Rent setting: social housing (England)

Rent convergence policy

In 2002, the Labour Government introduced a rent convergence policy under which, over a ten-year period, rents in social housing (local authority and housing association owned stock) were to be brought into alignment. 

A rent formula was established with actual rents moving towards a national formula rent which took account of property values and local earnings relative to national earnings. A ‘bedroom weighting’ factor was applied to try to ensure rents better reflected the perceived value of the properties. Formula rents were increased each year by the Retail Prices Index (RPI) + 0.5%.

The Coalition Government continued this rent setting process with, initially, a revised target convergence date of 2015-16, subject to a maximum annual rent rise for an individual tenant of RPI + 0.5% + £2 per week. 

A 10-year rent policy and cutting short convergence

During the 2013 Spending Round the Coalition Government announced that “from 2015-16 social rents will rise by the Consumer Price Index (CPI) plus 1% each year for 10 years.” Following this, the Department for Communities and Local Government (DCLG) sent a letter (PDF) to housing bodies on 2 July 2013 in which plans to cut short the convergence policy were revealed. 

Social landlords whose average rents had not reached target levels were concerned about implications for their ability to repay debt and invest in new and existing social housing stock. Overall, the certainty delivered by a 10-year rent settlement was welcomed. 

Four years of rent reductions

The certainty of the 10-year settlement was short-lived. On 8 July 2015 the Chancellor announced (PDF) that rents in social housing would be reduced by 1% a year for four years. The measure was forecast to save £1.4 billion by 2020-21, primarily in reduced Housing Benefit expenditure. Around 1.2 million tenants not in receipt of Housing Benefit in the social rented sector were expected to benefit by £700 per year (2015 prices).

This policy change was unexpected and greeted with some dismay by social landlords who had to model the impact on their business plans. The Office for Budget Responsibility (OBR) predicted an overall reduction in housing investment as a direct result of the policy. The measure was implemented through provisions contained in the Welfare Reform and Work Act 2016.

Rent policy 2020 to 2025

On 4 October 2017, DCLG announced “increases to social housing rents will be limited to the Consumer Price Index plus 1% for 5 years from 2020.” This marked a return to the rent setting approach which was to apply for ten years from 2015 before being replaced with rent reductions from April 2016.

The sector had been lobbying for a return to an inflation-linked settlement, so the announcement was welcomed. The Policy statement on rents for social housing (PDF) set out the Government’s policy on rents for social housing from 1 April 2020 onwards.

Most social housing tenants faced a rent increase of 4.1% in April 2022. The Resolution Foundation’s Housing Outlook for Q4 2021 (PDF) observed that this would be “the largest rise for a decade.” 

On 31 August 2022, the Government opened a consultation exercise seeking views on a new Direction from the Secretary of State to the Regulator of Social Housing in relation to social housing rent policy. The consultation focused on the introduction of a rent ceiling from 1 April 2023 to 31 March 2024. The Autumn Statement 2022 (PDF) announced rent increases would be capped at 7% in 2023-24, saving the average social rented tenant £200 over the year.