Rents.
Pretty important subject for Coastline Housing. It’s where most of our income comes from. For our customers, paying their rent is one of their main interactions with us.
The great thing is that our rents are good value for money for our customers, in general being between 20% and 50% lower than an equivalent private rent. The less great thing is that how we have to calculate rents is, well, complicated.
Those of you who don’t work in social housing (and some of you who do) might be interested in just how complex this process is and, in the context of our current cost of living crisis, just how this complexity came about.
I’ll do my best to keep it simple, despite successive governments attempts to make it as complicated as possible. So here goes: a mini history lesson on social housing rents…
I’ll start in 2001. That’s when the government decided that rents for social housing were a bit, well, all over the place. Different houses on the same street could have very different rents depending on who the landlord was. So the government came up with a formula to make things more consistent.
I’m not going to share the formula with you today (trust me - you should be grateful – but if you’re interested you can read more about it here). All you really need to know about the formula is that it takes into account average local earnings, average property values and the size of the home. The idea was that the formula would set a ‘target rent’, which would help similar properties in the same part of the country to move towards similar rents over a number of years.
All seems like a sensible enough idea. Although it did cause issues in parts of the country, like Cornwall, where earnings and property values were relatively low, because the target rents from the formula were lower, so rents had to be decreased over time. And if you’re thinking “property values in Cornwall aren’t low?”, you’re right. But the formula uses data from 1999 as its starting point, and values in Cornwall were relatively low back then.
Things then changed in 2010. Following the global financial crisis and ‘credit crunch’ of 2007/2008 the government decided that one of the ways it could save money was to pay less grant up front to support the building of new affordable housing. But there’s no such thing as a free lunch, and to offset the saving in up front grant, the government asked social housing providers to charge a higher rent.
This was set at a maximum of 80% of the local market rent. And just to confuse everyone, they decided to call it ‘affordable rent’. Economically this almost certainly wasn’t a good idea, because the higher rents will end up costing the government more in the long term, but that’s a topic for another day.
The end result is that we have two main sorts of rents for the homes we provide: ‘social rents’, which are set by a complicated formula and (in Cornwall) are roughly 40% cheaper than a private rent; and ‘affordable rent’, which is set 20% below the market rent.
Oh, and I nearly forgot, but if you live in a home and pay social rent, and you have any ‘communal’ services (for example cleaning the stairs in a block of flats), you pay an additional service charge. If you live in an ‘affordable rent’, any service charge is included within the rent.
All good so far?
The next thing we need to talk about how rents change each year. This is something the government changes its mind on. A lot.
In 2012, it decided that rents should rise in April each year by a maximum of CPI (Consumer Price Inflation) plus 1%. Then, in 2015 it changed its mind and decided that for four years from 2016 to 2020 that rents should reduce by 1% a year. Then in 2021 it went back to CPI plus 1%. Until 2023, when (because inflation is so high), the government decided to cap increases at 7%.
What’s the end result of all of this? Well, first the good news. Everyone that lives in a Coastline home, or in a home provided by any other housing association or local authority, lives in a home where the rent is usually between 20% and 50% lower than private rent. Plus the customer has a secure home, where they know that in most cases, if they want to, they can stay there forever. Oh, and because all housing associations are charitable, all of the rent gets used to invest back in either the existing homes, or in building new ones.
The bad news? It’s horrendously complicated. There are lots of occasions where housing associations get it wrong, and get in trouble for calculating rents incorrectly. And it’s difficult for customers and the public to understand.
‘Affordable rent’ is particularly confusing, because it’s generally more expensive, and therefore less affordable than ‘social rent’. And because most new social housing that is built is ‘affordable rent’, it seems to lead to people being less in favour of new social housing.
Thankfully the government is now starting to slowly shift back in favour of ‘social rent’, which means more of the new homes we are building will be ‘social rent’ and not ‘affordable rent’. Like these ones pictured, at Kergilliack in Falmouth (which seem to be making some members of our Development team happy!).
Finally, a disclaimer: social housing nerds will spot that in some places I’ve kept things simple rather than going ‘gung-ho’ on the details, please forgive me!
Words by Allister Young, CEO of Coastline Housing
