Consultation outcome

Social housing rents

Updated 14 December 2022

This was published under the 2019 to 2022 Johnson Conservative government

Applies to England

Scope of the consultation

Topic of this consultation:

This consultation seeks views on a new Direction from the Secretary of State to the Regulator of Social Housing in relation to social housing rent policy. It focuses on the introduction of a rent ceiling from 1 April 2023 to 31 March 2024, which would act as an upper limit on the maximum amount by which Registered Providers of social housing can increase rents in that year.

Scope of this consultation:

We are proposing to direct the Regulator of Social Housing to set a regulatory standard on rents that will apply to Registered Providers of social housing. This term encompasses:

• Private Registered Providers (including housing associations)
• Local authority Registered Providers (i.e. local authorities with retained housing stock)

Section 197 of the Housing and Regeneration Act 2008 gives the Secretary of State the power to direct the Regulator of Social Housing to set a standard on rent, and about the content of that standard. Once issued, a Direction is binding on the Regulator. We propose to use this power to issue a new direction to the Regulator on rent. The proposed Direction has been published alongside this consultation.

Geographical scope:

These proposals relate to England only.

Impact assessment:

An Impact Assessment has been prepared and is attached at Annex D. It highlights areas where we would be particularly keen to receive further evidence from consultees.

Basic Information

Body/bodies responsible for the consultation:

Department for Levelling up, Housing and Communities (DLUHC)

Duration:

This consultation will last for six weeks from 31 August to 12 October.

Enquiries:

For any enquiries about the consultation please contact: Socialhousingrents@levellingup.gov.uk

How to respond:

Please note that we are required by law to publish every response to this consultation. Therefore please ensure that your response does not include any material that you are not content for us to publish.

You may respond by completing an online survey.

Alternatively, you can email your response to the questions in this consultation to:

Socialhousingrents@levellingup.gov.uk

If you are responding in writing, please make it clear which questions you are responding to.

Written responses should be sent to:

Social Housing Rents
Floor 3 (Mailpoint B12)
Fry Building
2 Marsham Street
London
SW1P 4DF

Please submit your response through only one of the above routes.

When you reply it would be very useful if you could confirm whether you are replying as an individual or submitting an official response on behalf of an organisation and include:

• your name,
• your position (if applicable),
• the name of organisation (if applicable),
• an address (including post-code),
• an email address, and
• a contact telephone number.

Introduction

1. In 2019, the government set a rent policy for social housing that would permit rents to increase by up to CPI plus 1 percentage point (‘CPI+1%’) per annum, and made clear its intention to leave this policy in place until 2025. We recognise the value of longer-term certainty for everyone who has a stake in social housing, and we had no desire to change rent policy before 2025.

2. However, we are living through exceptional times. When the current rent policy was set in 2019, inflation was forecast to be around 2% in 2022 and 2023. CPI was 10.1% in July 2022. If CPI remains at or above this level in September, this would permit social housing rent increases from 1 April 2023 to 31 March 2024 of 11.1% or more. This much higher than expected rate of inflation is already placing considerable pressure on many households, including those living in social housing. We know that Registered Providers of social housing (‘Registered Providers’) will also be concerned about these pressures on their residents and will be carefully considering how to respond.

3. In the face of these exceptional challenges, we think there is a strong case for making a temporary amendment to the CPI+1% policy next year in order to provide a backstop of protection for social housing tenants from significant nominal-terms rent increases. We have therefore decided to consult on a new Direction from the Secretary of State to the Regulator of Social Housing (‘the Regulator’) on social housing rents. This Direction would operate alongside the Direction on the Rent Standard 2019 issued on 26 February 2019 (‘the 2019 Direction’). The draft Direction is attached to this consultation at Annex B.

4. This new Direction would require the Regulator to amend its Rent Standard so that the current CPI+1% limit on annual rent increases would be subject to a ceiling from 1 April 2023 to 31 March 2024. We are open to views from consultees on where the ceiling should be set. By law, we must consult on a draft direction, and our draft direction is based on setting the ceiling at 5%. This would act as an upper limit on the maximum permitted annual rent increase a Registered Provider is allowed to implement. Registered Providers would be permitted to increase rents by 5% or CPI+1%, whichever is the lower. However, within this consultation, we are seeking views on 3%, 5% and 7% as ceiling options, and we are also open to other percentage proposals that may be put forward by consultees.

5. Under the 2019 Direction, the Regulator is required to have regard to a separate Policy Statement on Rents for Social Housing that was published by the Department alongside the 2019 Direction. Our proposed new Direction would require the Regulator to have regard to an amended version of the Policy Statement (‘the amended Policy Statement’). The amended Policy Statement is attached at Annex C. The proposed revisions, which are marked up in Annex C, reflect the proposals on which we are now consulting.

6. Subject to the outcome of this consultation, we intend to issue the new Direction to the Regulator (alongside the amended Policy Statement) later in 2022. Given the need to provide certainty as quickly as possible, our proposed Direction would disapply the usual statutory requirement on the Regulator to consult before setting its Rent Standard.

7. We invite your views on the questions listed, the draft Direction and the proposed revisions to the Policy Statement by 12 October 2022.

Context

Background on the regulation of social housing

8. The statutory framework for social housing regulation is set out in the Housing and Regeneration Act 2008. In brief:

• The Regulator is responsible for regulating social housing provided by Registered Providers
• The term Registered Providers encompasses:
  • local authorities with retained stock ; and
  • other bodies that have registered with the Regulator (known as ‘Private Registered Providers’). Most homes held by Private Registered Providers are owned or managed by housing associations.
• ‘Social housing’ comprises low cost rental accommodation (e.g. homes let at Social Rent or Affordable Rent) and low cost home ownership accommodation (e.g. shared ownership homes).
• Our proposed Direction would apply to low cost rental accommodation, but not to low cost home ownership accommodation.

9. The Regulator has the power to set regulatory standards on a range of matters, including rents. Registered Providers are required to comply with these standards. In relation to certain matters (including rents), the Secretary of State has the power to direct the Regulator to set standards about the content of those standards. The Secretary of State can also direct the Regulator to have regard to specified objectives when setting standards.

Background on social housing rent and welfare policy

10. Government policy on social housing rents seeks to achieve the right balance between several objectives:

• protecting tenants
• protecting taxpayers (by limiting the welfare costs associated with social housing rents)
• supporting the delivery of new social homes and the management and maintenance of existing properties

11. Most rented social housing properties are let at ‘Social Rent’. Social Rents are set using a government formula. This creates a ‘formula rent’ for each property, which is calculated in a way that takes account of the relative value of the property, the size of the property and relative local income levels. Landlords have flexibility to set rents up to 5% above the formula rent (10% in the case of supported housing) – this is known as the ‘rent flexibility level’. Formula rent is also subject to rent caps, which vary according to the size of the property.

12. In 2011, the government introduced ‘Affordable Rent’ which permits rents to be set at up to 80% of market rent (inclusive of service charges). The introduction of Affordable Rent made it possible to build more homes for a given amount of up-front investment, allowing more people in housing need to have access to a good quality home at a sub-market rent. Landlords can only let new properties at Affordable Rent where certain conditions apply.

13. From April 2015, the government made it possible for Registered Providers of social housing to charge a full market rent where a household has an annual income of at least £60,000. This is designed to allow landlords to make better use of their social housing, rather than requiring them to provide sub-market rent homes to households with relatively high incomes.

14. Government policy has also applied to annual changes in Social Rent and Affordable Rent levels. Since April 2020, Registered Providers have been permitted to increase rents by up to CPI+1% per annum (with the CPI rate taken at the previous September), other than where the rent on a Social Rent property exceeds the rent flexibility level (where the maximum annual increase is CPI).

15. Housing Benefit and the housing element of Universal Credit (‘HB/UC’) helps those on low incomes to pay their rent. For social tenants, the calculation of HB/UC reflects the actual rent charged^{[footnote 1]} – subject to the removal of the spare room subsidy, and the total benefit cap.

Our proposed direction

Introduction of a ‘ceiling’ on annual rent increases

16. Our proposed direction would make the CPI+1% policy subject to a 5% ceiling from 1 April 2023 to 31 March 2024. This would mean that, for rent periods that begin in the 12 months from 1 April 2023 to 31 March 2024, Registered Providers would be permitted to increase rents by up to CPI+1% or by 5%, whichever is lower. This ceiling would apply to both Social Rent and Affordable Rent homes.

17. We are proposing to apply this ceiling to maximum rent increases due to the very high rate of CPI inflation. CPI is currently considerably higher than anticipated at the time when CPI+1% policy was set in February 2019. At that time, the most recent version of the Office for Budget Responsibility’s Economic and Fiscal Outlook had forecast that CPI would be 2.1% in 2022 and 2.0% in 2023. 1. CPI was 10.1% in July 2022. If CPI remains at or above this level in September, this would permit social housing rent increases from 1 April 2023 to 31 March 2024 of 11.1% or more.

18. In light of these exceptional circumstances, we think it is right to apply a ceiling to the CPI+1% policy in order to protect tenants from very high nominal-terms rent increases next year, at a time when their incomes are unlikely to be rising as quickly.

19. We also recognise that, compared to rents increasing by CPI+1%, imposing a ceiling on rent increases would (depending on the actual CPI rate in September) leave Registered Providers with less money to invest in providing new social housing, improving the quality and energy performance of their existing homes and providing services to tenants. These are important outcomes to government as well as to Registered Providers, so any decision to restrict rent increases inevitably involves tough choices. We appreciate that Registered Providers are already likely to be considering carefully how to balance these trade-offs, and that many of them might decide not to increase rents by CPI+1% if government did not intervene. We would welcome information from consultees about the decisions that Registered Providers would be likely to make if a ceiling was not imposed. On the other hand, it could be argued that even a 5% rent rise would still add to cost of living pressures on tenants at a time when rent affordability for tenants should outweigh other objectives. On balance, we believe that imposing a ceiling is the right approach to provide a backstop of protection for tenants in these exceptional circumstances.

20. We are conscious that some parts of the social housing sector such as supported housing may, due to their operating margins or business models, be less resilient to financial pressures. Given our objective to protect tenants from high nominal-terms rent increases in 2023/24, we are not proposing to make exceptions for particular categories of rented social housing at present but may consider this where there is clear evidence.

21. In order to ensure that this intervention is narrowly focused on protecting existing tenants from significant nominal-terms rent increases, our proposed direction would not apply the 5% ceiling to the maximum initial rent that may be charged when homes are first let and subsequently re-let. Formula rent for Social Rent properties would continue to increase by CPI plus 1 percentage point. Formula rent would continue to be subject to the rent caps, and these would continue to increase by CPI plus 1.5 percentage points. The method of calculating the maximum initial rent for Affordable Rent homes would also remain unchanged.

22. 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.

23. The application of a ceiling on rent increases would 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, it should apply for an exemption. 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.

24. As noted above, we are open to views from consultees on where the ceiling should be set. Our draft direction is based on setting the ceiling at 5% because:

• It is broadly similar to this year’s maximum permitted rent increase under the CPI+1% policy (4.1%); and,
• It is around 1% higher than the 3.9% CPI that the Office for Budget Responsibility was forecasting for Q3 2022/23 as recently as October 2021 – although it should be noted that Registered Providers’ costs are also likely to be higher than would have been forecast at that stage.

25. However, we would also welcome views on alternative ceiling options, including a 3% and 7% ceiling. We have selected 3% and 7% because they reflect different trade-offs that could be made between preventing high rent increases and managing the impact on Registered Providers’ rental income (as illustrated by our Impact Assessment attached at Annex D). Whereas a 3% ceiling would provide more protection against rent increases, it would have a larger impact on Registered Providers’ rental income. On the other hand, a 7% ceiling would provide lesser protection against rent increases but would have a smaller impact on Registered Providers’ rental income.

26. Under any ceiling option, Registered Providers would still have the flexibility to apply a lower increase, or to freeze or reduce rents, should they wish to do so.

27. Our proposed ceiling would only apply to rent periods that begin in the 12 months from 1 April 2023 to 31 March 2024. However, we would welcome views on whether it should potentially cover two years (i.e. up to 31 March 2025), given that the most recent forecasts suggest that CPI could still be unusually high in September 2023.

28. The government also wishes to clarify that the CPI+1% policy only applies to rent increases. Where CPI falls below minus 1%, Registered Providers would not be required to reduce their rents.

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?

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)?

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)?

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?

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?

Social housing rent policy from 2025-26

29. In 2023, the government will consult on social housing rent policy from 2025-26 onwards. In developing these proposals, the government wants to ensure that future policy strikes the right balance between protecting tenants from cost of living pressures and ensuring Registered Providers have sufficient income to undertake their activities, including increasing the supply and quality of social housing.

About this consultation

This consultation document and consultation process have been planned to adhere to the Consultation Principles issued by the Cabinet Office.

Representative groups are asked to give a summary of the people and organisations they represent, and where relevant who else they have consulted in reaching their conclusions when they respond.

Information provided in response to this consultation will be published to comply with section 197 of the Housing and Regeneration Act 2008. Names of individual respondents will not be published. In addition, responses may be published or disclosed in accordance with the access to information regimes (primarily the Freedom of Information Act 2000 (FOIA), the Data Protection Act 2018 (DPA), the General Data Protection Regulation, and the Environmental Information Regulations 2004.

Due to the legal requirement to publish responses, we are not able to guarantee confidentiality in respect of your response. An automatic confidentiality disclaimer generated by your IT system will not, of itself, be regarded as binding on the department.

In addition, information provided in response to this consultation may be published or disclosed in accordance with the access to information regimes (these are primarily the Freedom of Information Act 2000 (FOIA), the Environmental Information Regulations 2004 and UK data protection legislation. In certain circumstances this may therefore include personal data when required by law.

The Department for Levelling Up, Housing and Communities will at all times process your personal data in accordance with UK data protection legislation and in the majority of circumstances this will mean that your personal data will not be disclosed to third parties. A full privacy notice is included below.

Individual responses will not be acknowledged unless specifically requested.

Your opinions are valuable to us. Thank you for taking the time to read this document and respond.

Are you satisfied that this consultation has followed the Consultation Principles? If not or you have any other observations about how we can improve the process please contact us via the complaints procedure.

Annex A

Personal Data

The following is to explain your rights and give you the information you are entitled to under UK data protection legislation.

Note that this section only refers to personal data (your name, contact details and any other information that relates to you or another identified or identifiable individual personally) not the content otherwise of your response to the consultation.

1. The identity of the data controller and contact details of our Data Protection Officer

The Department for Levelling Up, Housing and Communities (DLUHC) is the data controller. The Data Protection Officer can be contacted at dataprotection@levellingup.gov.uk or by writing to the following address: Data Protection Officer, Department for Levelling Up, Housing and Communities, Fry Building, 2 Marsham Street, London SW1P 4DF.

2. Why we are collecting your personal data

Your personal data is being collected as an essential part of the consultation process, so that we can contact you regarding your response and for statistical purposes. We may also use it to contact you about related matters.

We will collect your IP address if you complete a consultation online. We may use this to ensure that each person only completes a survey once. We will not use this data for any other purpose.

Sensitive types of personal data

Please do not share criminal offence data or special category personal data if we have not asked for it unless absolutely necessary for the purposes of your consultation response. By ‘special category personal data’, we mean information about a living individual’s:

• race
• ethnic origin
• political opinions
• religious or philosophical beliefs
• trade union membership
• genetics
• biometrics
• health (including disability-related information)
• sex life; or
• sexual orientation.

By ‘criminal offence data’, we mean information relating to a living individual’s criminal convictions or offences or related security measures.

3. Our legal basis for processing your personal data

Information provided in response to this consultation will be published to comply with section 197 of the Housing and Regeneration Act 2008. Names of individual respondents will not be published. In addition, responses may be published or disclosed in accordance with the access to information regimes (primarily the Freedom of Information Act 2000 (FOIA), the Data Protection Act 2018 (DPA), the General Data Protection Regulation, and the Environmental Information Regulations 2004.

Due to the legal requirement to publish responses, we are not able to guarantee confidentiality in respect of your response. An automatic confidentiality disclaimer generated by your IT system will not, of itself, be regarded as binding on the Department.

The Department for Levelling Up, Housing and Communities will process your personal data in accordance with the law and in the majority of circumstances this will mean that your personal data will not be disclosed to third parties.

The collection of your personal data is lawful under article 6(1)(e) of the UK General Data Protection Regulation as it is necessary for the performance by DLUHC of a task in the public interest/in the exercise of official authority vested in the data controller. Section 8(d) of the Data Protection Act 2018 states that this will include processing of personal data that is necessary for the exercise of a function of the Crown, a Minister of the Crown or a government department i.e. in this case a consultation.

Where necessary for the purposes of this consultation, our lawful basis for the processing of any special category personal data or criminal offence data (terms explained under ‘Sensitive Types of Data’) which you submit in response to this consultation is as follows. The relevant lawful basis for the processing of special category personal data is Article 9(2)(g) UK GDPR (‘substantial public interest’), and Schedule 1 paragraph 6 of the Data Protection Act 2018 (‘statutory etc and government purposes’). The relevant lawful basis in relation to personal data relating to criminal convictions and offences data is likewise provided by Schedule 1 paragraph 6 of the Data Protection Act 2018.

4. With whom we will be sharing your personal data

DLUHC may appoint a ‘data processor’, acting on behalf of the department and under our instruction, to help analyse the responses to this consultation. Where we do we will ensure that the processing of your personal data remains in strict accordance with the requirements of the data protection legislation.

5. For how long we will keep your personal data, or criteria used to determine the retention period.

Your personal data will be held for two years from the closure of the consultation unless we identify that its continued retention is unnecessary before that point.

6. Your rights, e.g. access, rectification, restriction, objection

The data we are collecting is your personal data, and you have considerable say over what happens to it. You have the right:

a. to see what data we have about you

b. to ask us to stop using your data, but keep it on record

c. to ask to have your data corrected if it is incorrect or incomplete

d. to object to our use of your personal data in certain circumstances

e. to lodge a complaint with the independent Information Commissioner (ICO) if you think we are not handling your data fairly or in accordance with the law. You can contact the ICO online, or telephone 0303 123 1113.

Please contact us at the following address if you wish to exercise the rights listed above, except the right to lodge a complaint with the ICO: dataprotection@levellingup.gov.uk or Knowledge and Information Access Team, Department for Levelling Up, Housing and Communities, Fry Building, 2 Marsham Street, London SW1P 4DF.

7. Your personal data will not be sent overseas

8. Your personal data will not be used for any automated decision making

9. Your personal data will be stored in a secure government IT system

We use a third-party system, Citizen Space, to collect consultation responses. In the first instance your personal data will be stored on their secure UK-based server. Your personal data will be transferred to our secure government IT system as soon as possible, and it will be stored there for two years before it is deleted unless we identify that its continued retention is unnecessary before that point.

1. This is different to the position for tenants in the private rented sector, where the amount of housing benefit payable is capped by the Local Housing Allowance, depending on the size of the household and where the property is located. ↩