Decision details

Development Partnership s106 Shared Ownership Rent Setting and Rent Review:

Decision status: Recommendations Approved

Is Key decision?: No

Is subject to call in?: No

Decision:

Approval was given to recommend to all members of the Development Partnership that, in light of affordability concerns:

 

They incorporate the provisions of paragraph 5.11 of the report at annual rent review for all existing s106 shared ownership homes matched via the Development Partnership and the provisions of paragraph 5.11 in respect of base rent for all new homes matched via the Development Partnership from 1 October 2022.

 

Reasons for the decision:

Shared ownership is one of the government’s principal instruments in the delivery of affordable housing. The Capital Funding Guide (CFG) states that total initial rent must not exceed 3% of the capital value of the unsold equity at the point of initial sale. The CFG further encourages rents that average no more than 2.75% of the value of the unsold equity. The majority of RP partners choose to adopt a maximum rent of 2.75% of unsold equity and apply the maximum rent increases chargeable under Homes England guidance.

 

In accordance with the shared ownership lease, rent increases should be limited to the Retail Price Index (RPI) plus 0.5%, using the RPI figure for a specified month, published annually.

 

The CFG advises that shared ownership sales and rental income will be used to meet ongoing operational costs, including meeting any repayment of loans and associated interest. Any initial revenue deficits must be met within a provider’s overall financial capacity.

 

Due to the high market value of housing in the district and the consequent impact on shared ownership rents, it is considered that to charge the maximum rent and apply the maximum annual rent increase is likely to be increasingly unsustainable for existing and future shareowners.

 

 

Alternative options considered:

Do nothing, and continue to see partner RPs set their own rents, generally up to 2.75% of the unsold equity, and increasing annually in line with Retail Price Index+0.5%. This option is recommended for rejection. Due to high levels of current and anticipated inflation levels and high property values in the district, it is forecast that continuing with existing methods may well see shareowners struggle with affordability, with some unable to pay the combined cost of rent and mortgage. This is particularly the case if, as expected, interest rates rise further. In a worst-case scenario, rent arrears can lead to repossession, with households potentially facing homelessness.

 

Adopt a sliding scale. This is not recommended as it may lead to confusion and add complexity to setting sliding rent scales dependent on the percentage purchased by the applicant.

 

Publication date: 15/09/2022

Date of decision: 15/09/2022

Decided at meeting: 15/09/2022 - Cabinet Member for Housing and Safer Communities

Accompanying Documents: