Consultation outcome

Social housing rents: government response to the consultation

Updated 14 December 2022

Introduction

1. On 31 August 2022, the Department for Levelling Up, Housing and Communities launched a consultation on a proposed direction from the Secretary of State to the Regulator of Social Housing (‘the Regulator’) in relation to social housing rent policy. It focused on the proposed introduction of a rent ceiling from 1 April 2023 to 31 March 2024, as a temporary change to the existing policy that permits rents to increase by up to CPI + 1 percentage point each year. The ceiling would act as an upper limit on the maximum amount by which Registered Providers of social housing can increase rents in that year.

2. See the consultation paper.

3. We consulted on whether to apply a ceiling and, if so, at what level it should be set. The consultation sought views on a new draft direction to the Regulator which would limit rent increases to 5% in 2023-24, but also presented the options of setting the ceiling at 3% or 7% and made clear that we were open to other percentage proposals put forward by consultees. The consultation sought views on whether any ceiling should apply for one year or two years, whether it should apply to the maximum initial rent that may be charged when properties are first let and subsequently re-let and whether to make exceptions for particular categories of rented social housing.

4. The consultation closed on 12 October 2022.

5. We have considered all of the responses received. This document summarises the responses received and sets out the government’s response to the consultation.

6. We are grateful to organisations and individuals who took the time to respond.

7. Copies of this document are available via the html print button.

8. Enquiries about the document should be addressed to: SocialHousingRents@levellingup.gov.uk

Part 1: summary of responses

Responses received

9. We received a total of 1,041 responses to the consultation.

10. 62% of responses were from individuals and tenant organisations. 35% were from Registered Providers of social housing (22% from Private Registered Providers and their representative bodies and 13% from local authorities and their representative bodies). 3% were from other organisations.

11. The table below sets out a breakdown of the respondents.

Type	Number of responses
Individuals	621
Tenant organisations	23
Private Registered Providers of social housing (including Housing Associations, almshouses and others) and representative bodies	227
Local Authorities and representative bodies (including Arms Length Management Organisations)	134
Other organisations (including charity, legal and finance organisations)	36
Total	1,041

12. For the purpose of this response, we have grouped the respondents into three categories:

• Registered Providers of social housing (‘RPs’), which includes Local Authorities (‘LAs’), Private Registered Providers (‘PRPs’) and their representative bodies (361 responses)
• individuals and tenant organisations (644 responses)
• other organisations (36 responses)

13. Some respondents did not answer every question. As such, the number (and percentage) of answers to the questions often differ from the total number of responses received. Figures may also include some double counting where multiple views were expressed.

Responses to the questions

Question 1: Do you agree that the maximum social housing rent increase from 1 April 2023 to 31 March 2024 should be subject to a specific ceiling in addition to the existing CPI+1% limit? To what extent would Registered Providers be likely to increase rents in that year if the government did not impose a specific ceiling?

14. This question received a total of 991 responses from 347 Registered Providers, 613 individuals and tenant organisations, and 31 other organisations^{[footnote 1]}.

15. The majority of respondents to this question agreed there should be a specific ceiling imposed in addition to the existing CPI+1% limit, most often citing concerns about affordability for tenants. RPs and other organisations, even when they agreed with setting a ceiling, often observed that this would have a negative impact on the supply and quality of social housing.

16. 610 out of 991 (62%) respondents to this question agreed that rents in 2023-24 should be subject to a specific ceiling. 507 of 613 (83%) individuals and tenant organisations agreed, compared to 90 of 347 (26%) RPs and 13 of 31 (42%) other organisations. The most common reason for agreeing was concern for tenants’ ability to afford their rents. Some individuals and tenant organisations also raised the negative effect that financial insecurity has on people’s wellbeing. Some RPs agreed with a ceiling because they wanted consistency across the sector. Proportionally, more LAs (39 of 128 – 30%) agreed with a ceiling than PRPs (50 of 219 – 23%).

17. 302 out of 991 (30%) respondents disagreed with imposing a ceiling. 200 of 347 (58%) RPs disagreed compared to 89 of 613 (15%) individuals and tenant organisations and 13 of 31 (41%) other organisations. Where RPs and other organisations disagreed, this tended to be because they advocated local autonomy over rent setting to better reflect local circumstances. Some RPs and other organisations were concerned about RP financial viability, and noted that a rent ceiling below inflation would require difficult decisions about what to prioritise in business plans and would reduce RPs’ ability to invest in homes and continue service provision. RPs and other organisations also raised concerns about the impact that a rent ceiling would have on investor confidence in the sector.

18. RPs commented that they were already carefully considering costs to tenants when thinking about how to set rents in 2023-24. Of the 204 RPs that indicated how they intended to set rents next year if the government did not impose a specific ceiling, 162 (79%) said they were already planning to set rents below CPI+1%. The proposed increase tended to range from 3%-10%, with an average of 8%. However, some individuals, tenant organisations and other organisations indicated a mistrust of RPs. Some suggested that they would expect their landlord to apply the full CPI+1% increase while undertaking limited investment in their homes, with some respondents raising concerns about the efficiency with which RPs are run.

19. RPs noted the financial impact an additional ceiling would have on their organisation, though they reported varying tolerance for this additional rent ceiling. They outlined that they are already facing inflationary costs above rental income and increasing demands on their resources (for example, some local authorities referenced the need to meet the public sector pay award). They referred to the need to meet these costs in the context of rent arrears and repairs backlogs from the coronavirus (COVID-19) pandemic, wider economic impacts affecting supply chains and the effects of four years of rent reductions in the period from 2016 to 2020. They were concerned that a new ceiling would exacerbate these financial pressures on RPs.

Question 2: Do you agree with imposing a ceiling of 5%, or are there alternative percentages that would be preferable, such as a 3% or 7% ceiling? Do you have any comments or evidence about the potential impact of different options, including of the 3%, 5% and 7% options as assessed in our Impact Assessment (Annex D)?

20. This question received a total of 970 responses, from 337 Registered Providers, 605 individuals and tenant organisations, and 28 other organisations.

21. More respondents disagreed with a ceiling of 5% than agreed, but there was no consensus on an alternative ceiling. Some respondents from RPs, other organisations and individuals and tenant organisations wanted to ensure that a new ceiling would balance affordability for tenants with landlords’ continued ability to invest in homes and services.

22. 269 of the 970 (28%) respondents to this question agreed with imposing a ceiling of 5%. 219 out of 605 individuals and tenant organisations (36%) agreed, compared to 48 of 337 (14%) RPs (14%) and 2 of 28 (7%) other organisations.

23. 582 of the 970 (60%) respondents to this question disagreed with imposing a ceiling of 5%. 314 of the 605 (52%) individuals and tenant organisations disagreed, compared to 244 of 337 (72%) RPs and 24 of 28 other organisations (86%).

24. Where RPs disagreed, this was due to concerns about the negative impact on investment in new and existing homes and the delivery of services to tenants and – in some cases – the risk that it would push them into deficit or risk of breaching loan covenants. Where individuals and tenant organisations disagreed, they often argued that a 5% increase in rents would cause financial hardship, particularly for those on fixed incomes unable to absorb rent increases, especially alongside other pressures (such as higher service charges and energy bills) – with the majority advocating a lower ceiling percentage. The views of the other organisations that disagreed were divided between, on the one hand, concerns about the impact on RP investment and financial viability and, on the other, concerns about affordability for tenants.

25. Some of those that agreed with 5% in response to the multiple-choice part of the question then went on to advocate alternative ceiling options in their comments. Some disagreed with a ceiling but nevertheless indicated a preferred option for where a ceiling should be set. Ceiling percentage preferences below take into account respondents’ comments and so figures differ from the above. In total, there were 869 respondents to this question that indicated a specific ceiling preference: 525 individuals and tenant organisations, 313 RPs, and 31 other organisations.

26. A 5% ceiling was favoured by 266 of the 869 (31%) respondents that indicated a specific ceiling preference, including 195 out of 525 (37%) individuals and tenant organisations, compared to 69 out of 313 (22%) RPs, and 2 out of 31 (6%) other organisations. Where individuals and tenant organisations advocated 5% as a reasonable ceiling, they tended to think it would maintain providers’ financial viability and ability to invest in homes and services whilst being a manageable cost increase for tenants. A 5% ceiling, however, was criticised by other individuals and tenant organisations as too high for some tenants, especially those on fixed incomes and would cause significant financial challenge.

27. RPs that favoured 5% similarly tended to recognise the need to balance costs for tenants with financial viability and continued delivery of services. Some RPs also noted that a 5% ceiling would necessitate difficult decisions about how to prioritise expenditure. Each RP’s financial position is unique, and a rent ceiling would be felt differently across the sector. Some RPs would be able to continue with planned investment at a 5% ceiling, whereas others said they would have to review regeneration and repairs schedules, and reduce or delay decarbonisation and supply work indefinitely. For some a 5% ceiling would require a reduction in services for tenants and threaten financial viability, pushing some Housing Revenue Account’s into deficit and forcing some RPs to breach loan covenants. Some RPs referred to the need to make staff cuts in order to manage this.

28. A 3% ceiling was favoured by 177 of the 869 (20%) respondents, including 169 of 525 (32%) individuals and tenant organisations, 6 of 313 (2%) RPs and 2 of 31 other organisations (6%). A further 136 of the 869 (16%) respondents called for a ceiling of below 3% or a rent freeze, including 9 out of 31 (29%) other organisations, 126 of 525 (24%) individuals and tenant organisations, and 1 of the 313 (<1%) RPs.

29. Where individuals and tenant organisations favoured a ceiling of 3% or lower, this tended to be due to concerns about affordability for tenants, with a lower ceiling providing the most financial relief and the greatest protection for the most vulnerable tenants. Many individuals outlined the multiple pressures facing household finances and called for limited rent increases to protect households from further insecurity.

30. Some RPs reported that a 3% ceiling would pose a significant threat to financial viability, with the effects outlined for 5% hitting sooner and more acutely, particularly for smaller organisations. Some RPs noted that they could manage the costs by cutting supply programmes and decarbonisation works, either significantly or completely, but also highlighted that this would cost them, tenants and government more in the long-term. For others the financial challenge of a 3% ceiling would be so severe as to necessitate cuts to services to tenants (including repairs and maintenance) and staff reductions.

31. 131 of the 869 (15%) respondents advocated a 7% ceiling, including 118 of the 313 (28%) RPs, 7 of the 525 (1%) individuals and tenant organisations and 6 of the 31 (19%) other organisations. A further 159 of the 869 (18%) respondents called for a ceiling above 7% or no ceiling at all, including 119 of the 313 (38%) RPs, 28 of the 525 (5%) individuals and tenant organisations and 12 of the 31 (39%) other organisations.

32. Of the 237 RPs that supported a ceiling of 7% or higher, many argued that it would give them greatest flexibility to respond to individual circumstances and pose the least risk to financial viability. Some RPs reported that a 7% ceiling would protect all or some continued investment in decarbonisation and supply programmes. Others said that a 7% ceiling would still test their viability and they would need to make difficult decisions to prioritise expenditure, with calls for the government to support RPs with the shortfall.

33. 35 of the 525 (6%) individuals and tenant organisations favoured 7% or higher because they wanted RPs to continue to be able to provide services and investment in their homes. Some individuals and tenant groups said a 7% ceiling would be very challenging for them to pay, assuming landlords applied the full increase.

Question 3: Do you agree that the ceiling should only apply to social housing rent increases from 1 April 2023 to 31 March 2024, or do you think it should apply for two years (i.e., up to 31 March 2025)?

34. This question received a total of 988 responses from 341 Registered Providers, 618 individuals and tenant organisations, and 29 other organisations.

35. Though more respondents disagreed with a one-year ceiling in the first part of the question, a one-year ceiling was preferred to a two-year ceiling when comments are taken into account.

36. 410 out of 988 (41%) respondents agreed that a ceiling should only apply for one year, including 253 out of 341 RPs (74%), 146 out of 618 individuals and tenant organisations (24%) and 11 out of 29 other organisations (38%).

37. 481 out of 988 (49%) respondents disagreed that a ceiling should only apply for one year, including 57 out of 341 (17%) RPs, 408 out of 618 (66%) individuals and tenant organisations and 16 out of 29 (55%) of other organisations.

38. As with Q2, some respondents who indicated a preference in the multiple-choice part of the question went on to advocate an alternative or additional preference in the comments. Ceiling duration preferences below take into account comments and may differ from the above. In total, there were 851 respondents to this question that indicated a ceiling duration preference: 490 individuals and tenant organisations, 331 RPs, and 30 other organisations.

39. 444 out of 851 (52%) respondents backed a one-year ceiling including 267 out of 331 (81%) RPs, 160 out of 490 (33%) individuals and tenant organisations (33%) and 17 out of 30 (57%) of other organisations. For individuals and tenant organisations, as well as some RPs and other organisations, this was due to uncertainty about future inflation. RPs also supported a one-year ceiling for reasons of financial viability, as any impacts from reduced rental income were significantly compounded if applied for a second year, and this outweighed the greater certainty that a two-year ceiling would provide.

40. 223 out of 851 (26%) respondents preferred a two-year ceiling, including 201 out of 490 (41%) individuals and tenant organisations, 15 out of 331 (5%) RPs and 7 out of 30 (23%) other organisations. A further 81 respondents (10%) advocated a longer ceiling, which includes 79 out of 490 (16%) individuals and tenant organisations, 1 RP and 1 other organisation. Individuals and tenant organisations and other organisations favoured two years or more as it would provide better financial security for tenants over a longer period. RPs favouring a two-year ceiling did so because they would welcome the rent certainty for business planning as well as for tenants’ financial security.

41. Some respondents asked for the rent ceiling to be reviewed annually.

Question 4: Do you agree that the proposed ceiling should not apply to the maximum initial rent that may be charged when Social Rent and Affordable Rent properties are first let and subsequently re-let?

42. This question received a total of 987 responses from 343 Registered Providers, 614 individuals and tenant organisations, and 30 other organisations.

43. Responses to this question were evenly divided, with more RPs agreeing that an additional ceiling should not apply to initial rents and more individuals and tenant organisations disagreeing.

44. 442 out of 987 (45%) respondents to this question agreed that a ceiling should not be applied to first let and subsequently re-let properties. This included 267 out of 343 (78%) RPs, 157 out of 614 (25%) individuals and tenant organisations, and 18 out of 30 (25%) other organisations.

45. 439 out of 987 (44%) respondents to this question disagreed, including 375 out of 614 (61%) individuals and tenant organisations, 55 out of 343 (16%) RPs and 9 out of 30 (30%) other organisations.

46. Of the 267 out of 343 (78%) RPs who agreed, 101 out of 267 (38%) said that not applying a new ceiling to these properties would support landlord viability and continued investment, particularly in new homes. Most individuals and tenant organisations that agreed did not explain their responses.

47. Of the 375 out of 614 (61%) individuals and tenant organisations that disagreed, reasons given included the need for fairness in social rent setting, with this approach supporting increased rent differentials for similar properties, and concerns were raised about affordability and accessibility to the sector. Some respondents also reiterated themes of mistrust of landlords as seen in Q1 and considered that this approach would encourage evictions. Of the respondents who disagreed, 58 out of 439 (13%) raised concerns for fairness and 37 out of 439 (8%) for affordability.

Question 5: We are not proposing to make exceptions for particular categories of rented social housing. Do you think any such exceptions should apply and what are your arguments/evidence for this?

48. This question received a total of 975 responses from 333 Registered Providers, 615 individuals and tenant organisations, and 27 other organisations.

49. Opinion on whether there should be exceptions for particular types of social housing were split. Where exceptions were called for, the most common category of social housing cited was supported housing.

50. 386 out of 975 (40%) respondents thought that exceptions should apply, including 183 out of 333 RPs (55%), 189 out of 615 (31%) individuals and tenant organisations and 14 out of 27 (52%) other organisations.

51. 460 out of 975 (47%) respondents said that no exceptions should apply, including 357 out of 615 (58%) individual and tenant organisations, 94 out of 333 RPs (28%), and 9 out of 27 (33%) other organisations. Those responding in this way were typically concerned about the fairness for residents in excepted homes, particularly where their rent is not covered by Housing Benefit or Universal Credit.

52. The most common proposed exception (recommended by 220 respondents to this question) was supported housing, which includes extra care, older persons, and sheltered housing. This was mentioned by 195 RPs, 17 other organisations, and 8 individuals and tenant organisations. The most common reason cited was the tighter margins within which supported housing Registered Providers operate, with the risk that a real-terms reduction in rental income could lead to arbitrary cuts to services and reduced provision of these homes.

53. Some respondents suggested making exceptions for particular residents, rather than types of home. 41 respondents argued for exceptions based on tenants’ circumstances (for example, pensioners).

54. Other exceptions proposed included smaller Registered Providers, such as co-ops and almshouses. This was noted by 21 respondents, including 4 of the 7 almshouses, almshouse charities and co-ops that responded to the consultation. Properties with rents that are currently below formula rent was raised by 11 respondents. 11 respondents proposed exceptions for categories of housing that are already excepted from the rent standard. There were a small number of other suggested exceptions, including for recently-completed homes, homes undergoing energy efficiency or building safety improvements, and Affordable Rent homes.

Other comments

55. 239 out of 1,041 (23%) responses raised Shared Ownership, including 196 out of 644 (30%) individuals and tenant organisations, 34 out of 361 (9%) RPs, and 9 out of 36 (25%) other organisations. Many of these responses, from both landlords and tenant organisations, called for Shared Ownership rent increases to be limited or frozen, acknowledging the multiple pressures that shared owners face with rising mortgage costs alongside rising rents.

56. 79 out of 1,041 respondents (8%) advocated consideration of rent ceilings in the private rented sector (PRS), to prevent PRS tenants facing significant rent increases. Some responses argued that it would be more beneficial to look at the PRS to address cost of living concerns, given that social housing rents are already regulated.

57. 158 out of 1,041 responses (15%) mentioned the treatment of service charges. This issue was raised by individuals, tenant organisations and RPs. Individuals and tenant organisations raised concerns about households’ ability to meet increasing service charge costs as they are not covered by the proposed rent ceiling. This was particularly the case where energy bills are paid through service charges. Individuals and tenant organisations also raised mistrust in how RPs calculate and bill service charges, noting that when bills are challenged adjustments are often made. RPs reported the significant cost increases in service provision due to the impact of inflation and explained that they have limited capacity to absorb the costs themselves so have to pass the costs on through service charges.

58. 284 out of 1,041 respondents (27%) called for measures to mitigate against the impacts of a rent ceiling, including 204 of 361 (57%) RPs, 61 of 644 (9%) individuals and tenant organisations, and 19 of 36 (53%) other organisations. Of the 284 responses that called for a mitigation, 133 (47%) advocated a clawback or catch-up mechanism to enable landlords to recoup rental income losses in future years by allowing higher rent increases. 113 of 284 (40%) called for government to provide grant funding for landlords to continue to be able to invest in homes and services, including providing greater flexibility in existing grant schemes. 53 of 284 (19%) called for wider reforms to the rent system, including considering basing rents on tenants’ income or charging higher rents for higher quality homes. Other suggestions put forward to help landlords included lower Public Works Loan Board rates for local authority borrowing (mentioned by 27 (10%) respondents), increased flexibilities on how LAs can spend Right to Buy receipts (mentioned by 28 (10%) respondents) and VAT reduction on housing-related expenditure (mentioned by 19 (7%) respondents). Some respondents put forward options to support tenants directly, including a call to improve hardship funds available to tenants (mentioned by 19 (9%) respondents) and a call to increase welfare support to tenants (mentioned by 23 (8%) respondents).

59. Responses also included: calls for local housing allowance and housing benefits to rise to cover costs, mentioned by 21 of 1,041 respondents (2%); concerns about the potential impact on homelessness, mentioned by 22 respondents (2%); commentary about risks to the wider economy as a result of slowdown in social sector investment, mentioned by 20 respondents (2%); and concerns about the risk of staff cuts in the social housing sector, mentioned by 20 respondents (1%).

Part 2: government response to the consultation

60. We are grateful for the 1,041 responses received to this consultation. We have considered the comments and additional evidence provided. Our response is set out below.

Introduction of a ‘ceiling’ on annual rent increases

61. The government believes it is right to set a lower ceiling on social housing rent increases in 2023-24 – rather than allowing rents to increase by up to 11.1%. We are concerned about the affordability of 11.1% rent increases to tenants – particularly those who do not receive housing support (i.e. Housing Benefit or the housing element of Universal Credit), and those who receive housing support but at a level that is reduced because of their income or savings or by the benefit cap or removal of the spare room subsidy. The government is acutely conscious that the higher than expected rate of inflation will already be placing considerable pressure on households.

62. The government understands that Registered Providers would not necessarily choose to increase rents by 11.1% – and indeed that many would elect not to do so. We also recognise that there is a case for Registered Providers to have some discretion to set rents at a level that reflects affordability and cost pressures in different cases. However, given the cost of living pressures on households, the government believes that it would not be right to leave the CPI+1% policy in place unchanged. A lower ceiling on rent increases is needed to give households greater protection, certainty and reassurance.

63. We also acknowledge that any decision to hold rent increases below CPI+1% - whether that decision is made by government or by Registered Providers themselves – will result in Registered Providers raising less rental income than would otherwise be the case. We also recognise the value of longer-term certainty for Registered Providers and investors, and the downsides of changing rent policy before 2025 (the government originally intended to leave this policy in place until at least 2025). However, we have concluded that imposing a ceiling is the right course of action to provide a backstop of protection for tenants in the current exceptional circumstances.

64. Having carefully considered the responses to the consultation, the government has decided that a 7% ceiling would strike an appropriate balance between protecting social tenants from high rent increases, and ensuring that Registered Providers are able to invest in new and existing social housing and provide decent homes and services to tenants.

65. We estimate that the average social housing rent will be £200 lower per annum in 2023-24 as a result of the 7% ceiling, compared to if rents increased by 11.1%. This will benefit tenants who do not receive housing support (i.e. Housing Benefit or the housing element of Universal Credit), and those who receive housing support but at a level that is reduced because of their income or savings or by the benefit cap or removal of the spare room subsidy. In real-terms, this will be the third biggest annual reduction in social housing rents since the introduction of rent restructuring two decades ago.

66. We understand that some respondents to the consultation would have strongly preferred the ceiling to be set at a lower level, to provide greater protection to tenants. However, we concluded that setting the ceiling below 7% would involve too great a risk to ongoing investment by Registered Providers in improving the quality and energy efficiency of existing homes, in providing decent homes and services to tenants, and in delivering new social housing. Such a loss of investment would harm the interests of social housing tenants and those who would benefit from more social housing being available – for example, households that are currently homeless, living in unsuitable or overcrowded accommodation or struggling to afford private rents.

67. Even apparently small differences in the ceiling level could have significant implications for this investment. For example, we estimate that setting the ceiling at 5% rather than 7% for one year would reduce Registered Providers’ rental income by a further £2.3 billion over 5 years.

68. Most social housing tenants receive housing support to help pay their rent. For these tenants, the cost of a rent increase will be met by their Housing Benefit or the housing element of Universal Credit – unless the level of support is reduced because of earnings or income, or by the benefit cap or the removal of the spare room subsidy. Discretionary Housing Payments can be made to those entitled to housing support who face a shortfall in meeting their housing costs.

69. Where tenants are struggling to pay their rent they should contact their landlord. To encourage landlords to work with residents who may have defaulted on rent payments, the Pre-Action Protocol for Possession Claims by Social Landlords sets out the actions social landlords should take before they consider taking legal action for rent arrears. These actions include making early contact with tenants to discuss the cause of the arrears; checking eligibility for housing benefit and assisting with any claim; and agreeing affordable repayment terms for the arrear.

70. The government believes a 7% ceiling strikes an appropriate balance. However, 7% will be a maximum and Registered Providers will still have the flexibility to apply a lower increase, or to freeze or reduce rents, should their wish to do so. The government strongly urges landlords to consider setting lower increases where possible. A number of Registered Providers responding to the consultation argued that a 7% ceiling would (of the options presented) give them more discretion to set rents in a way that balanced affordability, cost and investment. The government expects Registered Providers to exercise this discretion in a way that fully reflects their status as responsible social landlords.

71. The government is providing a range of other support to help households with cost of living pressures. To protect the most vulnerable, working-age and disability benefits will be increased in line with September’s rate of inflation (10.1%) for 2023-24. Pension Credit will increase by 10.1% in April 2023, as will the State Pension (due to the triple lock). The benefit cap will also increase by 10.1% in April 2023. The Energy Price Guarantee will also be adjusted so that the typical household pays £3,000 per annum from April 2023 until April 2024, saving the average household around £500 . This is estimated to save the government £14 billion in 2023-24, which can be targeted towards lower income households (who will receive £900 if they are in receipt of means-tested benefits in 2023-24, plus additional support for pensioners and those on disability benefits).

72. The government acknowledges the financial challenges that Registered Providers raised during the consultation responses. Government will keep the financial impact under ongoing review as part of our oversight of Local Authority Registered Providers’ financial health. The economic regulation of Private Registered Providers will continue to be undertaken by the Regulator of Social Housing.

73. The application of a lower ceiling on rent increases in 2023-24 will in no way relieve Registered Providers of their responsibility to ensure that residents are safe in their homes. This includes complying with statutory health and safety obligations. Where a Registered Provider is no longer able to meet these requirements, or where complying with the revised Rent Standard would jeopardise a Registered Provider’s financial viability, that provider will be able to apply for an exemption (or the disapplication of the revised Rent Standard), as per the processes under the current Rent Standard. As is the case now, the provider will be expected to have considered all possible options to ensure its continued viability before an exemption or disapplication is granted. This would include, where applicable, applying (on financial viability grounds) for additional funding from the Building Safety Fund to meet the cost of remediating unsafe cladding on buildings over 18 metres.

74. As part of the consultation, the government asked whether the proposed ceiling should be in place for 1 year (2023-24) or for 2 years (2023-24 and 2024-25). Having considered the responses, the government has decided to set the ceiling for one year – i.e. from 1 April 2023 to 31 March 2024. This reflects our view that the decision to impose a ceiling now should be a temporary intervention to respond to the current exceptional circumstances, in order to give greater protection to tenants. The government continues to support the principle that social housing rents should be index-linked over the long-term, to support investment in both new and existing social homes. We note that, as part of its Economic and Fiscal Outlook published in November, OBR has forecast significantly lower levels of inflation from later in 2023.

75. The government is committed to increasing the supply of social housing and improving the quality of the homes that social housing residents live in. We will therefore launch a call for evidence on whether Registered Providers should be permitted, gradually over time, to bring rents back up to the level they would have been had a 7% ceiling not been applied. Other factors, including affordability for tenants and welfare expenditure, will also be taken into account.

76. The call for evidence will help to inform the consultation on social housing rent policy from 2025, which the government has already committed to carry out in 2023. The government wants to ensure that future policy strikes the right balance between protecting tenants from cost-of-living pressures and ensuring Registered Providers of social housing have sufficient income to undertake their activities, including increasing the supply and quality of social housing. We will release details of this consultation in due course.

Calculation of maximum initial rents

77. The consultation proposed that the ceiling should not apply to the maximum initial rent that may be charged when Social Rent and Affordable Rent properties are first let and subsequently re-let. Having considered the consultation responses, the government remains of the view that this is the right approach as it helps to ensure that this intervention is narrowly focused on protecting existing tenants from particularly high rent increases. Consequently, the method of calculating the maximum initial rent for Social Rent and Affordable Rent homes will remain unchanged.

78. The government recognises that tenants moving into newly-let properties might face higher rents than would be the case if the 7% ceiling applied to new lettings. However, the overall number of moves and new lets compared to the total stock of rented social housing is relatively low (206,000 in the period April 2020 to March 2021 compared to total stock of 4 million units). We believe that any risk of encouraging more evictions is low, as most social housing tenants have lifetime tenancies and Registered Providers are required (by the Tenancy Standard set by the Regulator of Social Housing) to provide services that support tenants to maintain their tenancy and prevent unnecessary evictions.

79. Some respondents were concerned that not applying the 7% ceiling to new lettings would result in different rents being charged for similar properties. This is already a feature of the existing system to some extent. Some Social Rents are currently below formula rent and Registered Providers have the option to increase these rents to formula when re-letting properties.

Exceptions to the 7% ceiling

80. Our consultation did not propose any exceptions to the ceiling for particular types of social housing – meaning that all categories of housing currently regulated under the Rent Standard would be covered by it. We invited views on this approach.

81. Having considered the responses, the government has concluded that supported housing should be excepted from the 7% rent ceiling – in recognition of the fact that supported housing typically operates at tighter margins than general needs social housing. We believe that this is a sensible and proportionate measure to ensure the continued financial viability of supported housing provision, recognising its critical role in supporting some of the most vulnerable people in our society.

82. We have also taken account of the fact that the majority of supported housing tenants will have any rent increase met in full by Housing Benefit or the housing element of Universal Credit. Nevertheless, we urge Registered Providers to consider setting lower rent increases where possible. Many supported housing tenants are likely to benefit from the decision to increase the State Pension, Pension Credit and disability benefits by 10.1% in April 2023. Individuals on disability benefits will receive a further £150 Disability Cost of Living Payment.

83. Aside from the special circumstances of supported housing, the government does not consider that there is a sufficiently strong case for excepting other categories of social housing from the 7% ceiling – given the importance of protecting tenants from particularly high nominal-terms rent increases next year.

84. Existing exceptions from government social housing rent policy as set out in chapter 5 of the policy statement on rents for social housing will continue to apply.

Government response to other comments

85. Paragraphs 55-59 highlight other issues that came up throughout the responses. These are outside the scope of the consultation, but respondents may be interested to note the following.

86. Under existing social rent policy as set out in chapter 5 of the policy statement, Shared Ownership is one of the types of accommodation with a low-cost rental element that are not included in the Rent Standard. The annual rate at which Shared Ownership rents are permitted to increase is set out in the terms of lease agreements between shared owners and their RP.

87. Although outside the scope of our consultation, the government is pleased to note that, since the consultation closed, housing associations representing 90% of that sector’s Shared Ownership homes have confirmed – through the National Housing Federation – that they will voluntarily limit rent increases to no more than 7% in 2023-24. This represents a vital step in efforts to protect shared owners from particularly high rent increases next year, in response to cost of living concerns. We are urging other Shared Ownership providers to make a similar commitment.

88. The recently published white paper, ‘A Fairer Private Rented Sector’, outlines our proposed reforms to make the Private Rented Sector fairer and more secure. This includes only allowing increases to rent once per year, ending the use of rent review clauses, and improving tenants’ ability to challenge excessive rent increases through the First Tier Tribunal. These measures will help to prevent unfair rent increases for tenants, while ensuring landlords can continue to make necessary changes to rent. The government will bring forward legislation during this Parliament. However, the government does not support the introduction of rent controls in the private rented sector to set the level of rent at the outset of a tenancy. Evidence suggests that these would discourage investment in the sector and would lead to declining property standards as a result, which would not help landlords or tenants. Recent international examples also suggest that rent controls can have an inadvertent negative impact on the supply of housing and may encourage more illegal subletting.

89. Although service charges were out of scope of the consultation, a large number of respondents raised rising costs as an area of concern. Service charges are not regulated by the Regulator of Social Housing (RSH) through its Rent Standard but landlords must comply with the Landlord and Tenant Act 1985. The legislation sets out that service charges are payable only to the extent that the costs have been reasonably incurred. The government will legislate to ensure service charges are transparent and communicated effectively, and barriers to challenge when things go wrong are removed. The government also encourages landlords to apply the 7% ceiling to any service charge increases in 2023-24.

90. The initial rent for a Social Rent home is calculated using a formula that is net of service costs. However, Affordable Rent rents are set at up to 80% of market inclusive of service charges, therefore the rise in gross rent inclusive of service charge will be subject to the 7% cap. Not all households in social housing pay service charges to their landlord.

91. In response to a number of comments about alternative approaches to rent setting, the government has committed to consulting in 2023 about future rent policy and will release further details of that consultation in due course.

Summary

92. After carefully reviewing the responses to the consultation, the government has decided to impose a 7% ceiling on social housing rent increases in 2023-24. Supported housing will be excepted from the 7% ceiling.

93. Government believes this approach strikes an appropriate balance between protecting social tenants from high rent increases and ensuring that Registered Providers of social housing are able to continue to invest in new and existing social housing and provide decent homes and services to tenants.

94. Registered Providers still have the flexibility to apply a lower increase, or to freeze or reduce rents, should they wish to do so. The government strongly urges landlords to consider setting lower increases where possible.

95. Government will consult in 2023 on social housing rents policy post 2025. To help inform this, we will launch a call for evidence on whether social landlords should be permitted, gradually over time, to bring rents back up to the level they would have been had 7% ceiling not been applied. Other factors, including affordability for tenants and welfare expenditure, will also be taken into account.

Next steps

96. Alongside the publication of this response, the government is issuing the final direction from the Secretary of State (and the accompanying policy statement) to the Regulator. Both the direction and the policy statement have been amended to reflect the policy approach set out above. A number of minor and technical improvements have also been made to both documents.

97. The direction requires the Regulator to set a new rent standard with effect from 1 April 2023. Given the need to provide certainty as quickly as possible, the direction disapplies the usual statutory requirement on the Regulator to consult before setting its Rent Standard.

1. Throughout Part 1, the headline figures for total responses to each question include those that have directly responded to the question (but not those that solely commented). ↩