Review of residential rents and service charge

Report: 16
Date: 13 February 2003
By: Commissioner

Summary

To determine the level of rent increase for resident officers for 2003/04.

This paper was considered and endorsed by the Resource Allocation Committee on 4 February 2003.

The Police Federation has been consulted in the process of preparing this paper.

The Resource Allocation Committee endorsed Option 4 of this report together with the removal of the 20% loading to bring the MPA's rent structure into line with other public housing organisations (see paragraph 8) This will help in the retention of our more mature officers.

A. Recommendations

1. That Members' approve option 4 as endorsed by the Resource Allocation Committee

B. Supporting information

Introduction

1. Attached at Appendix 1 is a briefing note that outlines the historic background to the structure for the MPA rent and service charge schedule.

2. Attached at Appendix 2 is a copy of the current (April 2002) rent and service charge schedule.

Residential quarters

3. At December 2002, the MPA held 718 properties for use as quarters. A total of 237 tenancies have been granted that are subject to the payment of a rent. The remaining tenancies are to (pre-Sheehy) officers who have a right under Police Regulations to free accommodation. The median rent that is paid is £320.66 per month for a two bedroom flat. The MPA standard rent is £361.79 per month and equates to a 3 bedroom flat.

Effect of right to buy

4. The current (2002-2003) rent and service charge schedule was prepared in conjunction with a budget to produce an annual income of £782k from residential quarters and £2,184k from section house rooms.

5. In July 2000 the Housing Act 1985 led to the creation of over 120 secure tenancies in the MPA estate. After the statutory qualifying period the tenants became eligible to exercise a statutory ‘right to buy’. Although the Housing Act was amended in July 2002, preserved rights to acquire were given to former secure tenants for a period that expired on 24 October that year. Not every eligible tenant applied, and of the 77 applications that were made, solicitors have been instructed to proceed with selling 38 properties. If these disposals actually complete the rental income at current levels will reduce by £154k per annum in a full year.

Rents on houses

6. When the rent structure was established in 1994 houses were charged out at a 20% loading compared to flats. This principle is not followed by other public housing organisations whose rents simply reflect the number of habitable rooms.

7. The MPA’s houses fall into most Council Tax Bands, but 57% are in Bands E and F. For a typical 3 bedroom semi-detached house in one of these Bands the associated rent could be up to £625 per month. The vast majority of police recruits who pay a rent cannot afford a house at these levels and therefore the residential estate has a disproportionately high number of vacant houses.

8. It is recommended that the 20% loading should be removed at the next review to bring the MPA’s rent structure into line with other public housing organisations.

9. This change will have an effect on rental income and clearly some tenants will benefit by having their (house) rent reduced. However, as 87% of houses are occupied by pre-Sheehy officers who do not pay a rent, and the lower rental levels should encourage more vacant houses to be occupied, the net effect might not be so financially negative.

10. In the short term income from houses will fall by £39.5k, but in the medium term an increased allocation of some 30 houses will not only negate the reduction, but produce additional real income from houses that might otherwise not have been rented.

11. Most transferees to the MPS are maturer officers who have a family with specific housing needs. An improvement to the affordability of the MPA's houses would greatly assist this particular group of key workers in securing appropriate and affordable housing in London.

12. The above estimates do not reflect the recommendation in the remainder of this report to apply a general upward review of the April 2002 Rent Schedule.

13. The figures in the options below reflect the removal of the 20% uplift that is applied to rents payable on houses.

Options

Option one – increase rents in line with the initial budget provision (average 1.8%)

14. When the 2003/04 budget for rents was prepared in July 2002 comparable data for the 2003 review was not available. The budget made provision for a forecast increase in average housing association rents of 1.8%. This increase was used to produce an initial budget provision for 2003/04 of £872k. Appendix 3 shows the detailed effect on the MPA rent schedule. The current median rent would rise to £326.43 per month

Option two – increase rents in line with the housing element of the Retail Price Index (average 2.3 %)

15. The April 2002 review was based on a similar option using October 2001 as a base date. If rents were increased to reflect subsequent changes up to, say, October 2002, the current monthly median rent would rise to £328.04. Appendix 4 shows the detailed effect on the MPA rent schedule.

Option three - increase rents in line with latest information on housing association annual rent increases: (average 1.2% depending upon size of accommodation)

16. If the annual review were to be determined on the same basis as in previous years (except for 2002), the standard rents for two, three and four bedroom units would rise by an average of 1.2%. The monthly median rent would rise to £324.51. Appendix 5 shows the detailed effect on the MPA rent schedule.

Option four – increase rents to achieve the efficiency and effectiveness savings (average 4.0%)

17. To increase rents by an amount sufficient to contribute towards achieving the balance of savings in the Efficiency and Effectiveness Review (i.e. £500k net). On this basis rents would rise by 4.0% and the new median monthly rent would be £333.49. Appendix 6 shows the detailed effect on the MPA rent schedule.

Section houses

18. In November 2002 there were 556 permanent residents of which 494 were post-Sheehy officers paying the service charge. The current service charge is £323.00 per month (see Appendix 2).

19. At present all Section Houses have shared toilet and shower facilities on each floor. Modern hostel facilities are available from Unite and are currently charged at a weekly average rent of £85 per room, which is higher than the current section house service charge but the standard of facilities is generally higher. Unite hostels are mainly in east and south-east London.

20. The vacancy level in section houses was 8.1% in November 2002. This has kept pace with the larger number of recruit intakes leaving Peel Centre, but this might not be maintained throughout 2003 when demand on the section house estate is expected to increase due to even higher levels of recruitment.

21. Traditionally the increase for section house service charge has been linked to the rise implemented for residential quarters and this in turn has reflected changes in average housing association rents.

22. The budget provision for section house service charge in 2002/03 shows a total receipt of £2.2m based on an annual increase of 1.8% (in line with budgeted rents) and a monthly average of 568 residents paying the service charge.

Options

Option one

23. To increase the service charge by the budget provision of 1.8% which will raise the monthly charge to £328.81 (see Appendix 3).

Option two

24. To increase the service charge in line with Option 2 for Residential Quarters. This would raise the monthly charge to £330.43 (see Appendix 4).

Option three

25. To increase the service charge in line with Option 3 for Residential Quarters. This would raise the monthly charge to £326.88 (see Appendix 5).

Option four

26. To increase the service charge by an amount sufficient to contribute towards achieving the balance of savings for the Efficiency and Effectiveness Review (i.e. £500k net). This would raise the monthly service charge to £335.93 (see Appendix 6).

Timing

27. All residents are entitled to one month’s notice of any increase. If the review is to be implemented on 1 April 2003, the latest date for serving notice is 1 March 2003.

Consultation

28. -The Federation has been consulted and their comments are:

“The Metropolitan Police Federation is keen to point out the benefits of affordable housing to new recruits to the service as a very good aid to recruitment and retention. Consequently, whilst we recognise the potential for an increase in revenue to the MPS/MPA we would argue that any rise in rent for both housing and section house accommodation should be minimal.”

“Therefore, of the options outlined within this paper we would favour option 1 in relation to houses to increase rent in line with the budget provision (average 1.8%) and option 1 in relation to section house accommodation to increase the service charge by the budget provision of 1.8% which will raise the monthly charge to £328.81.”

C. Equality and diversity implications

1. There are no equality and diversity implications arising from the issues in this report.

D. Financial implications

1. It is noted that certain of the options put forward for consideration will not deliver the balance of savings identified within the Efficiency and Effectiveness Review. The position is improved by increased demand for residential quarters and additional recruits reducing the number of section house vacancies. However, should the approved increase in rent/service charge not deliver the required level of savings, deliberations will take place with Finance Services' colleagues on how the shortfall will be found.

Residential quarters:

2. The budget for 2003/04 made provision for a rent increase of 1.8% effective from April 2003. This would raise rental income by £89.8k to a total of £872.2k per annum. There will be a corresponding increase or reduction depending upon any other option that is approved.

3. Appendix 7 is a schedule of all options. It shows the proposed new MPA standard rents together with the budgetary implications for a full year.

4. In addition demand for quarters has increased since the budget was prepared in June 2002. The current forecast shows demand rising above the trend level that was known when budgets were prepared in June 2002. The increased demand will raise rental income. In a full year an additional £277k, at current rent levels, may be received.

5. However, regardless of changes in demand rental income will be affected by the loss of income from those tenancies that are subject to the ‘right to buy’ legislation. Currently 38 sales are with solicitors and if these complete the resultant drop in income will be £154k. If all 77 eligible ‘right to buy’ applicants purchase the total reduction in annual income will exceed £300k (at 2002 rent levels) – but this scenario is not expected to occur.

Section houses:

6. The proposed budget for 2003/04 makes provision for an increase of 1.8%. It would raise income by £57k per annum and produce a service charge of £328.81 per month.

7. Appendix 7 is a schedule of all noted options. It shows the proposed MPA standard service charge together with the budgetary implications for a full year.

8. On average over the last 6 months demand has been approximately 11% below capacity. Consistently higher recruitment levels in 2003 and beyond could use up this spare capacity. The number of residents who vacate SH rooms each month exceeded the trend for most of 2002. These ‘unplanned’ vacancies helped ensure that allocations to recruits could be met on demand.

9. After an allowance for a small number of rooms to be unavailable at any time for repair, the additional income arising from the current under capacity could amount to a further £210k in a full year at the current level of service charge.

E. Background papers

• Research 55 - Source Guide to Local Rents – parts I & II cross tenure rents and social landlord rents; published by The Housing Corporation.

F. Contact details

Report author: Mr A Croney, Director of Property Services, MPS.

For more information contact:

MPA general: 020 7202 0202
Media enquiries: 020 7202 0217/18

Appendix 1

Briefing note giving historic background information on the structure of MPA residential rents and service charge

Rents on residential quarters

Accommodation charges were introduced in September 1994 for post-Sheehy officers living in MPA residential accommodation. Rents are charged for residential quarters and a service charge for section house rooms.

The residential charges are reviewed annually against changes in other rent levels and budget provision. Any changes are introduced after giving residents a minimum notice of one month (effective on the 1st of any month). Annual increases have previously been aligned with movements in average housing association rent levels across London, based on information produced on behalf of the Housing Corporation.

The rent structure is linked with a property’s Council Tax Band. Our standard accommodation comprises a three bedroom flat in Council Tax Band D. A standard rent for quarters is determined by reference to the average housing association rent for comparable accommodation in those London Boroughs where the MPA has quarters. Rents for houses in Council Tax Band D are 20% higher than for similar sized accommodation in blocks of flats. This comparison produces a series of base rents for all types of quarters in Council Tax Band D.

The MPA base rents are applied to quarters in other Council Tax Bands in the same statutory ratio that defines all Council Tax Bands.

Service charge on section house rooms

Traditionally the Section House increase has been linked to the rise agreed for Residential Quarters. This may not be appropriate any longer, if the rents on Residential Quarters reflect other cost comparables or are subject to different demand pressures.

Appendix 2

Residential quarters - rents 1 April 2002

Increase: 4.47%

Section house service charge 1 April 2002

Increase: 4.47%

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