Earlier this year we published information in the Guide to local rents which showed that in the year before the new performance standard came into effect, the overall average rent increase for registered social landlords (RSLs) in the year to 31 March 1998 was less than RPI + one per cent. This is a good sign.
In 1998/9 we investigated rents for the first time. We targeted RSLs with more than 250 homes. We then investigated 33 RSLs where rent increases were forecast in excess of RPI + one per cent and 51 RSLs where rent levels were more than five per cent above the RSL average for that area. Now we have published Results of investigatory visits into RSL rent levels for 1998 and rent increases for 1998/99. This report looks at the impact of rent influencing on these organisations, and our regulatory action to date. We hope it will help RSLs meet our standard in the future.
Our regional teams carried out their investigatory visits mostly in the three months to 31 December 1998. To ensure consistency, they worked closely with our regulation division at headquarters which provided guidance and discussed findings and conclusions with them.
The only cases where we considered breaches of RPI + one per cent were where RSLs required rises to finance repairs or private borrowing commitments. The investigations revealed that out of the 84 RSLs:
- 50 had strategies in place to meet the standard or had acceptable reasons for high rent rises or rises in rents
- 29 were in the process of developing strategies
- 5 gave cause for serious concern at the time of the investigation due to their lack of compliance strategies
The Corporation is now satisfied that the five RSLs who were a serious concern at the time, and subject to supervisory action, are all now taking the action necessary to achieve compliance.
The visit programme identified a number of common sets of circumstances which resulted in high increases and higher rents. Some organisations faced difficulties in renegotiating covenants and ratios with private lenders. Others were tackling stock in poor condition. In a few cases we felt that boards had given insufficient consideration to the requirements of our standard. In some instances the balance between secure and assured stock owned by different RSLs in one area was found to have had a distorting effect on the average rent which we used to identify outliers. This led to visiting some organisations that were in fact already fully complying with performance standards.
Whilst these themes are consistent across the regions, the impact can vary according to the differences in demand for housing and the cost of land. Many RSLs went to considerable lengths to overcome the factors generating higher rents or increases. And it is clear from this that immediate compliance with the standard is no easy matter.
Nonetheless the vast majority of RSLs are complying with the standard and there are only a handful of cases where RSLs gave cause for serious concern at the time of the investigation.
We found that controlling rents within RPI + one per cent is in a sense easier to comply with because it requires an adjustment largely achievable in one year. In contrast, to address the problems of high rent levels, an RSL may need to go through several budget rounds of sustained reduction in rents. We recognise that some newer and smaller RSLs and some large scale voluntary transfer RSLs face particular challenges in making and keeping their rents affordable.
By publishing this report we hope that both RSLs and the Corporation can improve on the process and the results for next year. Given the national policy context in which rent regulation is taking place, there is no room for complacency. We will review the progress of those RSLs who have adopted strategies for resolving concerns. We will draw up a new sample of RSLs for investigation where it appears they may be failing the standard. And, as this is a new area for regulation, we will be conducting a systematic internal review of investigations carried out to date to enhance or amend our procedures as necessary. We shall also review our methodology for selecting RSLs for investigation and develop our regulatory approach for rents in supported and shared ownership housing.
Our rent influencing policy is working. It is bringing pressure to bear on rent increases and high standards. We acknowledge that it has not been easy for some associations to meet our standard. The fact that so many have done, or are doing their best to comply, shows both the positive effect of the new Performance Standard and the commitment of RSLs to making social housing affordable.
Anthony Mayer is chief executive of the Housing Corporation.
Influencing rents: results of Housing Corporation investigatory visits into Registered Social Landlord 1998 rent levels and 1998/9 rent increases, by Tim Jackson, is available from the Housing Corporation publications unit, free, 0171-393 2228.
According to the Housing Corporation, who "named and shamed" us without notice last week, we have only just agreed a strategy to deal with our "outlier" rents that are less than one per cent above the Corporation tolerance level. Before any regulatory action, Yorkshire Metropolitan housing association had:
- disscussed and agreed an approach to rent levels in 1996 with the corporation that was updated in 1997 in a new strategy
- introduced a rent increase of inflation minus a half per cent last year, using the half per cent of our rent roll to target "outlier" rents on 15 estates
- maintained inflation only rent increases for the previous two years
- employed a former rent officer in June 1998 to lead a comprehensive review of rents for all our 5000 properties, starting on 1 October, 1999
- significantly reduced our development of new housing, and shifted our priority to re-investment in our existing homes
- agreed that our budget for 1999/2000 will contain a further inflation minus half per cent, with outlier rents being targeted again
- included in our business plan a below inflation rent increase for the next two years
With a regulatory report issued on 17 February this year, for not having a strategy to deal with "outlier" rents, we were disappointed to discover that the Corporation statistics used as the basis for action did not separate secure and assured rents. This is an important point for us, as 87 per cent of our rents are assured.
Inexplicably, we now see in their report, that having this same level of assured rents was accepted as good reason not to "name and shame" an association elsewhere. Nor did the Corporation take account of last year's real reduction in our "outlier" rents, not recognised in the figures that we were asked to justify.
Fortunately it has turned out that the adjustment of our year two and three assumptions in the business plan has been enough to remove this "serious cause for concern". Moving assumptions from "inflation minus quarter per cent with more if we can afford it" to "inflation minus a half per cent" has proved sufficient.
We thought that this was all relatively confidential, subject to the publication of the list of 84 associations who had been investigated in respect of rent. We were deeply disappointed to discover by chance, only on the day of publication, that we were to be picked out for "shaming".
Our strategy remains exactly the same, other than a small change in assumptions for the future, and the the regulatory report is now to be lifted.
We believe the Corporation is right to now place the highest priority on limiting rent levels. We have always had the same priority.
"Naming and shaming" is now the vogue. How this affects RSL relationships with our regulators who have adopted this policy will tell in time. Up until now we have welcomed the regulatory process.
Having been ambushed in the worst possible way, I can only ask what all of this has really achieved in our case, and for whom?
Source
Housing Today
Postscript
Bill Payne is managing director of Yorkshire Metropolitan housing association
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