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Why we are introducing living rent
Welsh landlord Trivallis is set to move to a living rent system. Dan Hayes explains what it is all about
Living rents became the obvious option for Trivallis’ new rent setting model following the most successful customer consultation since the organisation was created in 2007.
More than 2,200 of our tenants gave their opinions on what factors would form the basis for rents that were fair and affordable.
Establishing rents based on the income levels of low earners was seen as fairer than using other factors such as demand or access to services.
Affordability is currently high on the agenda for the sector. From our initial research we found that most social landlords are setting their rents using a number of weightings and then applying a variety of measures to demonstrate affordability.
“If we could prove that it could work for the viability of the business while providing fair and affordable rents for our tenants then it ticked all the boxes.”
With living rent we were starting from solid foundations that were built while being conscious of tenants on low incomes.
We respected the Joseph Rowntree Foundation’s (JRF) work and research on poverty, including its Living Rent report published in 2015 (see box below).
If we could prove that it could work for the viability of the business while providing fair and affordable rents for our tenants then it ticked all the boxes.
The JRF’s model provided the formula, but we wanted to ensure that it truly reflected our communities and the families that live in them.
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To do this we tweaked parameters in the model, taking into account factors such as the family compositions of our allocations into different property types in the past two years. It was also important to make amendments for areas where the private rented sector has particularly competitive rents.
The second enhancement used income estimates from the Office for National Statistics at a level that segmented Rhondda Cynon Taf into 31 areas.
This allowed us to reflect the diversity in income levels across the borough. Those tenants who live in less affluent areas will have relatively lower rents under the new model.
Some of these areas happen to be more remote with poorer access to services and transport links, so we are putting more money in tenants’ pockets and potentially making finding and keeping a job more viable.
Our average rent of £84.61 per week is currently below the mid-point in the Welsh Government’s rent envelope of £87.25, so we have room to increase some rents.
Existing tenants will converge to the new rents over a number of years, using the rent increases that are regulated by Welsh Government.
“Our income will increase compared to the current projections while our average rent will stay within the envelope.”
Change to policy at that level could prevent us meeting the projections in our current business plan.
However, providing policy remains consistent in the coming years it is financially viable; in fact our income will increase compared to the current projections while our average rent will stay within the envelope.
This will allow us to reinvest in communities while meeting our original objective to make rents fair and affordable for tenants.
How the rents compare
The below gives an indication of the typical difference between social rents and living rents had the latter applied in 2018/19.
| 1 bed | 2 bed | 3 bed | |
|---|---|---|---|
| Current Trivallis Rents 2018/19 (52 weeks) | 79.61 | 84.89 | 88.24 |
| Trivallis Living Rents for 2018/19 (average band) | 71.35 | 92.75 | 107.03 |
The addition of service charges could push gross rents into the unaffordable category.
To mitigate this we are undergoing a review of services to ensure that they provide value for money, while there will be flexibility in the new policy to potentially reduce rents if the gross rent is unaffordable.
Monitoring this along with the impact on other KPIs will require a robust performance framework.
As living rents will vary annually based on income levels there is also a risk that these could start to reduce – something that is uncertain with the current political climate.
We have decided to use an average of changes in median income for the previous three years, as this has tracked closer to the Consumer Price Index in the past 10 years.
We’re hoping that the new policy will be approved by our board in January so that we can plan for implementation from April 2019.
Dan Hayes, rent account manager, Trivallis
What are Living Rents?
Living Rents were set out by consultants Mark Lupton and Helen Collins in a report published by Savills in conjunction with the Joseph Rowntree Foundation and the National Housing Federation in 2015 (see attached below).
The report looked at “re-establishing the crucial links between housing and the labour market and between rents and the ability of people on low incomes to afford them”
It developed a rent-setting mechanism to do this.
The suggested Living Rent model was based on:
- Lower quartile localised earnings data from the Office for National Statistics’ Annual Survey of Hours and Earnings
- Adjusted for property size
- Starting rent set at 28% of net local earnings
- Rents based on local authority areas
The JRF report said: “The figure of 28 per cent is in line with the current share of income spent on rent by social renters, and substantially lower than the share of income spent by low-income private renters.”
Living Rents deliver a larger rent differential between property sizes than social rents, “some producing increases and others leading to deductions”, the report said.
