Rent revolution

    Rent Policy (r)evolution

    April 2014

    Rent policy roulette

    UK (social, affordable, private?) rent policy continues to evolve. In Scotland the government does not impose a rent policy.  New rented supply is principally to be let at social rents, plus some mid-market/intermediate rented housing. Landlords determine what is affordable and set rents accordingly. What freedom!

    Welsh rent setting policy is in transition towards a CPI based model. A majority of new homes are built for social rent with some intermediate rent aimed at lower income working households – and the capital funding and supply model is under review.

    In England the ten year rent settlement at CPI plus 1% effective April 2015 prompted a collective sigh of relief because it provides a welcome anchor to stabilise business plans in an uncertain destination UC world. Whilst the certainty is welcome, it means rents on homes aimed at lower income groups are on a relentlessly upwards trajectory.  This may be out of step with growth in income, putting more pressure on stretched household budgets. We know that in recent years HA and LA rents have been increasing in line with inflation +, at a time when the wages of lower income households have been falling.  

    New English rented housing supply is heavily skewed to the production of ‘affordable’  rented homes (with a tiny minority of new homes coming to market for social rent) set in relation to market rent levels and where rents are rebased periodically in line with market levels. In that other place called London we have coming into view newly segmented Affordable Rents - split equally between Discounted rent up to 80% of market rents targeted ‘preferably’ at working households; and Capped rents, with properties let at lower levels, to households in greatest need, probably in receipt of benefits.

    And of course private sector rents are determined by the market!.   Outside London– broadly rents track earnings growth. Local Housing Allowances have  generally failed to keep pace with real market rates.  They  are intended to act as a cap on housing benefit by incentivising benefit recipients to shop around.   However there is no evidence that they have had any impact on rent levels.  . Interesting that the new Affordable rented homes programme – with the requirement to rebase the rent in relation to the market – is exposing RP providers to market determined rent increases, albeit on a small overall proportion of the total housing stock. Is this a signal for the future? A gradual removal of state regulation of rental income for social landlords?

    Of course landlords are well used to providing rented homes at varying price points produced under various supply regimes and initiatives. And the principle of a highly segmented rental market seems here to stay (social, intermediate, affordable, discounted, capped, rent to buy, market)... But what future for rent policy?

    It’s interesting to think about the potential consequences of removing fixed rent increases from the ‘core’ stock. If landlords had the freedom to determine both  rent and lettings policy – setting rents to be recognisably affordable for different income groups – how would the world look? What would a new supply model look like in this context? All this and more is the subject of other work we’re involved with, but right here and now the relevance of tools like the AVM has never been greater.

     

     
     

    Key contacts

    Helen Collins

    Helen Collins

    Director
    Housing Consultancy

    Savills Margaret Street

    +44 (0) 20 7016 3785

    +44 (0) 20 7016 3785

     
     

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