The Rent Standard 2020 – are you up to date with permitted exemptions and rent flexibility?

Paul Weston, Chief Financial Officer at Housing and Care 21 writes about the the new Rent Standard and sets out some of the aspects and nuances that are important for housing associations and their boards to consider.

A key change to rents occurred in April this year with the new Rent Standard 2020 becoming applicable. This marked an end to four years of requirements on rent under the Welfare Reform and Work Act 2016. Following the period of social rent reductions brought in by this legislation, the government committed to a five-year rent settlement of rent increases up to CPI +1% from April 2020.

The Social Housing Regulator has been increasingly focusing on this area both in terms of data but perhaps more importantly in terms of the approach of boards in assuring themselves of what they are approving and how they gain assurance over some of the more nuanced elements.

For example, the policy contains flexibility for registered providers to set rents at up to 5% above formula rent (10% for supported housing) but providers need to ensure that there is a clear rationale for doing so which takes into account local circumstances and affordability.

This is a key requirement for boards to proactively consider in their rent setting – a permitted increase up to CPI +1% each year will mean that affordability will become more of an issue over the next few years. A recent Savills Research article shows some of the potential pressures of affordability across different areas of the country.

In terms of the data side of rents, compliance with rent regulations is one of the key requirement of the regulatory standards, and with the historical complexities of past rent setting, it’s a key time for boards to ensure that rent setting is accurate.

Key checks should include ensuring that rents on any social rent properties that relet are set at no higher than formula rent subject to the rent flexibility level, and no rents are above rent caps. For affordable rents, providers should check that rents (which unlike formula rents include service charges) are less than 80% of gross market rent.

The Rent Standard and policy statement have a lot of nuances and potential pitfalls of non-compliance so it’s an area that is worth focusing on for those responsible for setting rents in organisations. It’s also important for boards to seek external assurance or internal audit assurance that the rents set by the housing association are in compliance with the new Rent Standard.