Dissecting the Welsh government’s new social rent settlement

As the Welsh government confirms a rent settlement for social housing providers of 6.7 per cent, CIH Cymru director Matt Dicks looks at what the decision means for both tenants and landlords in Wales.

In the midst of the deepest cost-of-living crisis that we’ve seen in our lifetimes, a cursory analysis of a 6.7 per cent rise (the current rate of inflation) in social rents might seem that Welsh government is tone deaf to the pressure many families are facing. 

Yet, 6.7 per cent is the rent cap the minister for climate change in Wales has set from April 2024, based on the inflation rate in September this year. The agreement with the housing sector had previously been that the rent settlement would be set at CPI+1. That worked for both housing organisations and tenants when inflation was low, hovering around one-to-two per cent. 

However, given the huge inflationary pressures we have faced over the past 18 months or so, 10.1 per cent in September 2022, the minister took the decision last year to cap rent at 6.5 per cent for 2023/24. 

Whilst a hefty rise for tenants living in social housing and absorbing the crunch of the cost-of-living crisis, it also meant a sizeable real-terms cut in income for housing organisations across Wales. 

As part of the rise in the rent cap in 2023/24, housing organisations committed to a series of measures to support those tenants facing serious hardship and agreeing not to evict anyone into homelessness. 

Inflation has subsided considerably since then, and whilst still relatively high compared to recent times, this time round the minister has agreed to set the cap at the rate of inflation. 

And breathe – that’s the technical bit over with! 

Now, let’s deal with the moral question: ‘How can you impose such an increase on some of the poorest in our communities when many are still choosing between eating and heating?’ 

It is important to recognise that this is one of, if not the most, difficult decisions that the minister must make each year, particularly in these times of economic strife. That is, attempting to find the right balance between affordability of rent on the one hand, and on the other ensuring housing organisations have enough income to provide core services, as well as providing the support services that are so needed during this cost-of-living crisis, and beyond.

But on top of that, the Welsh government also wants housing organisations to build 20,000 new low-carbon homes at social rent to address one of the main causes of our systemic housing crisis, the undersupply of affordable homes, whilst making their existing homes more sustainable through decarbonisation. 

CIH Cymru believes we have reached a rent settlement that has struck a reasonable balance

Now, if you restrict the main income stream of housing organisations beyond a certain level then the cost of drawing in cross-subsidy from lenders, which drives the building of new homes, becomes that much more expensive and harder to secure. 

It’s also worth pointing out that the 6.7 per cent rent cap is a ceiling for rent increases, not a target for increasing the rent of every single tenant living in social housing. This year, despite an effective 4.4 per cent cut in rental income, half of all housing associations froze rent, with many working to keep rent rises at a minimum next year as well. 

Furthermore, it’s important to remember that three-quarters of tenants living in social housing in Wales have all, or part, of their rent paid through benefits. 

Therefore, this rent settlement means much-needed money will flow from the UK Treasury, directly to housing organisations to build on the work they are already undertaking to support some of the poorest within our communities in Wales through the cost-of-living crunch. In particular, the remaining 25 per cent of social housing tenants who must find all, or part, of their rent themselves. 

Housing organisations are ready to work with tenants to address any financial hardships they are facing because of the current economic climate. Working with the minister, CIH Cymru believes we have reached a rent settlement that has struck a reasonable balance between providing housing organisations with enough resource to support tenants through the cost-of-living crisis and the goal of reaching our shared ambition of providing good, sustainable, and warm homes for everyone living in social housing in Wales. 

• Read Matt's initial response to the announcement