Appendix A - Legal Requirements of Rent Setting
The principal statutory provision governing the fixing of rent for Council property is
contained in Section 24 of the Housing Act 1985.
Sub-section (1) provides that authorities may “…make such reasonable charges….
as they may determine”. However, this section has to be considered in the light of
Section 76 of the Local Government and Housing Act 1989 which imposed a duty on
local housing authorities to prevent a debit balance arising in their Housing Revenue
Account (“HRA”) and which also imposes “ring-fencing” arrangements in respect of
such account. It is now no longer possible for a local housing authority to subsidise
rents from its General Fund.
However, the City Council still has discretion to determine its rents within the
Government's standard methodology and in doing so it should consider all relevant
matters and exclude irrelevant ones.
Relevant considerations include:
• the cost to the Council of providing accommodation and the cost of its
• the effect of inflation;
• any subsidy the City Council will receive; and
• the extent and numbers of tenants qualifying for Housing Benefit.
Section 24 of the Housing Act 1985 also provides that the City Council must “have
regard in particular to the principle that the rents of houses of any class or description
should bear broadly the same proportion to Private Sector Rents as the rents of
houses of any other class or description”
. “Private Sector Rents” means the rent,
which would be recoverable under assured tenancies.
Having taken all the relevant considerations into account, the City Council must
ensure that the relevant income generated will be sufficient, when taken together with
other income and items which may be credited to the HRA, to meet the expenditure
for the year in respect of the repair, maintenance, supervision, management and
other items which may be debited to that account.
Appendix B - Rent Restructuring Formula
The Government expects local authorities to apply rent restructuring to all properties
that are accounted for within their HRA, and has therefore linked this policy to the
HRA subsidy and Rent Rebate subsidy regime to enable financial control over this
process. The legal framework for rent setting is detailed in Appendix A.
The rent restructuring formula takes into account:
• condition and location of properties, and other qualities that tenants
• local earnings, so as to take account of affordability;
• Property size.
These aspects are reflected in the weekly formula rent:
Weekly Formula Rent (April 2000) =
70% x average LA rent (April 2000) x relative county earnings x
30% x average LA rent (April 2000) x relative property value
The Formula Rent is increased each year by inflation.
Local authorities were originally expected to move the rent for each council property
to the appropriate formula rent
in equal steps over the 10 years to March 2012.
However, protecting tenants from large annual rent rises takes precedence and so
Ministers did not want anyone's rent to change by more than RPI + 1/2% +/- £2 in
In 2008-09 the formula was changed and just for that subsidy determination year the
date of convergence was put back to 2016-17.
For the 2009-10 subsidy determination, a further change to the formula for 2009-10
and 2010-11 has been made, and this change has resulted in the inception of a
‘floating convergence date’. By fixing the annual increase in the Guideline Rent and
allowing the convergence date to vary, the year of convergence in the 2009-10
determination has moved to 2023-24. Reduced inflation in September 2009 is
expected to bring the convergence date for 2010-11 subsidy considerably further
To protect tenants in high property value areas, there is a maximum ceiling or 'cap' to
the formula rent
depending on property type. If the formula rent
for a particular
property is higher than the rent cap, then the rent cap will replace the formula rent.
In 2006-07, the Government decided to change some of the elements in the
The rent restructuring regime which has been in place since April 2002 is designed
to ensure that social rents are calculated on a fair and consistent basis across the
country. It includes convergence between housing associations and council rents in
each area, so that rents will be based on the property and location, rather than on
historic financing arrangements. A 3 year review of the rent restructuring scheme
was published in 2004 and, in response to that review, the Government from
• Introduced bigger differentials for larger properties;
• Introduced adjustments to the rents formulae to bring council and housing
association rents fully into line. This is in line with the original objective of
rent restructuring that tenants should pay the same rents for similar
properties in similar locations irrespective of who their landlords are;
• Removed the floor on rent reductions for properties where rents need to
fall. The current downward limit on individual rents (RPI + ½% -£2) was
removed in 2006/07. The current annual upward limit on individual rents
(RPI + ½% + £2) is being retained, so tenants continue to be protected;
• Adjusting the HRA to limit average authority wide (as opposed to
individual property) rent increases to less than 5 per cent for 2006/07 and
2007/08. This was in response to concerns raised during the consultation
about the pace of change in some high cost areas.