SALIXRENT - FINANCIAL MODELLING and RENT RE-STRUCTURING for HOUSING
How Legislation will affect Rent Re-structuring
BACKGROUND
Rent Re-structuring legislation attempts to set target rents on RSL (and LA) properties based on the value of the property, compared to an average National value, and also on the regional earnings (based on the county the property is in), compared to National average earnings. The starting point is April 2002, and RSLs have until March 2012 to get rent levels within + or - 5% of the target rent.
Basically the formula is that rents can increase or decrease each year by RPI+½% (RPI at the previous September), plus or minus £2.00 - the objective being to achieve Target Rent (+/- 5%) by 2012.
(DETR "Guide to Social Rent Reforms" March 2001) B2.4 Contractual obligations to lenders are overriding. In deciding whether to take any action against an RSL, the Corporation's paramount concern will be to protect the public and private investment in its stock and to retain the confidence of lenders. Therefore it is in the interest of an association to optimise its rental inflows, as well as attempting to satisfy the rent restructuring rent levels.
FINANCIAL EFFECT OF RENT RESTRUCTURING
Every housing organisation is affected by this legislation :
A - Overall financial effect within the 10 year period
B - Overall financial effect beyond the 10 year period
C - Allocating resources and skills within the finance function, to manage rent restructuring
Not only are restructured rents and affordable housing desirable from a national perspective, but also the adoption of more efficient and streamlined administrative processes. Ultimately tenants have a right to know how much of their rent is absorbed by administrative costs. The future climate is one where those organisations that can run their administrative functions more efficiently, will survive.
3 YEAR REVIEW :
The ODPM published the results of the 3 Year review in July 2004, subject to consultation up to end of September 2004. The report suggests an extension of bedroom weights (this affects the calculation of target rent) :
Bedroom weights:
It also advises Local Authorities to ignore the rule (that no rent should change by more than RPI + factor less £2) where rents have to decrease, if target rent would not be achieved. It suggests that Housing Associations should do the same, "where their finances permit".
