Wales’ social rent setting policy is not fit for purpose

Our Head of Policy (Poverty) Steffan Evans reacts to the announcement that social rents could increase by as much as 6.7% from April.

The last few weeks has seen some of the most heated discussions seen in Welsh politics in a long time. But amidst all the debate on speed limits, budgets and tv channels, other vital announcements have been somewhat overlooked. One such announcement was made on October 27. A Friday before recess might not be a traditional slot for significant government announcements, but for thousands of social renters the announcement that the Welsh Government will permit their landlords to put up their rent by 6.7% from April is one of the most important of the year.  

Social rent setting – a perennial problem

The Welsh Government’s social rent setting policy has long been a thorny subject. Each social landlord, be that a local authority or a housing association, is responsible for setting their own rents, but within a cap set by the Welsh Government.

If the Welsh Government permits social landlords to raise rents significantly, it places pressure on tenants. Whilst many tenants will have their rent covered in full by benefits, for those in work, for those with no recourse to public funds, and for those affected by the bedroom tax or the benefit cap, any increases in their rent place extra pressure on already stretched finances. Indeed, the Joseph Rowntree Foundation estimated that in the five years to 2020, 40,000 Welsh social housing tenants were pushed into poverty by above-inflation rent rises.

On the other hand, if the Welsh Government does not allow social landlords to increase rents, there is pressure on landlords’ finances. The ability of social landlords to build new social housing, to maintain homes, to invest in decarbonisation measures and to offer additional services are all determined by how much they can raise in rent.

The impact of a 6.7% increase in rents

The Welsh Government’s decision to permit social landlords to increase rents by 6.7% can therefore be seen as an attempt to balance these competing pressures. With inflation standing at 6.7% in September, the resources available to social landlords and the amount paid by tenants will be unchanged in real terms, at least in theory. In practice however the impact on the poorest tenants in Wales will be considerable.

The Bevan Foundation’s recent Snapshot of Poverty report found that 1 in 7 people in Wales sometimes, often, or always struggle to afford essentials. When focusing on social renters, 1 in 5 reported sometimes not having enough to cover their essentials once they had paid their rent. This challenge will only get greater if landlords increase rents as permitted.

The Climate Change Minister Julie James did recognise these pressures in her statement.

However, I am well aware of the impacts that the continuing cost-of-living crisis has put on social housing tenants and that this uplift may not feel ‘lower’ to many people across Wales.

The reasons why any increase “may not feel lower” are twofold. The first is because the increase is not in fact ‘lower’. In April 2023, social landlords were permitted to increase rents by 6.5%, 0.2 percentage points lower than the rise announced by the Minister for April 2024. Second, and perhaps more importantly, an increase is an increase. Much like falling inflation does not mean that costs are coming down but rather they are going up less quickly, an increase, no matter how low, puts extra pressure on tenants when money is tight.

A broken model

The way social housing is funded in Wales is simply not fit for purpose. The fact that the Minister reaffirmed that social landlords will commit to not evicting tenants due to financial hardship, is in essence an acknowledgement that her announcement will push more tenants into financial difficulty. Whilst the commitment to not evict tenants is welcome, would it not be more effective to set rents at levels that did not create financial hardship in the first place?

High inflation may be what has bought the inherent tensions of the Welsh Government’s social rent policy to the surface this year, but even if inflation falls back there are plenty of indications to suggest that the challenges of setting social rents at appropriate levels are set to get worse, not better. In the same week as its announcement on rents, the Welsh Government announced new quality standards for the social housing sector. With the Welsh Government still seemingly committed to decarbonising the sector and to building more social housing, social landlords are going to need unprecedented levels of investment if they are to meet the Welsh Government’s goals.

It is simply not practical, let alone ethical, to place all these costs on social housing tenants – some of the poorest people in Welsh society. The longer we wait to revisit our approach to social rent setting, the greater these challenges are set to become.

Steffan Evans is Head of Policy (Poverty) at the Bevan Foundation