Rent and Service Charge Setting Policy

5.1

The council may set the initial rent on properties to be let at social rent at a level no higher than formula rent, subject to flexibility levels (see below).

5.2

Since 2001, rents for properties let at social rent have been based on a formula set by the government. The formula creates a 'formula rent' for each property that is exclusive of any service charges, which considers the location, relative value of the property at January 1999, relative local income levels, and the size of the property. A main aim of this formula-based approach is to ensure that similar rents are charged for similar properties.

5.3

The formula is set out in both the Government Rent Policy Statement and the Regulator of Social Housing (RSH) Rent Standard and is shown below (fig 1). As most of the formula is specified by government (fig 2), the factor which determines the rent is the value of the property (1999 prices).

Fig 1

Weekly formula rent (52 weeks) at April 2000 is equal to:

70% of the national average rent
Multiplied by relative county earnings
Multiplied by the bedroom weight

Plus

30% of the national average rent
Multiplied by relative property value

National average rent means the national England average rent in April 2000.

Relative county earnings means the average manual earnings for the county in which the property is located divided by national average manual earnings, both at 1999 levels.

Relative property value means an individual property's value divided by the national (England) average property value, as at January 1999 prices.

Fig 2

The national average rent that must be used, for April 2000, is £54.62.

The national average property value to be used, for January 1999, is £49,750.

County earnings data to be used for Gateshead is £307.90 per week.

Bedroom weights which must be used (specifically, applied to the earnings term in the formula) are:

5.4

Once a formula rent for 2000-01 has been calculated, it must then be adjusted each year based on inflation as defined in guidance.

5.5 Rent caps      

Formula rent is also subject to a rent cap based on the number of bedrooms in a property. From 2020-21 onwards, rent caps increased by CPI+1.5% annually. Where the formula rent would be higher than the rent cap, the rent cap will be used instead. Rent caps are set by government.

5.6 Rent flexibility

Government policy provides the flexibility for the council to set rents at up to 5% above formula rent for general needs properties, and 10% for supported housing (as defined in guidance). Gateshead Council reserves the right to apply this flexibility but must provide a clear rationale for doing so which considers local circumstances and affordability.

5.7 Changes to rents

From 1 April 2020, the council may not increase rents by more than CPI+1% (CPI as at September of the previous year). For rent periods that began in the 12 months from 1 April 2023 to 31 March 2024, this limit was subject to a 7% maximum increase.

5.8    

The council can apply a lower increase, freeze or reduce rents.

5.9

The council must adhere to these limits on rent increases even if a tenant's rent is below formula rent, or if they have previously applied a lower or no annual increase. Where this is the case, the provider may only move the rent up to formula rent when the property is re-let following a vacancy.

5.10 Conversion of social rent properties

The council cannot convert a property charged at social rent to the following:

(a) affordable rent, except where this has been agreed by Homes England or the Secretary of State

(b) market rent

or

(c) intermediate rent

5.11 Property valuations

Calculating formula rent requires a consistent approach to property valuations. These will be done in accordance with a method recognised by the Royal Institution of Chartered Surveyors (RICS) and will be made at January 1999 prices.

5.12

Gateshead Council reserves the right to re-value properties where we have carried out 'major works' that have materially affected the value of the property. This does not include normal stock management activity such as repairs, maintenance or updating of properties, but will include structural alterations, such as adding an extra room or an extension.