Rent Setting Policy

Policy reference number: POL-FIN-RENTSET
Version number: 3
Date applies from: 1/12/14


1. Aim of Policy

1.1. Introduction

1.1.1. Over recent years rents for property in the social housing sector have been determined using the Rent Restructuring Framework introduced by the Government in 2001.

Policy to 2014/15

1.1.2. In 2001 the Government introduced new guidelines of rental for all social housing to make them fairer and more consistent, showing a clear link between the rent and the quality, size and location of the homes. These guidelines require future rents to be the same for customers, regardless of whether they rent their home from a Local Authority or from a Registered Social Landlord (RSL) such as City West Housing Trust. This has been known as achieving target rents and convergence.

1.1.3. Local Authority and Registered Social Landlords (RSL) rents were originally intended to meet target rent and converge by 2012. However at the 2010 Spending Review, the Government extended this policy for social rent to 2014-15.

1.1.4. Annual changes in social rent levels have also been based on a policy set by Government in that weekly rents were expected to increase annually by RPI + 0.5%, plus up to an additional £2 where the rent is below the target level for the property.

1.1.5. Social housing ‘target’ rents, which are used to cap the weekly rent, are set to reflect the size, condition, and location of properties and local earnings, so as to take account of affordability. The target rent formula is:

  • 70% on the average local wage compared with the national average wage
  • 30% on the January 1999 property valuation, compared with the national average value of a social housing property
  • A property size ‘weighting’ based on the number of bedrooms in the property

1.1.6. Actual rents are set within a 5% tolerance band of the assessed ‘target’ rent for the general needs properties and 10% for sheltered housing properties. City West has chosen not to use the tolerance level available when setting rents.

1.1.7. At the 2010 Spending Review, the Government also introduced “affordable rent”. This meant that landlords could let properties at affordable rent (up to 80 percent of local market rent) where they have in place an agreement with the Homes and Communities Agency to provide new affordable housing.

Policy from 2015/16

1.1.8. During the Budget 2013, the Government signalled its intention to set out, in the Spending Round, a rent policy to apply for ten years from 2015/16. This commitment was in recognition of the benefit of long-term certainty to landlords, in helping them to plan for future investment – and so provide more new affordable homes, improve existing affordable homes, and provide good services to their tenants.

1.1.9. The Government also set out its aim that those in social rented housing with high incomes should pay a fairer level of rent. i.e. where a social tenant household has an annual income of at least £60,000, the landlord should be able to charge them the full market rent, rather than being expected to continue to provide them with a sub-market rent. This would allow landlords to make best use of social housing, and would mean a sub-market rent is provided only to those tenants who clearly need it.

1.1.10. The intention at the Spending Round, was for the Government to give certainty to social landlords by confirming that, from 2015-16, rents in the social sector would increase by CPI + 1% annually, for ten years. The move from RPI to CPI follows the Office for National Statistics' announcement in January 2013 that the formula used to produce the Retail Price Index does not meet international standards. As a result, the Government is looking to move to the Consumer Price Index, where possible, where an inflation-index is currently being used in policy.

1.1.11. Under this policy, the majority of existing rented properties in the social sector will continue to be let at social rent; and the majority of new properties will continue to be let at affordable rent.

1.2. Aim of policy
1.2.1. City West aims to provide high quality, affordable homes in thriving communities. The aim of this policy is to identify City West Housing Trust’s approach to setting rent levels that are fair, transparent, consistent and compliant with Government Legislation and guidance.

1.2.2. The objectives of this rent setting policy are:
• To review and set rent levels for each property annually and ensure that all customers are given four weeks notice in writing of the new rent for their property. Rents will be set in accordance with our relevant statutory, regulatory and contractual obligations.

• To ensure that all residents are made aware of the weekly rent payment due to City West in respect of their property at the beginning of their tenancy. Ensure that our customers are advised of the availability of benefits and are given support to claim benefits for housing where applicable.

• To ensure rents are set at a level which ensures that City West meets its obligations to customers, maintains stock at a high standard of repair, and continues to function as a financially viable organisation. To manage this income to achieve value for money, efficiency and effectiveness, whilst complying with government legislation and guidance, audit and best value principles.

2. Policy

2.1. Board Approval
2.1.1. Annually, the finance department will calculate the rent increases based on the latest government guidance and prepare a report setting out the:
• Methodology used to set the rents including the rates of inflation applied.
• Financial and non-financial implications of applying the proposed rent increase.

2.1.2. The proposed rent levels report will be submitted to Board for approval on an annual basis. Customers will receive four weeks notice of their increase and therefore, approval will be obtained to achieve this.

2.2. Weekly Rent Increases
2.2.1. Weekly rent increases will be set annually in line with the Government’s formula for rent setting. From 2015/16 this is based on the previous year’s rent increased by September CPI, plus 1%.

2.2.2. All new tenancies created by City West will automatically be set at target rent levels and increased by September CPI plus 1% each year.

2.2.3. Affordable rents will be set in line with the Government guidance at 80% of the market rent and increased annually based on CPI + 1%.. These will be rebased on each occasion, subject to a property valuation, when a new affordable rent tenancy is issued. To ensure that the rent remains at no more that 80% of the gross market rent (inclusive of service charges).

2.2.4. Market rents will be set based on the property valuation and increased annually based on CPI + 1%. These will be revalued whenever a new tenancy is issued.

2.2.5. For those customers, whose properties have transferred to City West since 2008, the annual rent increases will be in line with Government guidelines and their specific tenancy agreements.

2.2.6. Rents will not be increased for individual customers following the physical completion of improvements to their homes. However City West will still be subject to Government guidelines relating to target rents, which state that any increase in the capital value of a property as a result of any improvements has to be taken into account when setting the rent. This means that if the capital value of the property increases significantly due to improvement works, then the Governments target rent for the property would be increased to reflect this.

2.2.7. Rent increases will be effective on the first Monday of April each year. All customers will receive four weeks notice in writing detailing rent increases. All correspondence sent to customers is available on request in a variety of different formats and languages.

2.3. Rent Collection
2.3.1. Rents will be calculated over 52 weeks and collected over 48 weeks. There are four non-debit weeks. Where there are 53 Mondays in the financial year, the rent will then be calculated over 53 weeks and collected over 49 weeks. Customers will be advised each year which weeks will be the rent free weeks.

2.3.2. The rent payable is due on the Monday of each week and should be paid within the week that the rent is due. Rent statements will be provided to customers on a quarterly basis.

2.4. Customer Support
2.4.1. To assist our customers in paying their rent, all customers will have access to information and advice on their rights to claim housing benefit and any other welfare benefits. A range of rental payment methods will also be made available to customers to enable timely rental payments to be made.