Rents – how to get it right
Rent setting can seem complicated. Here we cover four key areas to help Registered Providers ensure they’re getting it right
Director, Campbell Tickell
Director, Campbell Tickell
Issue 69 | December 2023
It is no secret, setting rents can be quite complex and can have serious consequences if not carried out correctly. We’ve identified four areas Registered Providers should consider to help ensure their rents meet the requirements of the Rent Standard.
Understanding the basics
The Rent Standard is a set of rules the Regulator of Social Housing has developed to which Registered Providers need to adhere. The Rent Standard applies to low-cost rental accommodation as defined by section 69 of the Housing and Regeneration Act 2008, which states that low-cost rental accommodation is accommodation that meets the following criteria:
- It is made available for rent,
- The rent is below the market rate, and
- The accommodation is made available in accordance with rules designed to ensure that it is made available to people whose needs are not adequately served by the commercial housing market.
The Rent Standard applies to most low-cost properties however, there are some exemptions. Some examples where the Rent Standard does not apply include:
- Social tenants with high income (HIST)
- Shared ownership, low-cost rental accommodation
- Student accommodation
- Specialised Supported Housing.
How is social rent calculated?
Weekly formula rent is equal to:
- 70% of the national average rent
- Multiplied by relative county earnings
- Multiplied by the bedroom weight
- 30% of the national average rent multiplied by relative property value
This gives the rent for 2000/01 which is then uprated by the published rates.
Four areas to consider when setting rents:
1999 Valuations – Calculating rent for a social housing property is based on size, location, quality and relative property value.
The relative property value is based on the 1999 valuation of the property.
The Rent Standard does not permit revaluations, but exceptions are made for certain circumstances such as for structural alterations.
So, what happens if you have lost records of your 1999 valuations?
We would recommend searching for valuations, search for spreadsheets using 1999 valuations. Look at the earliest formula rent calculation and check subsequent increases. Look for information to support the calculation of formula rents. You can obtain new valuations to provide assurance on the rents but do not replace the 1999 valuation.
Fair and secure rents can often pose many problems compared to other areas in relation to rents. Some of the issues to keep in mind when setting rents include:
- Rent Standard still applies so the annual maximum increase remains at CPI+1%/7%.
- Rents charged may not exceed the Registered Rent level.
- Such rents should be registered every two years with the Rent Officer.
- Increases can be implemented in the intervening years.
- A Registered Rent includes service charges.
- Welfare Reform and Work Act 2016. This is a complicated area. In determining if the rent reduction of 1% is required you need to compare Registered Rent with the social rent rate. One would expect it to be the rent charged.
Registered providers need to ensure that their rent policy and procedures reflect the latest Rent Standard and Rent Policy. They need to encompass the following:
- Clear on the areas of discretion.
- A decision has been made on the re-let rent levels.
- If flexibility of +5% applied to formula rent (10% Supported Housing) is to be applied, give consideration to the local market context when deciding whether to implement a rent increase and the level of that increase, as well as the levels of Housing Benefit or Universal Credit that are available to claimant households who might occupy their properties.
- Cover all stock including types exempt from the Rent Standard.
- Clear definitions of stock types.
- Cover new lets annual increases and re-lets.
- Specifies how frequently the board requires assurance on rents.
Affordable rents should be re-let at up to 80% of the market rent (not the previous rent) and should also include service charges in this valuation. With Supported Housing it may be difficult to obtain comparable valuations. Registered Providers should review similar models and services in the same area. If these are not available, different areas can be used and the results extrapolated.
Other factors to consider in relation to setting affordable rents are:
- Annual increase applies to service charges (problematic if variable service charges exist).
- Personal charges can be separate (need to check the tenancy agreement).
- Affordable rent should be no lower than formula rents.
- At re-let, rebase the rent at 80% of market rent however, if the re-let is to the same tenant the rent cannot be rebased.
- Required to have “regard” for the Local Housing Allowance (LHA) when setting rents.
- Any planning requirements which may limit the percentage of market rent to be charged.
It is a mistaken belief that “No grant = Rent Standard does not apply”. It actually might, so here are a few questions to ask:
Setting rents can be tricky, but with the right approach housing providers can ensure they get it right.