Michael Cameron - TIS Rent Setting and Affordability event 8 September 2021
Good afternoon and thank you for inviting me to speak with you today.
Just under a year ago we came together to talk about this very same topic, and I remember us commenting on how we were all in a very different world. And here we are again, still working in the context of the pandemic. I believe that much of what we spoke about last year still holds good.
Last month we published our eighth annual National Report on landlord performance in achieving the standards and outcomes of the Scottish Social Housing Charter. I think it’s safe to say that 2020/21 was a year like no other.
It is clear that the March 2020 national lockdown in response to the escalating COVID-19 pandemic had an immediate impact on social landlords’ ability to deliver services as normal, and landlords had to operate within changing levels of restrictions throughout 2020/21. So, it is not a surprise that there has been an impact on the performance of landlords, and so on the annual performance data they reported to us. And of course we can’t be definite that any and every dip in performance is, in whole or in part, a direct consequence of the pandemic, but it is unquestionably the most significant contextual factor in assessing performance in the last year.
The key outcomes for rents are that:
- average weekly rents went up by 2.7% to £83.70; and
- the percentage of tenants satisfied that their rent is good value for money dropped slightly to 83% from 84%.
Early in the pandemic, many of us feared that there would be a significant adverse impact on household incomes that would result in substantial numbers of tenants struggling to pay their rent. However, we’ve had a number of government initiatives to support people financially, and seen a clear focus by landlords on working with tenants in financial difficulty. This has gone some way to minimise the impact of the pandemic on the level of rent arrears. At 31 March 2021 total arrears stood at just over £160 million up by nearly 10% on the previous year. Within that headline figure there is a range of different levels for different landlords: at the aggregate level RSLs had a reduction in total arrears as a percentage of rent due, while LAs saw a rise. And even within each group there are wide ranges of performance.
Each quarter we gather on behalf of the Social Housing Resilience Group information from all social landlords on the impact of the pandemic – this includes data on arrears. The figures for the quarter that ended in June showed a fall in total arrears.
So, while perhaps not great news on arrears, at least not the really difficult picture that some foresaw at the start of the pandemic.
Now, the imminent closure of the UK Government’s Job Retention Scheme – the furlough scheme – does have potential to lead to a further increase in the financial pressures on many households that could lead to increasing arrears, although there has been more upbeat news on jobs recently. Set against that is the news around upcoming increases in domestic energy costs that will put further pressure on household finances.
And there will be other pressures on rents coming out of the pandemic. We know that landlords lost an aggregate of nearly £36 million in rent through homes being empty last year, and that’s up by more than half on the previous year. That’s money that landlords cannot recover.
There have been costs as a direct result of the pandemic, such as paying for equipping staff to work remotely, making offices safe for customers and staff to return, and for the provision of PPE.
And there will be costs associated with dealing with the backlogs in repairs and maintenance, and other work that had to be paused.
On top of the recovery from the pandemic, landlords will have to respond to a range of new and emerging challenges and risks, including:
- the climate emergency and what might emerge from COP26, and the drive to decarbonise heating in homes;
- growing problems in supply chains for materials and labour, that are driving up costs;
- potential increases in pension deficits, and the resulting increases in the contributions that landlords have to fund; and
- the need to invest to protect from increasing incidents of cyber-attack.
And that’s not an exhaustive list of the challenges ahead.
Which brings us to planned rent increases. In 2021 landlords planned to increase rents by 1.2%, and that’s a significant reduction from the 2.5% planned rent increase in the previous year, and from the actual rent increase in that year of 2.7%.
Clearly the pandemic, and its impact on finances of many tenants, has had an influence on landlords’ decisions on rent increases. This is understandable in the context of the pandemic, and can be viewed as positive for tenants who may be struggling financially.
The need for, and the level of, an annual rent increase is a matter for each landlord. I know that there will be discussions getting underway between landlords and tenants about rent increases in the coming year, and that those discussions will be happening in what potentially may be one of the most challenging financial situations landlords and tenants have had to face.
Many will now be starting the process of reviewing their business plan and associated assumptions, to understand what rent levels will need to be in the coming years. As I’ve said before, given the level of uncertainty and volatility in the world, that’s not a straightforward task.
Last year we published additional guidance for landlords on business planning in the context of the pandemic. In that we set out the range of issues landlords will want to think about as they revisit their business plans. The guidance also restates the importance of landlords continuing to consider tenants’ ability to keep paying their rent over the longer term when deciding levels of rent increases.
It is likely that it is still the case that most rents for most social landlords’ homes are affordable for most people most of the time. But we do know from the feedback from the National Panel that nearly a third of those that responded had seen a decrease in their income during the pandemic, and two fifths have experienced difficulties affording their rent. Nearly two thirds were concerned about future affordability.
I know that many landlords look closely at how they can manage their businesses efficiently, before passing costs onto tenants, to ensure that they can keep rent levels as affordable as possible. I think that remains a very important discipline in the current context.
Equally important will be landlords undertaking a comprehensive review of their business plans to ensure they factor in the impacts of the pandemic on their businesses. And, where they have reduced the level of rent increases from those originally planned, they will need to understand how they will manage the loss of income that will result over the lifetime of their business plan.
Once again, that leads me to stress the importance of an ongoing dialogue between tenants and their landlords around what’s important to them and what they want, and can afford, to pay for.
In November we will publish the key risks and issues that we will focus on in our risk assessment that will lead to the engagement plans we’ll publish from March. We will continue to refine our approach to ensure that we focus on the most critical risks and challenges that landlords face and to reflect the context they operate in. As for previous years, rents and affordability will featuring prominently.
The coming period feels like it may be the most testing that social landlords have had to face. But social landlords in Scotland have weathered many storms in the years in which they have been building homes and sustaining communities. Good governance and building and sustaining resilience will help to keep landlords safe and it will help them to evolve to respond to an increasingly complex, volatile and uncertain world.