How do we set our rents?
There are a lot of factors which determine how we set rents. Rents differ depending on the location of a property and how many bedrooms it has. But rents are also determined by government policy, which has changed a lot over the years. This means rents can differ based on factors including what the government’s policy was when a home was built, how long a tenant has occupied a property, and whether it was built using government funding.
All of this can make rents confusing. This page explains how the main types of rent we offer are set, and how they increase each year.
The term ‘social rent’ can be used to mean any sub-market rent for people on low incomes. But it usually refers to rents calculated using a standard formula which the government designed in the early 2000s. The formula takes into account average earnings for the county the property is in, number of bedrooms, and property value.
The government set social landlords the target of gradually bringing rents in line with the formula they had designed, over the 2000s. Because of this, these rents are also called target rents or formula rents.
Social rents are generally around 40% of private market rents across London, and around 60% across England.
Affordable Rents can generally be set at up to 80% of private market rents. They were introduced in 2010 after the government reduced grant funding for social housing, with the intention that these higher rents would help to fill the funding gap.
Some of our newer Affordable Rent homes are partly funded by the Greater London Authority (GLA). For these homes, the GLA determines how we will set Affordable Rent.
Between 2015 and 2019, the GLA split Affordable Rent into two sub-types, called Discounted Rent and Capped Rent. Capped Rent is set at up to 50% of market rent and was designed to help people who are out of work. Discounted Rent was designed for working Londoners. It is set at the lower of 80% of market rent or Local Housing Allowance (the amount you receive in housing benefit if you’re renting privately).
From 2019 these rent types were discontinued. Our new Affordable Rent homes funded by the GLA now have rents at levels very similar to social rents, called London Affordable Rents.
As well as building our own Affordable Rent homes, we also purchase homes from private developers. This happens when they are required by local authorities to include sub-market housing on new developments. In these cases, we decide how high to set Affordable Rents together with the local authority – staying within the 80% of market rent limit.
In other cases, we set rents using the table below, but capped at Local Housing Allowance levels. Local Housing Allowance varies between different areas, but it’s generally slightly lower than 80% of market rents – 74% in inner London, and 78% in outer London and Hertfordshire.
|
|
1 and 2 beds |
3 beds or larger |
|
London |
80% of market rent |
Social rent |
|
Outside of London |
75% of market rent |
|
Finally, when we set the rent for a property at a percentage of private market rents, we use the market rent for properties of the same type, in the same location. We do not use regional averages, since these can obscure how market rents vary in different areas.
Since April 2016, social landlords like us have been required by law to reduce rents by 1% each year, but from 1 April 2020, the government is allowing social landlords to increase rents in line with its 2020 Rent Standard.
The Consumer Price Index is a measure that tracks how much the prices of consumer goods and services are increasing. As prices increase, each pound we receive in rent becomes less valuable, because it pays for fewer goods and services. This means that to keep running our services, we need rents to keep up with inflation.
Increasing rents by CPI + 1% means we can add 1% to whatever percentage CPI is. So if CPI is 2%, we can increase rents by 3%. The extra 1% means we can go beyond maintaining current services – it allows us to build new homes, keep current homes in good condition, and invest in communities.
Rents can also increase between tenancies, when a property is re-let to a new household. This can happen through the rent type changing. For example, fair rent tenancies (see ‘other types of rent’ below) are no longer available, so if a fair rent tenancy comes to an end, the rent for the new tenant is likely to be higher. It can also happen for Affordable Rents if market rents rise faster than the rent during a tenancy, because we re-set rents in relation to the market at the start of each tenancy, but not during it.
Some of our homes are part of the London Living Rent scheme. This is a scheme designed to help people into shared ownership, following a period of low-cost renting for 5-10 years. London Living Rents are set at roughly a third of average incomes for the borough the property is in. This means they are on average around two thirds of market rents.
We also let some properties at intermediate rent. This means rents are generally set at 80% of the market level.
Some tenancies which began before January 1989 have fair rents. These are sub-market rents set by the government’s Valuation Office Agency. Fair rents take the quality and location of the property into account in determining what rent to charge, but ignore the effects of housing scarcity.
