Housing Rents 2012/13Housing Briefing - 19 January 2012

Rent Increase 2012/13: Contents

• Background to Rent Restructuring

• Historic links with Housing Subsidy

• Rents under HRA Self-Financing

• HRA Asset Management (Investment) Plan

• Restructured Rent increase 2012/13

• Other rent increase options (examples)

Rent Restructuring• Government policy with effect from 2002/03• Continuing under coalition government• Based on the Retail Price Index (“RPI”) and moving

council rents towards higher housing association rents (“convergence”)

• Convergence (actual on “formula”) by 2016/17• Uses a “formula rent” based on property and local

affordability factors• Assumed ½% increase annually• Caps & limits on rents & annual increases

Historic Links with Housing Subsidy• The government decided how much it thought

councils should have spent on housing each year• The government paid “allowances” to councils to

cover management, maintenance, major repairs and charges for capital

• The government takes away “guideline rents” from councils

• This was known as “housing subsidy”; some councils gained (allowances greater than guideline rent) but most including Norwich, were losers (£8m in this financial year)

• “Housing subsidy” abolished under HRA Self-Financing!

Rents under Self-Financing

• Income from rents retained in Norwich• No allowances for management, maintenance

or major repairs• No subsidy payments to government• Proportion of national housing debt (£151m) to

be allocated to Norwich from April 2012• Norwich will need to borrow to fund the

additional debt

Rents under Self-Financing

• Subsidy payments replaced by interest & repayment of borrowing – councils will be better off in long term.

• Additional borrowing possible up to “debt cap” (£239m) to finance a higher level of investment than minimum Decent Homes (formerly unsustainable)

• Business Plan shows affordability of interest & repayments – plus impact of investments.

HRA Asset Management Plan• Recently consulted on - Norwich Standard + Renewables

preferred by tenants.

£0

£10,000

£20,000

£30,000

£40,000

£50,000

£60,000

£70,000

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

Capital Expenditure Need

Capital Finance Available

Restructured Rent Increase• Based on September RPI of 5.6%• Plus ½% annual increase• Plus convergence by 2016/17• Equates to 8.37% (£5.62) increase on average

Average* Maximum* Minimum*Increase (£) 5.62 8.25 3.24 Increase (%) 8.37% 8.36% 6.10%Rent 2011/12 67.08 88.44 83.71 RPI Increase 5.60% 3.76 4.95 4.69 Real Increase 0.50% 0.34 0.44 0.42 Convergence Adjustment 4 1.52 2.00 0.00- Rent 2012/13 72.69 95.83 88.82

Other Rent Increase Options

• The council has looked at the effect of a lower increase than government policy requires.

• Modelled options are based on lower rates of RPI:• RPI (5.6%) = 8.37% average increase• RPI-1.5% (4.1%) = 6.85% average increase• RPI-3% (2.6%) = 5.33% average increase

• Not following government policy means less rent income.

• A lower rent income means a lower base for future rent increases, so the effect is magnified over time.

Other Rent Increase Options

High £8.25

High £6.72

High £5.18

Low £3.24

Low £2.33

Low £1.29

Avg £5.62

Avg £4.60

Avg £3.58

£-

£1.00

£2.00

£3.00

£4.00

£5.00

£6.00

£7.00

£8.00

£9.00

5.6% RPI 4.1% RPI 2.6% RPI

Increase Option

Va

lue

of

We

ek

ly In

cre

as

e

Other Rent Increase Options Distribution of Rent Increase - Options

-

1,000

2,000

3,000

4,000

5,000

6,000

£1.50 to£1.99

£2.00 to£2.49

£2.50 to£2.99

£3.00 to£3.49

£3.50 to£3.99

£4.00 to£4.49

£4.50 to£4.99

£5.00 to£5.49

£5.50 to£5.99

£6.00 to£6.49

£6.50 to£6.99

Increase

No

of

Ten

ants

Rec

eivi

ng

Incr

ease

5.6% RPI

4.1% RPI

2.6% RPI

Impact of Ongoing IncreasesLower increases = longer to repay debt & longer to free up resources for investment in council housing

Rent Increase Options 2012/13

-100,000

-50,000

0

50,000

100,000

150,000

200,000

250,000

300,000

1 3 5 7 9 11 13 15 17 19 21 23 25 27 29

Year

Deb

t £000s

CLG Debt

5.6% Ongoing

4.1% Ongoing

2.6% Ongoing

Impact of Reduced Increases• Reduced increase in 2012/13 could be mitigated by

continued convergence on Formula Rent in future years• Losses of income during convergence & future effect on

average rents shown below (though distortion of effect of caps & limits)

RPI 4.1% RPI 2.6%Loss £m 1.826 5.1392012/13 -1.52% -3.05%2013/14 0.53% 0.62%2014/15 0.44% 0.48%2015/16 0.32% 0.35%2016/17 0.22% 1.57%

The council’s position The council is considering whether it is more

reasonable:• to increase rents by 8.37% in order to deliver

the improved investment in homes and the planned debt repayment schedule, or;

• to increase rents by a lower amount at the expense of a slower investment programme and/or delayed repayment of debt.

It is on this choice that tenants’ views are being invited for the council to take into consideration when making its decision.

Rent Increase Options 2012/13

Responses to any questions on

Rent Increase Options 2012/13