Regulatory update

    Regulatory update

    April 2014

    The rent consultation

    It is understood that the results of the statutory consultation undertaken by the CLG endorsed the proposed change from RPI+½ to CPI+1 and the flexibilities to accommodate affordable rents.  Inevitably there were significant objections to the proposal to bring rent convergence to an end but we consider it unlikely that Government will back down on this.

    The new rent regime will now be consulted on by the SHR so there will be a delay in its implementation until the autumn.

    The standards in relation to the affordable rents are to remain the same although in practice amended by the terms of the prospectuses issued by the HCA and GLA for the next round of funding.

    The new housing SORP

    Savills has been closely involved in discussions around the Statement Of Recommended Practice for housing association accounting.  Ultimately, the valuation of housing stock will rely on the judgement of the valuation profession.  On the one hand, there will be more stringent definitions which might increase depreciation.  On the other hand, Savills has evidence from six years of stock rationalisation work suggesting that the true value of social housing stock is higher if sold in smaller lots rather than as the portfolio as whole.  Therefore, if the portfolio is valued on the assumption that if it were disposed of it would be lotted, then a higher value can be attributed.  

    Value for money

    There has been substantial media attention to the down-gradings arising from failures to publish value for money strategies in a sufficiently timely and transparent fashion.  Very little has been said about the content of the strategies themselves save for a very general statement that only a minority impressed the Regulator.  There is certainly a concern that the government will see the continuing financial health of the sector and feel motivated to bear down on value for money.  

    Savills early view of the value for money strategies that it has seen is that they are tending to rely on historic approaches (economy, efficiency and effectiveness) with a focus on the costs of day to day services.  However, the CLG and the Regulator have put increasing emphasis on Return on Assets.  We anticipate that in the next round the Regulator will look for evidence that Associations have indeed considered this and are “sweating their assets”.  

    Clouds on the horizon

    The work that Savills has been doing with the NHF and the Joseph Rowntree Foundation all point to an increasing concern over the rent levels now charged by Registered Providers.  Depending on location and local economies, lower quartile wages have been static or fallen over the last five years whilst rents have of course increased above inflation.  This is the first time that this has happened for 50 years and was therefore not taken into account in the original rent formula.  It is speculation, but it would not be any great surprise if an incoming administration in 2015 looked hard at the rent regime and reconsidered it.

     

     
     

    Key contacts

    Mervyn Jones

    Mervyn Jones

    Head of Housing Consultancy
    Housing Division

    Savills Margaret Street

    +44 (0) 20 7409 5992

    +44 (0) 20 7409 5992

     
     

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