Social Housing Rents: Revised Annual Rent Adjustment Policy

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A decision made on 16 November 2018

MINISTERIAL DECISION REFERENCE: MD-H-2018-0021

DECISION SUMMARY TITLE: Social housing rents – revised annual rent adjustment policy

DECISION SUMMARY AUTHOR:

Policy Principal

Strategic Policy, Performance and Population

IS THE DECISION SUMMARY PUBLIC OR EXEMPT? (if exempt state clause from Code of Practice booklet and from 1st January 2015 stating the relevant article/paragraph of the Freedom of Information Law/Regulations)

Public

REPORT TITLE: Social housing rents – revised annual rent adjustment policy

REPORT AUTHOR OR NAME OF PERSON GIVING REPORT: (if different from Decision Summary Author)

Policy Principal

Strategic Policy, Performance and Population

IS THE REPORT PUBLIC OR EXEMPT (if exempt state clause from Code of Practice booklet and from 1st January 2015 stating the relevant article/paragraph of the Freedom of Information Law/Regulations)

Public

DECISION AND REASON FOR THE DECISION:

The Minister for Children and Housing approved a revision to the policy for uplifts in social housing rents as set out in the attached report.

Following an unexpectedly high increase in the Retail Price Index in June 2018, a review of the rent adjustment policy for social housing was undertaken, including modelling the impact of various scenarios on Andium Homes’ net cash position and the return to the Treasury as Guarantor. This review has been completed and will continue to link rent adjustments to RPI with minimum and maximum uplift requirements in order to provide tenants with greater certainty in relation to adjustments in their rent.

RESOURCE IMPLICATIONS: The resource implications are set out in the attached written report. It is forecast that the return by Andium Homes to the States Treasury and Exchequer over three years will be as follows:

Year	Current £’000	Proposed £’000	Difference £’000	%
2019	30,200.9	29,673.3	527.6	1.75
2020	31,220.0	30,637.7	582.3	1.87
2021	32,250.3	31,633.5	616.8	1.91

ACTION REQUIRED: The Minister for Children and Housing to confirm the revised policy with the Minister for Social Security, the Minister for Treasury and Resources and with social housing providers.

SIGNATURE:

POSITION:

Senator Sam Mézec

Minister for Children and Housing

DATE SIGNED:

EFFECTIVE DATE OF THE DECISION:

Social Housing Rents: Revised Annual Rent Adjustment Policy

Andium Homes – revised annual rent adjustment policy

Introduction

1.1. This paper sets out a revision to the annual rent adjustment policy for uplifts in social housing rents. Following consultation with the Minister for Treasury and Resources, the Minister for Children and Housing has decided to provide a cap and floor for rental adjustments for Andium Homes’ tenants.

Background

2.1. In August 2018, it was agreed that Andium Homes would defer its annual rent adjustment and financial return to the States Treasury and Exchequer in view of an unexpectedly high increase in RPI, which would have led to a rent increase of 5.25% for its tenants from 1st October 2018.

2.2. The rent increase was therefore postponed until 1st January 2019 so that officers could consider whether a different way of calculating the annual rent adjustment formula was required and, if so, to develop a revised formula.

Proposal

3.1. A review of the rent policy and modelling the impact of various scenarios on Andium Homes’ net cash position and the return to the Treasury as Guarantor has been completed. As a result of that review the following rent adjustment policy was proposed and adopted by the Minister:

	CURRENT POLICY	PROPOSED POLICY
Rental uplift	RPI + 0.75% (no minimum or maximum)	RPI + 0.75% (minimum RPI: 1.75%; maximum RPI: 3.25%)

Guarantor return	RPI (no minimum or maximum)	RPI (minimum RPI: 1.75%; maximum RPI: 3.25%)

3.2. These changes mean that annual rents will in future increase within a range of 2.50% and 4.00%. Similarly, the Guarantor’s return will increase within a range of 1.75% and 3.25%.

3.3. The revised rent policy is favoured because it maintains all the key elements of the current methodology but addresses the issue of the recent and potential future high RPI figures.

3.4. The revised rent policy will take effect on 1st January 2019 and it is proposed that this is a permanent change to the date so that the rent uplift will occur in January for future years. This will mean that tenants will not be subject to two increases in 2019: (the first with effect from 1st January and the second on the previous 1st October date.)

Risks and benefits

4.1. The change in rent policy presents a risk to the Andium Homes business model in the scenario that RPI exceeds the current Fiscal Policy Panel’s assumptions (below) of 3.3%, as this could result in expenses increasing at a higher rate than the capped rent increase. The Andium Homes business model has been stress tested assuming 5% RPI over a 3 year period, as this is the maximum period of review under the proposed policy. If this scenario were to occur, Andium Homes’ projected cash flows reduce by circa £750k over the full 3 year period.

(Source: Fiscal Policy Panel)

4.2. Based on central assumptions, the reduction to the current forecast return by Andium Homes to the States Treasury and Exchequer will be as follows:

Year	Current £’000	Proposed £’000	Difference £’000	%
2019	30,200.9	29,673.3	527.6	1.75
2020	31,220.0	30,637.7	582.3	1.87
2021	32,250.3	31,633.5	616.8	1.91

4.3. The main benefits of the decision are as follows:

Maintains the current 0.75% differential between the rental uplift and the Guarantor’s return
Maintains the existing index
Provides Andium with the 2.5% minimum uplift required to meet existing loan repayments
Caps rental uplifts and provides greater certainty around changes in rents for tenants.
It provides for a regular review of the rental policy to take account of changes in economic circumstances

Conclusion

5.1. Having received the support of the Minister for Treasury and Resources, the Minister for Children and Housing seeks to revise the rent adjustment policy as outlined with a review date set for three years’ time, or sooner if required, and every three years thereafter.

5.2. The proposal has been reviewed by the Andium Board and they believe it can be accommodated within their business model.

5.3. The Housing Trusts have been consulted on these proposals and have indicated that they intend to operate within the parameters of the policy taking into account their own business models.

Official