The Housing Forum calls for energy efficiency to be factored into social rents

The Housing Forum has published a report examining how energy efficiency might be factored into the social rent formula.

Social housing is currently the most energy efficient tenure of housing in England, with 60 percent of social housing meeting an EPC rating of C or above.

However, more needs to be done, given the recent rise in energy costs and urgent need to decarbonise our housing.

Tenants in an EPC D-rated property face bills which may be twice as high as those in an EPC-B rated property, with few options to improve the energy efficiency of their own homes.

The new policy briefing illustrates how we could rebalance rents so that the total cost of rent and bills is evened out for tenants within four years. This would reduce rents for tenants with higher energy bills, with those in more energy efficient properties paying a bit more rent in recompense for lower energy bills. This would provide a fairer deal for tenants.

Factoring in energy efficiency into the social rent formula would also provide an incentive for social landlords to upgrade their properties, generating capacity for private finance to help fund some of the upgrades.

Speaking about this policy, Jamie Ratcliffe, Chief Communities & Sustainability Officer at Housing Forum member, Sovereign Network Group, said: “The UK has the draughtiest homes in Western Europe. This combined with the highest energy costs exposes the country to authoritarian regimes and undermines our national security. Instead of effectively running the bath with the plug out urgent action to make homes warmer, healthier and easier to heat is needed. At present the complicated formulas for social rents take no account of the cost to heat a home and they should. A “warm rent” would increase the funding options available to landlords and be fairer to tenants.”

Ian McDermott, Chief Executive of Housing Forum member, Peabody, said: “I’ve been an advocate for “warm rents” for many years and welcome this policy paper from the Housing Forum. It’s a good exploration of the issues. At Peabody we support the principle of taking thermal comfort and energy efficiency into account in the future social rent formula. This could incentivise energy efficiency work and retrofit investment, help reduce residents’ energy bills and support a fairer and more equitable approach to rent setting. We are concerned about additional complexity however, and any changes would need to enshrine affordability in rents and service charges whilst safeguarding landlords’ ability to invest for the long-term. We look forward to being part of the discussion going forward.”

Back in 2001, a standardised formula for setting social rents was set, based on property size and location. Not all social housing rents are set according to the formula: some properties, particularly newly built units, can be let out at ‘affordable rent’, defined as up to 80% of market rent. However, social rent remains the dominant tenure within social housing, and it is social rents that we have focused on in this paper.

Maximum annual increases for social rents are set by central government and have in recent years tended to allow rents to be increased each year by one more percentage point than the Consumer Price Index (CPI) - known as ‘CPI plus one’. From 2016 – 2020 rents were instead cut by one percent a year.