About this thematic review
This report presents the findings of our thematic review of rent increases for social housing tenants by Scottish social landlords.
The Scottish Government’s Social Housing Charter includes the outcomes / standards:
“Social landlords manage all aspects of their businesses so that:
- tenants, owners and other customers receive services that provide continually improving value for the rent and other charges they pay.”
And
“Social landlords set rents and service charges in consultation with their tenants and other customers so that:
- a balance is struck between the level of services provided, the cost of the services, and how far current and prospective tenants and service users can afford them
- tenants get clear information on how rent and other money is spent, including details of any individual items of expenditure above thresholds agreed between landlords and tenants.”
The Standards of Governance and Financial Management for Registered Social Landlords (RSLs) include:
“The RSL manages its resources to ensure its financial well-being, while maintaining rents at a level that tenants can afford to pay.”
Every year social landlords provide us with information on:
- the level of rent they charged for the homes they provide to tenants; and
- the level of increase in rent they plan for the following year.
This analysis uses information from all RSLs and the 26 local authorities that have housing stock; six local authorities have transferred their housing stock to RSLs in the past, and while three of them now have homes, these are of such small numbers that we have excluded them from the analysis.
Through this thematic review we aim to:
- provide a clear picture of rent levels charged by social landlords in 2021/22 and the level of rent increases they planned for April 2022;
- provide social landlords and their tenants with analysis to support them to make decisions on rent levels for the coming year; and
- highlight the challenges for landlords and policy makers around rent setting in the current economic and policy environment.
Key Messages
- Every social landlord in Scotland applied an average rent increase in April 2022 that was below the CPI inflation rate of 9% at that time, with some not increasing rents at all.
- Social landlords planned to increase rents for 2022/23 by 2.98% on average, with increases ranging from 0% to 6%.
- Average weekly rent for a home with a social landlord in 2021/22 was £85.36.
- This was up by 1.8% from £83.84 in 2020/21.
- Average weekly rent in 2021/22 for local authority tenants was £79.70 and for RSL tenants was £91.61.
- Landlords should continue to vigorously challenge every element of their expenditure to ensure that it is necessary, it is focused on delivery of outcomes for tenants and others who use their services, and that it represents value for money.
- Keeping rents as affordable as possible for their tenants is a principal objective of all social landlords. In a context of rising inflation and significant pressures on the household finances of tenants, this objective has never been more important.
- Landlords are experiencing significant inflationary pressures in terms of staffing, maintenance and, for many, construction costs. They will also face a range of major new demands on them in the coming years such as net zero carbon commitments.
- The forthcoming annual rent setting exercise, and potentially those for some years to come, is likely to be the most difficult that landlords have faced, in which they will need to consider rising costs and inflation while recognising the financial hardship that is a reality for many of their tenants.
- The Scottish Government may need to consider what more it can do to help social landlords to keep rents affordable and to continue to deliver for current and future tenants.
Context
Tenants and social landlords are experiencing some of the most challenging economic circumstances in recent times. The COVID-19 pandemic, Brexit and the war in Ukraine have all contributed to significant volatility in national and global economies. Our housing system is interconnected with, and much of what we do is dependent on, or influenced by, these wider economic and global systems. The resulting cost of living crisis is leading to significant hardship for many social housing tenants, including some of the most vulnerable in our society.
Cost of living crisis
Tenants and their families are facing an incredibly difficult and worrying period ahead. Our most recent findings from the survey of the National Panel of Tenants and Service User included that 28% of tenants that responded have experienced difficulties affording their rent and other housing costs in the last year, up from the previous year but down from the level in 2020. More than 9 in 10 respondents identified energy and food costs as to the fore in terms of increased cost of living, and just over 7 in 10 were concerned about future affordability of their rent.
These findings were echoed in a recent publication by the Chartered Institute of Housing which highlighted the impact of the cost of living crisis on tenants of social housing. The pressures on household finances are significant and are growing, most notably from increases in domestic energy costs and the price of food.
Inflation
The Office of National Statistics reported in August 2022 that the Consumer Price Index (CPI) measure of inflation stood at 10.1% in July, up from 2.0% at the same time in 2021.
In its Monetary Policy Report for August 2022 the Bank of England set out that it expects CPI inflation to rise to just over 13% in the fourth quarter of 2022, and to remain at “very elevated levels” throughout much of 2023, before falling to the 2% target sometime in 2024/25.
Cost pressures for social landlords
Landlords are having to deal with very real and significant challenges around increasing costs, including those for:
- borrowing, with the Bank of England increasing interest rates by 0.5% to 1.75% in August 2022, the largest single increase in nearly 30 years;
- materials and labour for repairing, maintaining and improving tenants’ homes;
- pay increases for staff and other staff costs; and
- energy costs for offices, costs for other office supplies, and vehicle fleet costs.
Landlords are also facing significant and new costs for investing in existing homes to meet increasing standards for energy efficiency and to achieve the decarbonisation of heating. Alongside that, many landlords continue to invest in building new homes at a time of increasing costs for labour and materials.
Rent setting and rent levels
Until this year, the level of rent to charge for the homes they provide to tenants was a decision for each social landlord to make in consultation with their tenants. Most will do this annually, although some aim to set increases over a longer number of years.
In September 2022 the Scottish Government announced a moratorium on increases in rents for homes provided by social landlords and private landlords running from September 2022 until at least the end of March 2023. While the measure as it stands will have no direct or immediate impact on almost all social landlords – which apply rent increases from the start of April each year – it is a clear indication of the importance which the Scottish Government places on the role of rents in helping to respond to the cost of living crisis. Social landlords will want to consider the implications of this development for their decision making on setting rent levels for 2023/24.
The drivers of rent levels can be many and complex, and some are beyond the control of landlords. Local context and markets, the interaction with benefits and tax credits, trade-offs with fuel costs all add to that complexity. Landlords must also be mindful of the effect on tenants’ income of the benefit cap, which has not increased in over six years.
Other factors that will determine the current level of rent charged by each social landlord include:
- the level of public subsidy provided to the landlord in the past and currently, and so the level of current borrowing the landlords has and needs to pay for;
- the type and age of the landlord’s homes, which influence the levels of maintenance and investment that the homes require;
- the type of services the landlord provides to its tenant, including the provision of specialist care and support;
- the commitments it has made to tenants, including on future improvements to their homes;
- the number and type of new homes it is building; and
- the pay and benefits it offers to its employees.
As a consequence, rent levels vary between social landlords. This means that not all landlords are starting from the same position on rent levels, and some may be able to increase rents at a higher rate than others while keeping them affordable.
