Government publishes response to consultation on social housing rents

The government has published its response to the Department for Levelling Up, Housing and Communities' (DLUHC) consultation on applying a ceiling to social housing rent increases for 2023/24.

The Chancellor announced the decision to apply a 7% ceiling to social housing rent increases in the Autumn Statement. Other than confirming an exemption for supported housing, further details around this announcement had not yet been confirmed.

We welcome confirmation from DLUHC that there will be both a call for evidence on a convergence mechanism and a consultation on post-2025 rent policy coming in 2023.

Summary of the response

• A 7% ceiling will apply to existing tenants’ rent increases. Supported housing (as defined in the Rent Standard) is exempt from this ceiling.
• The ceiling will apply for the rent year 2023/24 only.
• It does not apply to new and relets (the method of calculation is unchanged).
• The government will launch a call for evidence on whether gradual catch up mechanism should be applied. This will inform a consultation on post-2025 rent policy in 2023.

The response

The government highlighted that it is acutely aware of the pressure that the high rate of inflation is placing on low income households. In order to protect existing residents from the worst effects of this high inflation, it decided to limit the ceiling for annual rent increases.

The response mentions carefully considering all of the points that the NHF raised in our submission to the consultation. For example, the government understood that in most cases, housing associations would not have elected to raise rents by the permitted CPI+1%, even without government action. It is also keenly aware that holding rent increases below CPI+1% will mean housing associations are able to raise less rental income than they otherwise would, impacting their ongoing investment in existing and new homes. Due to the risks posed by already thin operating margins and high costs, supported housing will be exempt from the ceiling.

Whilst the 7% ceiling was the highest of the options presented by the government, the response highlights that it will save tenants £200 annually compared to a full permitted increase. Also, a ceiling at a lower level would provide too great a risk to housing associations’ capacity for ongoing investment in improving the energy efficiency and quality of existing homes, in delivering quality service, and in building new homes.

Lastly, the response identifies that a 7% ceiling provides housing associations with the flexibility to use discretion and apply lower increases if possible.

Shared Ownership

Although outside of the scope of the consultation, the government recognised the issues surrounding Shared Ownership where the low-cost rental element of the tenure is also subject to high increases.

We announced the sector’s voluntary commitment to limit Shared Ownership rent increases at 7% and have shared details of this with members. More on the implementation of this cap can be found in an advice note and blog produced by Anthony Collins Solicitors. An update produced jointly by Savills and JLL is available on the impact of the cap on valuations.

Service charges

The government also highlights the risks posed by high increases to service charges. Although they are outside of the scope of the consultation and therefore not subject to a cap, providers are encouraged to apply the same 7% ceiling to any service charge increases for 2023/24.