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Estimating rates of return on social sector rents

This paper analyses the relationship between social sector rents and house prices in order to examine the viability of the sector. Rents are the only form of return available to the social sector landlord (unlike in the private sector where capital gains are relevant).

In April 2002 the Government introduced a rent restructuring framework which required HAs to adjust their existing rents to target rents based on a formula taking account of both the capital value of the property and local incomes. It also set out the procedures by which the adjustment was to be achieved. The rent restructuring regime was first set out in the Housing Green paper (DETR, 2000) with the objectives of bringing greater coherence to rent structures across the whole social sector and relating rents more closely to fundamentals.

Prior to the introduction of the framework, the 1998 Housing Act guided each housing association to set rents to reflect property values and to raise sufficient rental income to meet their expenditures. This gave HAs considerable freedom to set rents according to their own criteria.

In this context, it is useful to analyse the relationship between social sector rents and house prices. The relationship is important for the viability of the sector in that rents are the only form of return available to the social sector landlord (unlike in the private sector where capital gains are relevant). They must be adequate to cover the costs of managing and maintaining the stock and to help support investment. In equity terms it is also important to understand the extent to which economic subsidy, reflected in varying rates of return, varies between different areas as a result of the rent structures that have been put in place.

CCHPR Contact

Funder

Tenant Services Authority

Project Start Date

30th September 2007