Special report: HAs’ affordable rent lettings rise for first time in four years

Richard Petty, head of UK living at JLL, said the rise could be linked to development programmes, which typically run in four-year cycles.

“If that’s the case then the amount of homes coming through for first letting in 2019/20 will be projects that were started in 2016/17, and there would have been quite a surge in development activity around the 2016 to 2020 AHP. So we’re probably seeing the fruits of that coming through, which is pushing up the overall number of lettings,” he said.

On conversions, he added: “We’d be bound to see that going down because of people hitting the limits on their contracts with Homes England, and it’s been trending down for some time. Nobody quite knows what the position is in terms of how many conversions were built into each contract under the old AHP but people will have maxed out and therefore the numbers are going down.”

This report has also analysed average rents across England, including comparisons between the cost of AR rents and GN stock.

On the whole, the average weekly cost of affordable rents across the country marginally increased and that was despite stock let in this period still being subject to the four-year, one per cent annual rent cut to affordable and social rents, which ended in April 2020.

The high cost of affordable rents in the capital has been cited by HAs, with a number of organisations now offering other products such as London Living Rent, which is roughly two-thirds of median market rent or London Affordable Rent.

Greater London also saw the largest AR margin on its GN units of more than 58 per cent – far above England’s other regions: the South East followed with a margin of just over 43 per cent.

These figures chimed with Mr Petty, who said: “Coming into 31 March 2020, there was no pandemic influence, and the rental market has been very strong. So if market rents are racing ahead of formula rents or target rents, you would expect to see that sort of relationship being stretched.

“That probably implies that housing associations are rightly pegging their affordable rents to a consistent percentage of market rent and therefore they’re going up with the market as they have these new lettings coming through or relettings coming through.”

The largest drop in average AR rents was seen in the North East of England (-1.26 per cent), where rates reduced to £94.72. This compared with an average GN weekly rent of £77.17. This meant the North East had some of the cheapest rents across the country.

Affordable rent lettings: 50 highest RPs

There were four new additions to the top 10 HAs with the highest number of AR lettings for the 2019/20 period, including WHG, which topped the list.

The housing association recorded 1,564 AR lettings, which was up 131 per cent on the prior year and included only one conversion from social rent to affordable rent. This made up just over a quarter (27 per cent) of its GN stock, with total GN lettings standing at 5,832 for the period.

Explaining the rise, a spokesperson for the group said that during 2019/20 WHG had 1,156 tenancies go from affordable fixed-term tenancies to assured tenancies. These conversions involved the same customers but resulted in a new tenancy being issued, which meant they were included in the SDR count.

Six of the 10 HAs with the highest recorded AR lettings were based in London or the South of England, three were based in the Midlands, and one was based in the North of England.

WHG was followed by Peabody, which had one of the largest increases in AR lettings compared with the previous year. Its lettings rose 195 per cent to 1,267 and that included 138 conversions.

It is worth noting here that the data does not distinguish between the higher AR product and London Affordable Rent, which is what Peabody offers and is about 50 per cent of market rates. In 2018 Brendan Sarsfield, the group’s chief executive, pledged to stop charging AR and “start the journey towards rent fairness”.

Explaining the figures, Peabody’s chief financial officer Eamonn Hughes said: “During the year we increased our London Affordable Rent (LAR) lettings, including by converting 138 higher non-regulated tenancies to LAR on re-let.

“In 2019/20 our rents were £450m lower than the market and £25m lower than target rent levels. With an average rent of £130 a week in London, the numbers reflect our strong social purpose and commitment to providing as many genuinely affordable rented homes as we can.”

“Coming into 31 March 2020, there was no pandemic influence, and the rental market has been very strong”

Sanctuary and L&Q were the two other new additions to the top 10, after seeing 62 per cent and 36 per cent increases respectively. The rise took Sanctuary’s AR lettings for the year to 1,200 and L&Q’s to 967. For both HAs, AR lettings made up less than a third of their total GN lettings.

Action Housing and Support and Metropolitan Thames Valley had the largest reported rise in AR lettings with 1,138 per cent and 663 per cent, but their overall AR totals were much smaller with 359 units (Action) and 305 units (Metropolitan Thames Valley).

The HAs that had higher proportions of AR lettings as a total of their GN lettings included Plymouth Community Homes (PCH) (86 per cent), Calico Homes (80 per cent) and Sage Housing (79 per cent). PCH’s high AR proportion was despite an 11 per cent decrease in its AR lettings for the year to 773. That included 401 conversions to AR. Both Calico and Sage’s AR lettings had not changed on the prior period, with no conversions reported.

Notting Hill Genesis had one of the larger dips in AR lettings (48 per cent), which took its total for the year to 307. This made up 13 per cent of its total GN lettings.

A Notting Hill Genesis spokesperson said that while its affordable rent tenure lettings did reduce in 2019/20, AR letting figures were open to fluctuation as a result of a number of factors, including “natural fluctuations in our programme being one”.

They added that the number of AR homes on new schemes decreased over the period but increased again the following year, the SDR figures for which have yet to be published.

In addition, there were a lower number of relets of AR homes in 2019/20 compared with the previous year, the spokesperson said. After its programme ended, the HA also no longer converts properties to AR so there were no conversions for the period.

Average affordable rent charged by RPs in LA areas: highest 25

This report also looked into the HAs that charge the highest and lowest average weekly rents and the locality in which they do so, as well as the local authority (LA) areas with the highest and lowest weekly rent levels.

The highest 25 rents were all in Greater London, with Tower Hamlets, Barnet, Hackney, Hammersmith and Fulham, and Westminster appearing more than once.

Notting Hill Genesis was the HA that appeared most in this list (seven times). Out of these, its AR units with the highest average weekly rents at £260 were in Tower Hamlets, where it had 282 AR units. This compared with 1,286 self-contained GN units in the same borough, with an average weekly rent of £139, resulting in an 87 per cent margin between the two tenures.

Its highest margin was seen in Newham, where it had 309 AR units with average rents of £239 and 610 self-contained GN units with average rents of £126. This resulted in a 90 per cent margin.

According to its 2019/20 accounts Newham is one of five boroughs where the HA has over 4,000 homes under management. The other four were Barnet, Brent, Kensington and Chelsea, and Hammersmith and Fulham.

One Housing appeared three times in this list, with AR stock in Lambeth, Haringey and Camden. Its 126 AR units in Haringey had its highest overall margin between its two tenures (116 per cent), with its average AR rates coming to £266, compared with a £123 weekly average for its GN stock.

Agudas Israel Housing, which provides supported care in Hackney, had the highest overall AR rents, charging £302.

Lowest 25

In contrast to the higher rates, the lowest average rents in England were all found in the Midlands or in the North. The LA areas of County Durham and Kingston upon Hull had the lowest averages with £83 and £84.50 respectively.

Home Group appeared by far the most times in this list, with AR stock with low rent averages in eight LA areas, including holding the lowest AR rent in County Durham.

Two HAs in this list had higher GN rents than their AR averages. This included Home Group in Bradford, which had 265 AR units with average rents of £88, compared with £93 for its GN units.

Bromford Housing Group in Walsall also had a higher GN rent compared with its AR units, with averages of £90 and £98.

Other HAs that appeared more than once in this list included The Riverside Group and Together Housing, with AR stock in LA areas including St Helens, Pendle and Rossendale.

The highest margin seen in this list was 33 per cent (compared with a margin high of 116 per cent in the 25 highest rent list). That was for Empowering People Inspiring Communities’ stock in Stoke-on-Trent. The HA had 150 AR units with an average of £86 and 953 GN units with an average of £64.

Affordable rents in the 40 local authority areas with the most affordable rent stock

Looking at median average weekly rents within the local authority areas that hold the most AR stock, the top five were all in Greater London. Similarly to previous years, they were Bromley (£173), Croydon (£178), Lewisham (£185), Brent (£208) and Tower Hamlets (£212), with Tower Hamlets topping the list in our last three reports.

Outside London, the highest median AR rate was in East Hertfordshire in the East (£166), followed by Vale of White Horse (£159) and Cherwell (£157), which are both in the South East. The highest recorded weekly AR rent was in Brent with £354. The highest rents in the other Greater London LA areas were all more than £214. The highest of the higher rates in the South West was in Dorset, at £163.

The highest average rents seen in the North West were in Manchester and Cheshire East (both £164).

Median prices start to drop the further up the country you travel, with LA areas in the West Midlands having AR rates of £115 (Birmingham), £110 (Coventry), £106 (Walsall) and £104 (Shropshire).

The five LA areas with the lowest median AR rates were largely in the North East and North West, with one in Yorkshire and the Humber – Bolton (£94), County Durham (£94), Sunderland (£95), Halton (£96) and Sheffield (£97).

The lowest average rents across the whole of England were found in the North East, North West and Yorkshire and the Humber.

Sheffield had the lowest average with £65. It was followed by Liverpool with £80, Walsall with £83, County Durham with £83 and Sunderland with £83. The difference between the highest and lowest average weekly rents in England was £289.

All the LA areas in the top 40 with the most AR stock held more than 1,400 AR units.

The highest levels of AR units were found in the North West, with Liverpool holding 5,737. Weekly average rent levels here ranged from £80 to £133. Plymouth in the South West followed with 4,134 units. Its rents varied from £92 to £118. Cheshire East (North West) and County Durham (North East) came next with 3,856 units and 3,773 units respectively.

Cheshire East had rents that ranged between £98 and £164, while Country Durham had rents with lows of £83 and highs of £126.

Future

The next version of this report will cover a turbulent time for the UK and global economy, with lockdowns and restrictions over the 2020/21 period taking a toll on certain markets.

One area to watch will be around rental growth in the London region, which dropped over this period. The private rented sector in the capital posted falls for the second quarter in a row in October 2020, with some areas seeing drops of up to 34 per cent year on year, according to house-sharing website SpareRoom. A lack of tenant movement in the rental market due to the lockdown might also distort the rental market.

Taken together, it is possible given that AR rates are pegged against market rates, that this could have an impact on the average AR rents in London over the 2020/21 period, which could in turn bring down the sizeable 58 per cent margin we saw against London GN rents during the 2019/20 period.

On this, JLL’s Mr Petty said: “If you imagine what the 2020/21 figures would look like if market rents in London in many places come off by 20 per cent, say, and you’re keeping to a 60/65 per cent figure that’s dropped by 20 per cent, you would expect to see that 58 per cent [margin] come down quite significantly. If you extended it another year to 2021/22, I think we’ll see the market recovering quite quickly because if you look at the forecast for capital growth and rental growth, they are generally pretty strong.”

Figures are aggregated from subsidiary to group level. Average rents are the median of the average rents recorded in the Regulator of Social Housing’s Statistical Data Return for the members of each housing group in a local authority.

Other general needs lettings is the total general needs lettings made during the year to 31 March 2020 minus the number of affordable rent lettings. Some organisations have a higher number of affordable rent lettings than general needs because they have supported housing or housing for older people let at affordable rents.