Next week, at the start of the new financial year, Scotland’s 610,000 social housing tenants will begin paying a new rent for their home.
Over the last few years, the Scottish Housing Regulator (the Regulator) has been emphasising that social landlords need to take into account tenant affordability when they are setting their rents.
“many tenants in employment will have seen earnings rise at rates below inflation or not rise at all. Tenants on benefits have had to manage freezes on the uplift in benefit rates and the introduction of benefit caps.
“Our National Panel of Tenant and Service Users tells us that rent affordability is a concern. Around a third of members who took part in the most recent survey have experienced problems affording their rent.
“And two-thirds have concerns around affording their rent in the future because of rent increases or changes to their benefits or income.”
Social sector rent levels
We don’t yet know what the average social sector rent was in 2017/18, that figure will only be available from the Regulator in the autumn.
In 2016/17, the average rent for a social sector property was £74.44 a week, an increase of 2.1% on the previous year.
Within that overall figure, housing association rents averaged £80.28 per week, 16% higher than local authority rents of £69.20.
In November 2017, the Regulator indicated that the average increase in rent in 2018/19 is likely to be around 2.9%.
Table 1 shows that the rate of increase has slowed compared to a few years ago. Between 2013/14 and 2016/17, the cumulative rent increase equated to a real-terms increase of 5.0% i.e. an increase of 5.0% over and above the level of Consumer Price Index (CPI) inflation over these years.
Table 1: Average Social Sector Rent, 2013/14 to 2016/17
|Year||Rent||Increase from previous year|
Source: Scottish Government (2008): Social Tenants in Scotland 2016.
How do social landlords set their rents?
Individual social landlords set their own rent. A variety of different methods are used. Ultimately, rents are the main source of a landlord’s income. That income has to cover a variety of costs including:
- maintaining existing homes
- meeting required standards, such as the Energy Efficiency Standard for Social Housing
- repaying loans for building of new houses
- delivering housing services
- staff costs.
Social landlords need to make sure these costs are covered, and that they can continue to be financially viable organisations. But at the same time, rents need to be affordable to their tenants.
Many landlords use the inflation figure (either Retail Price Index or Consumer Price Index) at some point in the autumn as the starting point for their proposed rent increase for the following year.
What is an affordable rent?
The Regulator has emphasised the need for rents to be affordable. However, neither it, nor the Scottish Government, provides any national guidance on what affordability might mean in practice.
What an “affordable” rent actually is has been an issue longstanding debate to which there appears to be relatively little consensus. Affordability can vary between households depending on e.g. the household size and its composition.
Affordability is also complicated by the existence of housing benefit, which many tenants in social housing will receive. Tenants on full housing benefit (and with no deductions, for example, because of the benefit cap) will have no rent to pay.
A Scottish Government publication, Social Tenants in Scotland 2016, found that across the three-year period from 2013/14 to 2015/16, social sector tenants spent on average, 24% of their income on housing costs. This figure compares to equivalent figures of 25% for private rented households, 9% for households owned with a mortgage and 3% for households owned outright (in this analysis, Housing Benefit payments are included in the net household income, see here for further detail about the methodology used.)
The same research found that just under a third, 32%, of social rented households in Scotland spent more than 30% of their net income on housing costs in the period 2013/14 to 2015/16.
Social landlords take various approaches to determine whether rent increases they propose are affordable for tenants. Some of the factors that landlords take into account include levels of housing benefit uptake and comparisons with peer landlord rents.
The Scottish Federation of Housing Associations’ (SFHA) has developed an Affordability Toolkit. This lets its members use rent data and data at a local authority area level on household income to consider if their rents are “affordable”. It is based on an assumption of income by household type just above what would typically qualify for housing benefit.
Consultation on rent increases
Legislation, the Housing (Scotland) Act 2001 (s25), requires landlords to consult about any rent increase proposals and to have regard to the views expressed.
In their 2016 thematic inquiry How social landlords consult tenants about rent increases, One of the report’s conclusions was that:
“… some landlords engage well with their tenants about the costs and options of providing services and seek their views on potential rent increases. But other landlords need to do more to discuss with their tenants what they want their rent to pay for and what they can afford.”
The Regulator plans a follow up to this work in 2018 to see what landlords are doing differently.
Senior Researcher, Justice and Social Affairs Research Unit