Fair Rents 2006.

Information about the publication of Ministerial Decisions

A formal published “Ministerial Decision” is required as a record of the decision of a Minister (or an Assistant Minister where they have delegated authority) as they exercise their responsibilities and powers.

Ministers are elected by the States Assembly and have legal responsibilities and powers as “corporation sole” under the States of Jersey Law 2005 by virtue of their office and in their areas of responsibility, including entering into agreements, and under any legislation conferring on them powers.

An accurate record of “Ministerial Decisions” is vital to effective governance, including:

demonstrating that good governance, and clear lines of accountability and authority, are in place around decisions-making – including the reasons and basis on which a decision is made, and the action required to implement a decision
providing a record of decisions and actions that will be available for examination by States Members, and Panels and Committees of the States Assembly; the public, organisations, and the media; and as a historical record and point of reference for the conduct of public affairs

Ministers are individually accountable to the States Assembly, including for the actions of the departments and agencies which discharge their responsibilities.

The Freedom of Information Law (Jersey) Law 2011 is used as a guide when determining what information is be published. While there is a presumption toward publication to support of transparency and accountability, detailed information may not be published if, for example, it would constitute a breach of data protection, or disclosure would prejudice commercial interest.

A decision made to agree that there will be no increase in the fair rents in 2006.

Subject:	Fair Rents 2006
Decision Reference:	MD-H-2006-0004		Exempt clause(s):	Public
Type of Report: (oral or written)	Written		Person Giving Report (if oral):
Telephone or e-mail Meeting?	n/a		Report File ref:
Written report – Title	Fair Rents 2006
Written report – Author (name and job title)	I K Gallichan Acting Chief Officer
Decision(s): Housing Minister has agreed that there will be no increase in the fair rents in 2006 and that an acceptable long term solution must be found as to the most appropriate body to set “Fair Rents” in the future. It is acknowledged that the Housing Minister is not the appropriate person to be setting these rents in the future.
Reason(s) for decision: The previous Housing Committee decided not to increase fair rents for 2005. The Housing Minister is aware that Housing Trusts need on average, an increase in their rents of 3.5% per annum in order to meet their financial commitments. Some ‘cushioning’ has been built into the system and therefore they should be able to sustain another nil increase this year, though a review of rent setting is required in order that this situation is where possible, avoided in the future, albeit that matters are heavily influenced by the housing market prevalent at the material time.
Action required: The Housing Minister has agreed that there will be no increase in the fair rents in 2006 and that an acceptable long term solution must be found as to the most appropriate body to set “Fair Rents” in the future.
Signature: (Minister/ Assistant Minister)		Date of Decision:

Fair Rents 2006.

Report

Housing Minister

Fair Rents – 2006

Introduction

To consider whether to increase Housing Department Fair Rents for 2006.

Background

The previous Housing Committee decided not to increase fair rents for 2005.

The Housing Minister will be aware that Housing Trusts need on average, an increase in their rents of 3.5% per annum in order to meet their financial commitments. Some ‘cushioning’ has been built into the system and therefore they should be able to sustain another nil increase this year, though a review of rent setting is required in order that this situation is where possible, avoided in the future, albeit that matters are heavily influenced by the housing market prevalent at the material time.

Current Climate

A number of factors need to be considered this year before a decision can be made on whether fair rents should be increased. They are:-

Average % rent increase for private sector rent rebate applicants for the period 1st January 2005 – 31st December 2005 . Figures attached at Annexure ‘A’

Average % increase in earnings for both applicants of rent rebate and rent abatement for the period 1st January 2005 – 31st December 2005 . Figures attached at both Annexure ‘A’ & ‘B’

The Jersey House Price Index – Third Quarter of 2005. The Jersey House Price Index attached at Annexure ‘C’

The current economic climate

The increase in fuel prices

The introduction of the ITIS System for income tax recovery

The restructuring of Housing rents into a banding system

With regard to item 1, the average increase in rent across the various property bands has been a modest 2.19%.

With regard to item 2, the average increase in income for rent rebate applicants has been 1.5%. For those on rent abatement, an increase of 6.84% in earnings. However, it is worth recalling that the average income of those receiving rent abatement is a very modest £11,600.

With regard to item 3, the report states that the average price of dwellings in Jersey has been essentially stable during the past three years; however since mid-2004 it has been slowly rising and in Q3 2005 was 3.4% higher than the previous quarter. We do not know at this stage whether this represents a trend, since an increase observed in Q2 2004 was followed by a similar size decrease. With the introduction of ITIS and of course the winter quarter yet to be reported on, it may well be that this position changes. In any event it is worth noting the situation with regard to three bedroom houses which account for almost half of all residential transactions in Jersey . The Q3 2005 figure (£366,000) is similar to that recorded at the start of this year, £364,000. The average price of a three bedroom house in Jersey is still 12 X average income!

With regard to item 4 and the current economic climate, matters are looking healthier than they have been for some time. However the increase in average earnings of those claiming rebate in the private sector has been very modest indeed. Although the average incomes of States Tenants claiming abatement has increased by 4.77%, this is from a very low level and has been offset by huge increases in energy costs not all of which have yet been passed on to the consumer.

Item 5 is referring to the massive increase in energy costs over the last 12 months. The Housing Department suffered an increase in the order of some 50% in 2005, however, the Housing Committee only passed on a maximum increase of 20% to tenants and that was made in two instalments during the year. This will have to be addressed by a further surcharge in 2006, possibly in May.

Item 6 will affect some of our tenants and undoubtedly some of those claiming rent rebate in the private sector. This will initially impact on incomes until such time as the scheme settles down and tax-payers adapt to the changes.

Item 7 refers to the complete restructuring of Housing property rents. Currently there are far too many maximum rents in operation across the entire stock. As an example three bed houses attract some 15 different rent levels. This is cumbersome to manage. The Department is ready to introduce a banding system, namely A, B, C & D, with ‘A’ reflecting our best property and ‘D’ reflecting those in need of refurbishment. This will have a noticeable impact on rent levels and will certainly affect those tenants on maximum rent. Some rents will have to increase markedly. Those properties in band ‘D’ will see a reduction in their maximum rent to reflect the condition of the property. It is hoped to start introducing this new Banding from June 2006.

Rent Setting – The Future

Discussion will have to take place with a number of interested parties in order to clarify who is the most appropriate authority to set housing fair rents for the future. It is difficult for the Housing Department to fill this role bearing in mind it is the ‘biggest player’ in the social housing market. It should certainly have an input in the decision making process but is again falling into the regulator come provider scenario should it be the final arbiter. This gains further relevance as Social Security assumes responsibility for housing subsidies through the income support scheme.

Housing Trusts also need to be able to project their rental income with reasonable accuracy. Their financial models build into the equation an average rental increase of 3.5% per annum. Whilst this should not influence a decision to increase fair rents it has to be understood that Trust borrowing models as stated are based on an average increase per annum. However, historically an average increase of 3.5% per annum is not unreasonable, even with a much ‘flatter’ rental environment.

Conclusion

In conclusion therefore, average earnings have not increased to any great extent, fuel charges have increased substantially and the rental market remains fairly subdued. With the advent of ITIS and a noticeable change to the rent structure of States Rental Accommodation, it is not felt there is any justification for increasing fair rents in 2006.

It is highly likely that rents will be increased in 2007, if the current economic climate continues.

It is also recommended that an acceptable long term solution is found as to the most appropriate body to set ‘Fair Rents’. If the Housing Department does indeed become a Trading Organisation, it would be not be acceptable for that organisation to be taking the lead role in the setting of fair rents for other social housing providers.

I K Gallichan

Acting Chief Officer

25 January 2006