ARCH General Meeting

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ARCH General MeetingRent Policy ChangesSimon Smith23rd September 2013


Business planning and rents

• Current system – rent convergence– Declining rate of increase in the run up to convergence– RPI+0.5%+’negligible’– Smoothing the path to convergence is not uncommon

• Spending round announcement– RPI + 0.5% to CPI + 1% from 2015/16 (for ten years)– End of rent convergence

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MfH Commentary• It has been suggested that we’re looking to seize control of

council rents. This is not the case - we do not intend to regulate council rents.

• Quite reasonably, we do expect councils to limit costs to their tenants. If they do not - and we see rents jumping far above inflation - then we retain the power to act to protect tenants.

• We are taking strong action to protect councils from the risk of increased arrears: through ensuring that people who need additional support to cope with paying their rent get the help they need, and through an absolute limit of two months on any arrears.

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What does it mean?• CPI change moves rents in line with benefits/pension uprating but

link broken in short term• CPI forecast to be lower in the long run leading to lower rent

increases– Hold cost base to CPI + 0.5% = no change to current assumption

for many• Removal of convergence a potential loss (significant in some cases)

of revenue to business plans– Is it affordable? What needs to change?

• What happened to equity between social renters?• National rent policy incoherent – affordable rents v social rents v

benefit bill• CLG consultation due in October on detail

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Estimate of convergence loss• £1.2 billion• Based on distance from convergence from ‘limits’

mechanism at settlement• Underestimate (?) as does not include those not

subject to ‘limit’ restrictions• Includes 5% re-let to formula on a reducing balance

method• Need property level data for accurate assessment• Caveats…caveats…caveats• Settlement re-opener?

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Loss of convergence

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What can be done?

• Time for a more fundamental review of rent setting approach? What could that look like?

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Rent policies – towards flexibility?

• Government control - how?– Introduction of Universal Credit... but includes a ‘housing

amount’– Will government want to cease control of LA rents in the

round?– DWP announcement and policy thinking remains unclear

around the successor to limit rent• Drivers for rent flexibility?– Social vs. affordable – limit rent issue without HCA grant input– Flexibility beneath limit rent – many £s below– Flexibility within the average rent– Flexibility around welfare reform implications?

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Local policy considerations

• Two dimensions– Level of rents - compared to market– Affordable, social and anywhere in between– Options to develop differential rent setting policies for

different properties (not just for new build)• Distribution of rents within a local policy framework– Rent restructuring ‘flattens’ rent differentials– Originally a focus on ‘affordability’ but further away from

the market – Private rented sector everywhere bigger than 12 years ago– What are the options?

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Options?

• Social rent formula– Future – could there be flexibility within an envelope? – There already is!

• Affordable or other form of link to the market– Basis for assessment, update and review – is RPI+ feasible?

• Rent points system– Format linked to both values and amenities

• Income-based, linked to ability to pay– Pilot and research studies carried out– Linking to welfare reform considerations

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