The Minister for Housing and Local Government (Grant Shapps)
Following the spending review, I am today announcing further details of the new “affordable rent” model to be offered by private registered providers of social housing (hereafter referred to as housing associations) from April 2011.
We must make far better use of existing social housing—ensuring that we target support where it is needed most. The Government published a policy paper, “Local decisions: a fairer fixture for social housing”' on 22 November 2010. The localism Bill will take forward radical reforms, including flexible tenancies and changes to the way social housing is allocated. The Government have given a clear commitment to ensure that the existing tenancies and rents of secure and assured tenants of social landlords are protected and respected in these reforms.
The Bill will contain a wide-ranging package of reforms that will devolve greater power and freedoms to councils and neighbourhoods, establish powerful new rights for communities, revolutionise the planning system, and give communities control over housing decisions.
Given the huge pressures on public finances we must also ensure that we get more for the money we invest in new social homes. Alongside the Bill, the introduction of affordable rent will represent a significant first step towards giving social landlords much greater freedom to respond to local housing need.
The Homes and Communities Agency will publish a full framework document early next year that will form the basis for bids from providers who are interested in offering affordable rent.
Overview
Affordable rent is designed to:
maximise the delivery of new social housing by making the best possible use of constrained public subsidy and the existing social housing stock; and
provide an offer which is more diverse for the range of people accessing social housing, providing alternatives to traditional social rent.
Affordable rent falls within the definition of social housing in section 68 of the Housing and Regeneration Act 2008 (and, in particular, the definition of low-cost rental accommodation in section 69 of that Act). Affordable rent properties will therefore be subject to regulation by the Tenant Services Authority—and its Homes and Communities Agency successor—where they are provided by a registered provider.
Affordable rent will offer housing associations the flexibility to convert vacant social rent properties to affordable rent at re-let, at a rent level of up to 80% of market rent. Housing associations will be able to convert vacant properties to affordable rent where they have reached an investment agreement with the Home and Communities Agency about how additional rental income will be reinvested in the supply of new affordable housing.
The Homes and Communities Agency has a capital budget of almost £4.5 billion over the spending review period to fund affordable housing supply, of which around £2 billion will support the delivery of new affordable rent homes (the total also includes £2.3 billion to meet existing commitments). While grant funding will primarily target affordable rent, there may be some scope for delivery of low cost home ownership as part of the agreements, where this is appropriate for local circumstances and helps to promote the overall supply of affordable homes. Ministers intend to make the payment of grant funding conditional on transparency.
Agreements could also involve approval in principle for future asset management plans that include social housing disposals, subject to the need for statutory consent and consultation with the relevant local authorities. The Tenant Services Authority will need to be engaged in the process to ensure that providers can continue to meet its regulatory standards, including on viability.
Allocation
We envisage that affordable rent properties will be allocated in the same way that social rent properties are now. The existing regulatory obligation on associations to co-operate with local authorities’ strategic housing function on the allocation of social rent properties will also apply to affordable rent. Similarly we envisage that existing lettings arrangements operated by local authorities and housing associations will continue to apply and that affordable rent properties will—where appropriate—be made available through choice-based lettings.
The statutory and regulatory framework for allocations provides scope for local flexibility. Local authorities and associations may wish to exercise this discretion in relation to affordable rent in order to meet local needs and priorities in the most effective way possible (for example, through the adoption of appropriate local lettings policies).
Rent
Affordable rent properties will not be subject to the rent restructuring policy that applies to social rented housing. This policy was originally outlined by the previous Government in March 2001 (in the “Guide to Social Rent Reforms”) and implemented by the then Housing Corporation (via the “Rent Influencing Regime Guidance” published by the Corporation in October 2001). The previous Government’s direction to the Tenant Services Authority issued in November 2009 required the regulator to set a standard on rent that reflected the same policy.
In particular, the direction required the Tenant Services Authority, when setting a standard on rents, to have regard to the social rent guidance. The direction defined the term “social rent guidance” as the guide to social rent reforms published in March2001 “and any guidance issued by the Department, or its successors, in relation to that document”. This statement should be treated as guidance issued in relation to the March 2001 document. The direction also obliged the Tenant Services Authority to set a rent standard with a view to achieving, so far as possible, the target rent policy set out in the rent influencing regime guidance.
This statement clarifies that affordable rent properties are not covered by the Government’s rent restructuring policy. Note that a property is only considered to be “affordable rent” for these purposes where it is linked to an agreement with the Homes and Communities Agency on investment.
Housing associations will be able to let an affordable rent property (whether a converted void or new build) at up to 80% of market rent for an equivalent property for that size and location. The association’s calculation of the market rent would need to be based on a residential lettings estimate for a property of the appropriate size, condition and area. Valuations should be in accordance with a RICS recognised method.
The maximum annual rent increase on an affordable rent property will be RPI + 0.5%. However associations will be required to rebase the rent on each occasion that a new tenancy agreement is issued (or renewed) for an affordable rent property. This requirement, which overrides the RPI + 0.5% limit, is designed to ensure that the rent set at the beginning of each new tenancy is no higher than 80% of the market rent.
Tenure
The Government have already published radical proposals to give greater flexibility to both local authority and housing association landlords over the types of tenure they can offer to social housing tenants1. In particular, the Government believe that it is no longer right to require that every social tenancy should be for life—regardless of the household’s particular circumstances. The aim is to create a more flexible system so that scarce public resource can be focused on those who need it most.
The affordable rent model is the first step towards delivering these wider reforms. Housing associations will be able to offer affordable rent on fixed-term tenancies, but they will also retain the option to offer lifetime tenancies should they wish to do so. We would expect associations to use this additional flexibility to ensure that help and support are focused on those who need it most when they need it most, and to build strong and cohesive communities. They will need to meet the existing regulatory requirement to publish clear and accessible policies which outline their approach to tenancy management.
The Government are currently consulting on their wider tenure reform proposals for social housing, including on the rights and protections that should be available to tenants as part of these changes. These proposals include a minimum fixed-term of two years for all general needs social tenancies, the right to acquire for tenants with a fixed-term tenancy of two years or more (subject to the existing conditions and exceptions) and changes to succession rights2. Some of the proposals will require primary legislation and we intend to deliver these through the localism Bill. The final proposals, once implemented (either by legislation or regulation), will apply to fixed-term tenancies that are subsequently issued for both affordable rent and traditional social rent.
However we envisage that the first affordable rent properties will be let during 2011-12, before the wider tenure reform proposals are due to come on stream. We have therefore considered which of the proposed conditions should be attached to the affordable rent model from the start. It should be noted that the proposals that require primary legislation (for example, on the right to acquire) cannot be brought forward in this way.
We wish to apply the following (non-statutory) conditions to the affordable rent model:
a minimum fixed term of two years for affordable rent tenancies; and
where a landlord decides, in line with its published policy, not to reissue an affordable rent tenancy at the end of the fixed-term, the landlord should provide advice and assistance to help the tenant find suitable alternative accommodation. Landlords and tenants may wish to consider a range of “end of tenancy” options depending on the needs of the household concerned. This could include selling the property to the tenant via conversion to shared ownership (subject to consent).
1“Local Decisions: a fairer future for social housing” (22 November 2010).
2Full details of these proposals are set out in section 2 of the “Local Decisions” document