The opaque art of rent setting: London Affordable Rent explained

How LAR works in practice is that the mayor sets a ‘benchmark’ rent that caps how much social landlords can charge for each type of property. This is then increased annually, based on the Consumer Price Index. Landlords can also still charge less than this benchmark.

One London rental expert tells Inside Housing that the LAR is, in effect, a means by which housing associations can apply for grant for social rented homes while still coming under the auspices of the AHP.

"Views suggest that LAR is a back-door way to return to social rent"

Or, as Peabody chief executive Brendan Sarsfield put it on Inside Housing’s podcast last week, it’s “social housing plus a tenner”.

Both views suggest that LAR is a back-door way to return to social rent.

Mr Sarsfield is quick to acknowledge that the reality of LAR is actually “more nuanced than that”, but it is also in some cases likely to be considerably more expensive, depending on how close to the benchmark Peabody and any others who follow its lead decide to set rents.

The 2018/19 benchmark for bedsits and one-bed homes is £150.03 a week, for two-beds it is £158.84, while three-bed homes on the tenure will pay a maximum of £161.67.

The benchmarks are set London-wide, rather than by borough, meaning they are relatively crude, but they are nevertheless clearly some way below most homes in the private rented market.

They are, however, significantly north of social rents in the capital.

In 2016/17, the latest year for which figures are available, the average social rent for homes let by housing associations in London was £124.07. For local authority-let homes, the figure was £108.06.

Although these figures do not take into account two years’ worth of inflation-based uprating, they are also an average across all types of housing, meaning homes with fewer bedrooms are likely to be cheaper still.

"Residents of similar properties are still left paying vastly different rents"

The good news for tenants currently enjoying cheaper social rents is that another part of the mayor’s housing strategy prevents these homes being converted to affordable rent, something which was permissible under the previous regime.

But that still leaves residents of similar properties paying vastly different rents – and leaves a sector with little clarity over how best to balance fairness to its tenants with safeguarding what is still, by far, its biggest income generator.

“The whole thing is a bloody mess,” says Greg Campbell, a partner at housing consultant Campbell Tickell.

“It is getting more and more complicated as time goes on, not least because of the complex way a number of organisations [are] going in different ways in terms of what rent they charge.”

In some ways, Peabody’s move is a step towards untangling that “bloody mess”. The 55,000-home association morphed into its current guise last year when it merged with Family Mosaic.

One of the complications of the merger was that the two legacy organisations had very different rent-setting models.

While the majority of older Peabody stock was still at social rent, it had developed homes under the government’s Affordable Homes Programme at much closer to the 80% of market limit than its merger partner had. For its part, Family Mosaic set its own cap of 65% for any homes built under the AHP.

Indeed – and to add to the linguistic confusion on rents – Family Mosaic’s 2017 annual report describes its 18,000 general needs homes as “rented social housing”.

On the ground, this means tenants of the same landlord in the same area are being charged very different rents.

"Mr Sarsfield describes it as a “small step” and says he can’t do more unless the government offers associations more freedom to charge their own rents"

In Lambeth, for example, Family Mosaic and Peabody tenants in a two-bed social rented flat in 2016/17 were paying £120.81 and £124.10 respectively. However, those in similar affordable rent flats were paying £137.85 as Family Mosaic tenants, but £210.23 under Peabody.

Understandably, the policy, announced last week, applies only to some of those legacy Peabody tenants currently paying more than their Family Mosaic counterparts.

Mr Sarsfield himself describes it as a “small step” and says he can’t do more unless the government offers associations more freedom to charge their own rents within a “rental envelope”.

But the association’s decision to take matters into its own hands might not be universally applauded, even if it does create more fairness.

“I don’t suppose government wants to see [housing associations having] more autonomy,” suggests Richard Petty, head of affordable housing at JLL. “If the government loses control over rents, they would need to rewrite the rules, and they don’t want to do that.”