occurs when the costs of service charges are borne by the Housing Revenue Account and redistributed across all the stock. De-Pooling occurs when people who incur the charges pay for them directly. While housing organisations already operate a de-pooled system. It was agreed early on that there was insufficient data on service charging in Wales to include this in the review. The Welsh Government would issue guidance in relation to service charge policy as local authorities progressed with their depooling approach. The consultation document has proposed a new national policy for the setting of rents by Registered Social Landlords, Local Authorities that own housing stock and LSVTs. The consultation was extended to include the 3 months statutory period for consultations of this nature. The rent setting review As we have seen, the Welsh Government operates two different procedures for determining rent levels in Wales. Landlords are also able to vary their rent levels within their own rent setting policy. Landlords are also required to consult their tenants on their rent setting policy providing a minimum of 1 months notice of any changes. The Essex review conducted in 2008 recommended that a review of rents should take place. A review group was formed in 2010 consisting of representatives from the local authority (retained stock); large scale voluntary transfers; and housing associations. Representatives of specific housing profiles were also involved among them the Welsh Tenants Federation. The Welsh Government housing directorate engaged Professor Steve Wilcox and Peter Williams, Vice chair of the Council of Mortgage Lenders (CML) to provide consultancy advice to the group and Welsh Government officials. The rent setting review group set out three principles to guide the review. These included: fairness for tenants and landlords; transparency in the way rents are set and consistency in approach across the HA and LA sectors. It was also the view that the rent setting policy should not seek to increase the overall aggregate rent for Wales but to focus on the anomalies of rent levels and redistribute them across the range of rental types. Levels of investment and affordability should also be balanced against what we pay and the services we receive although any whole system review could never be perfect, but it can be better! Welsh Tenants Fed Page 7 8/1/2011
Welsh Government key proposals in summary Maintain the policy approach of convergence across the LA sector and extend this to convergence over ten years of the HA and LA sectors; Setting a national target average rent of 70.76 based on projected rents for 2012-13. This rent has been achieved by averaging out existing rents and weighting them against four criteria, type; size; location and quality; The creation of target rents across 9 types and sizes of home and the 22 local authorities; To allow landlords to charge higher rents for more energy efficient dwellings; at a rate of 0.3% above the average 67 SAP rating but decrease the overall rent collected by 0.5% for every 1 point below the average SAP of 67; Where landlords choose to charge above the target rent, this should be balanced by the same landlord charging below the target rent for other properties; However, if the proposed rent policy is implemented for 2012-13, and the Housing Minister agrees a general increase of RPI (Retail Price Index) + 1% then landlords should aim for their Average Weekly Rent for 2012/13 ( 70.76) to be within +/- 5% of the 2012/13 Target Rent (after the SAP adjustment) or around 74 per week; To protect tenants from excessive rent increases as a result of this policy (convergence and quality increases); Landlords would not be able to charge more than 2 above the agreed annual RPI +1% stipulated each December To allow landlords to make applications for time limited waiver if they have severe difficulty in following the policy; To protect social landlords from loss of income as a result of this policy; They would have to apply to the Welsh government to vary the rent envelope up to +/- 5% of the target rent; These changes will apply to general housing only, but they could be extended to include sheltered housing; Explanation of the 5% tolerance and transitional protections The RPI is an example of a rate of inflation that could be used. This means that: Landlords can set their own annual rent increases as long as their Average Weekly Rent does not exceed 5% above or below the Target Rent ( 70.76); Where a landlord's Average Weekly Rent was more than 5% above the level of the Target Rent (in the previous year), landlords may increase their rents by RPI + 0.5%, or up to the level of 5% above their uprated Target Rent if that is at a higher level; Where a landlord's Average Weekly Rent was more than 5% below the level of the Target Rent (in the previous year), landlords will increase their rents at a faster rate to ensure that their Average Weekly Rent moves towards the Target Rent over time; In all cases rent increases for individual tenants should not exceed RPI + 1% plus 2 per week in any year. It should remain the case that individual landlords would retain the responsibility for setting the distribution of rents within their own stock. This is because there are important localised issues that landlords Welsh Tenants Fed Page 8 8/1/2011
need to take into account when setting the rents for individual dwellings, and that inherently these cannot be adequately reflected in any wholly centralised rent policy regime. The proposal is therefore to establish a framework rent policy to apply to all social landlords that would appropriately, and consistently, reflect variations in the type, size, quality and locality of their stock. Notes: Tenants whom we consulted (almost all) stated that the average rent suggested and those in the tables are significantly lower than what they pay currently. It should be noted that the overall target rent suggested does not include service, support or water charge costs and that this may be one of the reasons for this. For most tenants in social housing who receive housing benefit, the increase will be met by welfare, however for those who need to catch up to the average in areas where there is high unemployment or very low earnings they could face an extra 8 per month on top of the RPI +1% increase. For these the housing welfare system needs to build in some safeguards such as increasing discretionary payments or for the landlord to provide some discretionary allowances within their local distributions of rent. The real concern expressed by tenant is rising energy costs, welfare reforms and these rent setting reforms together will create pockets of extreme deprivation. These need to be safeguarded against, particularly where they accumulate arrears and potential homelessness. Welsh Tenants Fed Page 9 8/1/2011
Summary of tenant responses The Welsh Tenants Federation welcomes the review of rent setting in Wales. The WTF membership has called for a single social housing system and policy for Wales that includes; regulation; housing standards; rents; access to redress; information access and participation. The WTF fully supports the principles established in the rent setting review, these being; Transparency; Fairness for tenants and landlords; Consistency in approach; The test for the WTF membership is whether the revised approach delivers on these objectives. Transparency test We believe that there is a genuine attempt by the housing team and the group to achieve greater transparency and that this has been largely achieved in the approach adopted. Consistency test - There is consistency in approach between the sectors, this consistency however, will adversely affect some parts of Wales more than others and this concerned some of our members. Fairness test The rent setting review has made a genuine attempt to address the inequality in rents for properties of similar size, type, location and quality irrespective of who the social landlord is. Some tenants reported that having considered the revised policy with their landlords that the policy would have potential to increase rents too greatly in some parts of Wales with some landlords having to raise rents substantially - in some cases 7.5%-8.5% year on year. This would not be acceptable to tenants, particularly at a time of deep concern about living costs. Tenants were therefore concerned that in some parts of Wales the rises will bring social rents closer to market rents in some parts of Wales thus not differentiating between the social and market rents sufficiently. This will undoubtedly create too much hardship for some parts of Wales and for tenants and sets a dangerous precedent for the future of social housing as a concept over the ten years. Many tenants were also concerned that when taken with the welfare reforms being imposed by the UK Government the increase that the policy could impose is just too great for some. Tenants generally felt that landlords already received 1% above RPI to accommodate convergence and improvements to stock and believed that they needed to do more to deliver within this policy. The purpose of social housing is to enable people to access affordable housing who could not otherwise access housing in other markets due to their personal, economic or social circumstance. A significant proportion of tenants felt the policy signals that tenants themselves should pay for future development of social housing with government gradually withdrawing subsidy and have asked, is it fair that the poorest and lowest earners pay or subsidies affordable housing via their rents. We firmly believe that social housing provides a safety net, with an opportunity to enable people to survive on low incomes without having to compromise on a decent affordable, well maintained home. At the extreme, these beyond inflationary increases has the potential to converge rents not just within the social housing but between private and social Welsh Tenants Fed Page 10 8/1/2011
housing sectors over the ten year policy plan. Tenants do not agree with this strategic approach by Government. Concerning quality Tenants in Wales were generally supportive of a quality emphasis to rent setting with tenants paying more for good quality homes than those in poorer quality accommodation, however, they felt that on the whole tenants overall would lose out with better maintained properties subsidising poor properties where the emphasis should be placed on landlords being more efficient and effective in improving those of poorer standards within RPI +1%. Many tenants felt that landlords were not doing enough to improve properties with the 1% additionally they have, on top of RPI already built into the annual rent increases. On the use of SAP and EPC s as a means of assessing rents +/- rents through the current data available, tenants felt that this was fundamentally flawed. However, most tenants believed that homes were poorly maintained in Wales and that the current system of assessing the average SAP rating for all properties need to be considered by Welsh Government and that if there were not provisions to assess (verifiably and independently the quality of homes) then the Welsh Government should do something about this as a matter of urgency. General approach The policy was not meant to increase the aggregate rents for Wales, however, many tenants felt that the policy would in fact increase the aggregate rents bringing them ever closer to market rents (particularly in some parts of Wales). This, they felt, would pave the way for greater involvement by the private rented sector in the provision of social housing. While that may not be a bad thing overall, tenants felt the standards are poorer, with less security, less accountability and poor access to redress and regulation. Tenants felt that PRS needed to come a long way to meeting social housing sector standards around these issues before Wales could consider making better use of PRS in future social housing provision it was not just about being able to charge more rent to encourage PRS investment in. Market rents and developments - Tenants also raised concern that they were being asked to support a range of non housing management provisions and initiatives, such as affordable housing market rent for higher earners and while these were laudable principles, the lowest earners are being increasingly asked to support via their rents more. Their should be greater transparency it is not clear how any surplus earnings by HA s contribute to holding costs down for the social housing sector. On service charges Tenants felt that the levels of service charges in Wales could not be excluded in the consideration of an affordable rent for the poorest proportions of tenants in Wales. Most service charges are a part of rents in the tenancy agreement and cannot be considered separately. The Welsh Government needs to gather data on service charges before it considers what will be an affordable rent for social housing. In conclusion Tenants want to see a healthy vibrant social housing that is distinct from the private market system. It has been the bedrock of housing provision for people who cannot afford market rents, or who are vulnerable, unemployable or on the lowest earnings. They want to see fairness, transparency and consistency, and while this has been a reasonable approach there are still fundamental issues that need to be considered before the policy should be pursued. Welsh Tenants Fed Page 11 8/1/2011
Specific response to questions Question 1 What are your views on the proposal that each social landlord should be provided with a guideline target rental income for each financial year, and then have discretion on the setting of the rents for individual properties? At the level suggested - Some tenants reported that having considered the revised policy with their landlords that the policy would have potential to increase rents too greatly in some parts of Wales with some landlords having to raise rents substantially - in some cases between 7.5%-9.0% year on year. This would not be acceptable to tenants, particularly at a time of deep concern about living costs and welfare reforms. Tenants were concerned that the average guideline rent would substantial increase each year if landlords were allowed to vary it by 5% year on year in addition to charging RPI +1% + 2. Tenants were informed that the latter would include the variation, however we (WTF) were not clear that this was indeed the case. The paper did not make it clear enough whether the variation of +/- 5% was after the RPI+1% + 2 or included it or whether it simply related to the rent envelope of 70.76. If this was after, then this would be unacceptable to them. Most tenants did not specifically oppose a guideline rent however, what the level of rent is set at, is critical for affordability for some of the poorest communities of Wales and its relationship to PRS rents. Adding service charges which most tenants cannot contest, as it forms part of their tenancy agreement, then rental affordability becomes for many unaffordable and could trap them in a welfare lock-in, and exposed to welfare reform penalties. Many tenants stated that the average rent charged could not be gauged in isolation of service charges being charged, particularly for the elderly who can pay as much as 30 per week (non refundable through welfare) and have no choice as to whether to pay or not. Consulting locally on distribution of rents - Most tenants stated that Rent setting is probably the least consulted service/policy area consulted on with tenants. Agreeing rent policy setting is normally retained as a governance function with tenants informed of the consequential outcome. Respondents welcomed more transparency in the rent setting policy and to agree locally the distribution of rents. Some tenants stated that the aggregate rent and the distribution of rents had a profound impact on landlords ability to meet new build cost recovery and needed review if we were to see new social housing being built. Others disagreed stating that tenants rents should subsidies new build developments. It is important that the Welsh Government has a handle on what the aggregate income is for rents in Wales to ensure that it has some control over development grants for new build and that people at the lowest income levels are not trapped in poverty. Welsh Tenants Fed Page 12 8/1/2011
Question 2 What are your views on the way location is proposed to be taken into account a factor based 50% on earnings, 25% on open market rents and 25% on house prices in the local authority area Age related earnings - there are concerns among opposite age spectrum of young and elderly tenants that the earnings factor was not age related and that people on fixed pensions or below average earnings would probably be earning far less than the lower quartile earnings. There was also concern that location didn t take into account the remoteness of properties and the cost to the tenant of transport. Some local authorities had points systems where location to shops and town centre s was seen as a higher priority and therefore charged higher rents for this factor. There are concerns that some landlords would be much better off than others regarding the location, because of the range of property prices throughout Wales. Question 3 What are your views on the way size and type of property is taken into account in our proposals for example the classifications of sizes and types, and the factors for adjusting rents? The proposals weight two main types of properties: House and Bungalow and flats and maisonette a 10% differential has been suggested between the two types of property. Property type - Elderly tenants suggested that there is no differential among age related earnings and that elderly persons occupy houses, bungalows, maisonette, flats and houses and that if they are on fixed pensions then some would see a 10% increase differential. Yet the one property type could be in far better condition than another yet still have this differential. Some tenants felt that the type of property did not adequately define their usage stating the definition of a maisonette as an apartment occupying two or more floors of a larger building and often having its own entrance from outside. This is more akin to a house than a flat and would prefer to see the two categories of type as: House, bungalow, maisonette -105 Bedsit or flat - 95 Some also felt that the property type attracts more service charge than another and therefore has an impact on affordability, perhaps this should be what differentiates if the Welsh Government is concerned about affordability Size Most tenants felt that the size of property fairly reflected the differentials and weightings with an overall 40% difference between a bedsit and 4+bed house. Some suggested that the differential was fairer for minority ethnic communities who often had more than 4 bed properties. However, many tenants were concerned that the exclusion of 5 bed properties was to enable other rents below the scale to subsidies building of larger family accommodation and felt this was unfair on them. A few tenants suggested that rents needed to reflect the differential as outlined in Local Housing Allowance payments for housing benefit purposes and for consistency of approach. Generally the overall view was that the differentials were fairly reflected. Welsh Tenants Fed Page 13 8/1/2011
Question 4 What are your views on the proposals to adjust a landlord s target rental income by a quality factor based on a data collection of SAP ratings from Energy Performance Certificates? Quality factor It is suggested that the quality factor should be based on the standard average performance SAP. If the average SAP is higher than the average rating of 65 (WHQS) / 67 (based on current data) then the landlord could charge additionally at a rate of 0.3%, if less than the average then a reduction would occur at 0.5% per SAP point of the aggregate rent of the landlord. Quality factor Quality was the most hotly debated aspect of the policy in all the regions and events. Tenants were concerned that the average SAP rating of 67 was not a true reflection of the average of the stock in Wales with the Welsh Government only collecting data on properties that have turned over. The debate on quality polarized between the two issues of: a) As a principle, most tenants supported the idea of a quality measure the better the quality the more rent should be charged, the worse the quality the less should be charged. This would incentivise landlords to improve the quality of homes. b) Landlords should be encouraged to focus improvements on properties with the worst energy efficiency ratings as a priority and that government policy should incentivize those that do, and penalize those that don t. Tenants didn t agree that more rent should be charged as they felt they were already being incentivized through an additional 1% above RPI. Tenants groups stated that comparison of achievements on Welsh Housing Quality Standard which has a rating of 65 demonstrates that local authorities were behind housing associations on WHQS delivery and may therefore be worse off than housing associations particularly those who had not transferred and achieved additional investment. Some tenants were concerned that if the LA average was a lower SAP than HA s they would be penalized because of historically lower start position. Some tenants noted that the Carmarthenshire homes standard average was 60 (in the lower quartile of SAP ratings) and as such they could be penalized by the policy. Where in fact it may need additional resources to bring them up, so the policy might have the opposite effect of improving energy efficiency. Measuring Quality as a general principle - Tenants supported the general principle of a quality factor in rent setting. Tenants who have poorer standard properties should pay less rent than those that are thermally and conditionally superior. However, the method chosen to assess this is not a robust one with Energy Performance Certificates only undertaken when properties turnover. It was suggested that SAP itself may not be the best overall indicator of the quality of a property with most SAP ratings undertaken from a computer desk top exercise, not having to visit a property. Tenants appreciate the approach to focus on thermal efficiency as a quality measure as this would help slow down the impact on fuel costs, but they also conceded that this would not make a great impact on fuel costs overall due to the speed at which fuel costs were rising. They suggested that more work needed to be done on cost benefit for the tenant. Welsh Tenants Fed Page 14 8/1/2011
Other suggestions discussed included: WHQS Tenants felt that WHQS or other self imposed standards such as the Carmarthenshire Home standard could be independently audited and a certificate produced thereby verifying the standard achieved, giving a better statistical base from which to judge the average. This could then be used to vary quality achievements and rents. However there were huge variations in the WHQ standard across Wales with the main focus on kitchens and bathrooms. Housing Health And Safety Rating System The HH&SRS covers a wide range of criteria including space standards and SAP measures. Some tenants felt that a certificate of HH&SR could be issued tri-annually and a star rating issued to correspond with both general quality and energy efficiency which could then be used as an assessment of quality. This should acknowledge that the landlord has maintained the property well, rather than use the indicator as a proxy to charge more rent. Tenant credit - During one workshop session concerning quality it was suggested that tenants could request a SAP reading and EPCert from the landlord. If the SAP were below the national average they could receive a credit (of up to 25% of the rental value) if the home was assessed as being a fuel burden on tenants. This credit would be repaid to the tenant to help pay fuel bills by way of a voucher. This would require treasury approval where housing benefit is paid and be disregarded for HB purposes. If landlords did not want to pay the credit then they would have to improve the thermal efficiency of the property to an agreed standard with the tenant as part of its major works improvement expenditure. EE targeted support Some tenants suggested that there is an opportunity to use the SAP ratings (if better evidenced) to target more MRA or ARBED initiatives to properties with lower ratings. Other comments: It should not be beyond the capacity of landlords to assess a home pre WHQS, by undertaking a pre audit of energy efficiency and within the WHQS a delivery plan and target SAP. Once WHQS and energy efficiency improvements had been achieved then issue a certificate outlining the new SAP rating. Landlords who were not doing this as part of WHQS had something to hide we want greater transparency in how WHQS is improving the energy efficiency of our homes - if at all! Independent verification of EE - Tenants felt that the quality measure could be determined locally and independently audited and verified. This could then form the basis of an independently verified measure. They could not see why Wales could not adopt its own independently verifiable measure of quality or a rating which could then be used in assessing rental charges once landlords had for example, EPC s for more than 51% of its stock. Tenants saw the problem as the ability of landlords to gather appropriate data and the Welsh Government to collect data in a cost effective way from the landlords. They suggested that this could be done on line and tenants could not see that this was a problem. Energy performance and green deal - The UK Government intends to update the Energy Performance Certificates from April 2012 to incorporate the Green Deal. Under the green deal, householders will be able to get energy Welsh Tenants Fed Page 15 8/1/2011
efficiency improvements to their homes without paying any upfront costs. They will payback the cost of work using the savings generated over time. At present the cover of the EPC shows the efficiency rating of the home, estimated energy usage and costs and carbon dioxide emissions. From April 2012 the new cover will include estimated fuel costs as the home currently stands, and how much these could be reduced if energy efficiency measures were improved. It will also show what actions could be taken and whether these were included within the green deal. (Source Cabinet office, July 2011) The majority of tenants in Wales would like to see a rolling programme of assessments rather than wait until the property turns over as is the current practice. It should not be difficult for landlords to be able to make an assessment prior to WHQS works being undertaken and issuing an EPC with an improvement plan to address the overall performance of the home. Given that all homes are being required to bring them up to WHQS this is about process and the willingness of government to ensure this happens. They could also provide advice to the tenant about energy switching and other savings. In summary, tenants approve of the idea to link quality with rents but disagreed with the proposed method in its current form. Tenants were very keen that the Welsh Government insists that landlords provide a certificate following completion of WHQS to a property and that this could be independently audited. On the green deal, tenants asked the question why should tenants have to pay while owner occupiers do not Question 5 What are your views on the transitional arrangements proposed, to ensure that all social landlords have an increase in real terms in rental income each year, and that there is a limit on the cash increase any tenant sees in their rent each year? Rent increase exercise tenants felt that the objective of the policy was not to increase the overall aggregate rent for tenants but to have a fairer more transparent and consistent way to determine rent increases and to achieve rent convergence between social housing sectors. Many tenants were concerned this was not a rent setting review but a rent increase exercise and were not happy about further rent increases at a time when housing benefit reforms will hit many hard with dependant deductions, under occupation rules and a host of other penalties on tenants. Existing funding Landlords already receive 1% additionally above RPI, they should be delivering improvements with this additional money. Some landlords have extensive reserves and yet still borrow for improvements, tenants do not understand why landlords need to borrow additionally to deliver these improvements. Many tenants felt that landlords need to focus more on efficient delivery of housing management and there was no need to charge additionally to improve the stock. If businesses were guaranteed RPI +1% year on year they wouldn t have to increase the price of their goods and services. Why is it different for a landlord. North Wales tenant. Tenant protection - The level of increases beyond inflation are capped to no more than 2 per week to ensure that tenants don t see Welsh Tenants Fed Page 16 8/1/2011
huge hikes in rents beyond the current inflationary increases (PI +1%). It was noted that the increases of 2 were not merely due to quality improvements to the home, but the cost of converging rents where they are currently below the average (the rent envelope). Tenants felt that the some rents needed to increase because there are wide spread disparities in rents, however they felt that safeguards should be put in place such as increasing discretionary payment budgets to help manage this process where tenants are to receive significant increases. Question 6 What are your views on the proposal that the policy should come into force in 2012-13? Tenants were concerned that some landlords have expressed concerns about full and comprehensive discussion and felt they needed more time to get this right particularly as the framework would be in place for ten years or more. Most tenants agreed that if we are to get this right, more time should be given to assess the impact on sheltered scheme tenants and the quality element aspect of the proposals. This would also allow more time to consider any legislative changes that may be required to support the approach, such as protection for tenants (appeals or arbitration) or SAP/Quality indicator changes. Most tenants suggested that you could not look at an average affordable rent without assessing service charges as these are tied into the tenancy agreement and therefore have an impact on overall affordability for tenants. More time is needed to consider the total impacts including welfare reforms. Question 7 What are your views on the proposal that the policy should initially cover general needs stock only, moving in time to include sheltered housing but not supported housing? Are there issues of definition? Should there be any other exclusions from the policy? To answer this question tenants discussed whether capital, core housing management and maintenance costs of properties should differentiate depending on who resides in them. It was generally felt that sheltered housing capital costs would be greater than general needs housing capital costs because of the facilities that may need to be incorporated. The recovery of those capital costs may be greater than general needs, particularly for extra care schemes. There is also a range of types of sheltered housing while the schemes are also of mixed tenure, with shared ownership lease, rent and market rent arrangements. The specific building regulations of this type of property may also require a different approach to the recovery of capital costs. For example, the rent benchmark scheme for Housing associations enable HA landlords to exclude 5% of their stock due to special scheme costs and market rents. Tenants felt that sheltered housing needed to be considered separately until there were clearer definitions of the types and costs associated with this type of housing. Supported housing would also depend on what type of property the support was being provided from and the facilities that needed to be incorporated into the accommodation. This could also have a baring on capital and maintenance costs. Tenants agreed that there needed to be clearer definitions on sheltered housing, extra care, independent living and floating support costs Welsh Tenants Fed Page 17 8/1/2011
for the different types of supported housing (currently undergoing a major review). Tenants noted that many supported housing projects rented form the private sector that charge higher rents than social housing even though they are classified as general needs properties. Tenants suggested there needed to be greater transparency between rents and service charge costs for general needs, extra care, sheltered, supported housing and special needs housing. Additional people services support should not generally have a baring on the rent charged (for example floating support). Rent charged should pay for capital, housing management and maintenance costs of the property only. Tenants also advised caution on sheltered scheme costs as many elderly tenants are on fixed pensions which historically have increased less than rents causing real hardship. They are also subject to some of the largest increases in service charges some of which may not be welfare recoverable. We therefore broadly support the view that sheltered housing may require specific rent setting policy and that landlords will need to clearly define types of property and their associations with support. Tenants also concluded there does need to be clearer definitions between for example floating support from other forms of support required for special needs accommodation. Question 8 What are your views on the proposal that consistency in the approach to service charges should be dealt with through new guidance from the Welsh Assembly Government? Many tenants have expressed concern about service charges with some paying in excess of 25-30 per week with little option to reduce these charges as they form part of the tenancy agreement or lease. We fully support a more consistent approach to setting, accounting and consulting tenants on service charges and that this should be consistently applied across the two sectors. Tenants almost all agreed that service charges in Wales should also be taken into account when setting the guideline rents as this may be critical for affordability. Tenants feel very aggrieved at service charges with for example general needs tenants of housing association estates being charged for estate maintenance where council tenants do not pay additionally. Yet both pay council tax to maintain streets and common areas. Some HA estates have not been adopted but still pay service charges whether adopted or not on top of their council tax for example for maintaining trees or other estate maintenance charges which council tenants do not pay additionally. Tenants generally felt that affordability of rents could not be addressed without consideration of service charging. Question 9 What are your views on the proposal that social landlords should be able to make a case to the Welsh Government for a timelimited waiver from the policy or for extended transitional arrangements if it presents them with substantial difficulties? We accept that some landlords will find it difficult to deliver a more consistent and standardised approach to rent setting. There will be an element of significant consultation and maybe appeals or challenges. Welsh Tenants Fed Page 18 8/1/2011