In February the Government published a Direction requiring the Regulator of Social Housing (the Regulator) to set a new rent standard for RPs. Section 197 of the Housing and Regeneration Act 2008(a) requiring the Regulator requires the government to consult various bodies in making its direction – such as the Regulator, the Charity Commission, representatives of housing authorities and tenants and registered providers of social housing.
The Guidance produced as a result of the Direction will come into force from 1 April 2020, replacing the previous guidance published in May 2014.
The primary purpose of the Direction is the instruction that the Regulator sets the new rent standard from 1 April 2020 for low cost rental accommodation, and the rules on how this should be carried out. The Direction also contains exemptions from the standard, and definitions for social rent and affordable rent housing, and the ‘formula rent’ that social rent properties are subject to. These provisions are broadly aligned with the current rent standard.
One of the new terms provided by the Direction is the ‘2020 limit’. The Direction sets out how the 2020 limit should be calculated:
- Since April 2016 the Welfare Reform and Work Act 2016 has required landlords to complete four years’ worth of ‘social rent reduction’ by reducing rents by 1% year on year.
- The 2020 limit sets a maximum amount by which RPs are then permitted to increase rent for their existing tenants following the conclusion of the four year social rent reduction.
- The Direction outlines the method used to calculate this limit: taking a tenant’s average weekly rent in the fourth year of the reduction period and increasing this amount by CPI plus an additional 1%.
The Direction is accompanied by a larger Policy Statement, setting out in further detail the reasoning behind the Direction set out above from a historical and practical perspective. This document provides a useful guide to understanding the basic principles underpinning social rents.
Here the Government explains, for example, why certain limits and exceptions apply to social and affordable rent schemes, such as the £60,000 income cap that applies to properties let at affordable rents.
The Policy Statement references ‘key changes to rent policy’ that will be brought in from the April 2020 date – these will be twofold. Firstly, there will be a limit put on the level of annual increase that landlords are able to apply to rents; being an increase of up to CPI (Consumer Price Index) plus 1%. This aims to provide a ‘stable financial environment to support the delivery of new homes and to enable registered providers to plan ahead’, the Policy Statement claims.
Secondly, in a shift away from the 2014 Guidance, the Regulator will now have to apply the rent standard to all RPs. This therefore includes both private and local authority RPs. The reason for the inclusion of local authority RPs after 2020 is down to the introduction of Universal Credit. This is because the Rent Rebate Subsidy Limitation Scheme that previously serviced the welfare costs from local authority rents will no longer apply now that Universal Credit is in force.
Advice for RPs
It is important to note that this particular Direction will only serve as guidance to the Regulator of Social Housing (the Regulator), which shall have regard to the Direction when it sets its own rent standard for RPs.
Strictly speaking, the standard published by the Regulator – not this new Policy Statement – is the authority with which RPs must comply. The Direction is the document that simply informs the Regulator on how to formulate its rent standard. In practice, these two documents do not differ greatly, as can be seen with the Guidance published by the Government in May 2014 and then the 2015 Rent Standard published by the Regulator.
This Direction should therefore be seen as the framework which underpins the regulations that the Regulator will base its rent standard on in due course, the document that RPs will ultimately be held to.
Setting rents and service charges and the associated reporting obligations this entails can be an intricate task. The current guidance reminds RPs that if they should feel uncertain over setting their rents then they may need to seek legal advice.