Agenda item

Housing Revenue Account (HRA) Plan, Rent Setting and Service Charges 2026-27

Report from Strategic Director for Adult Care, Housing and Public Health

Recommendations

1. Approve the proposed 2026/27 HRA Business Plan.

2. Note that the Business Plan will be reviewed annually to provide an updated financial position.

3. Agree that Council dwelling rents are increased by 4.8% and, dependent upon the Government announcement in January 2026, implement a policy of rent convergence. Allowing rents for social housing properties that are currently below the Government-calculated formula rent to increase by an additional £2 per week in 2026/27. If convergence is capped below £2 that will be the level applied.

4. Agree that the Council should retain the policy of realigning rents on properties at below formula rent to the formula rent level when the property is re-let to a new tenant.

5. Agree that affordable rents are calculated at relet, based on an individual property valuation.

6. Agree that affordable rents are increased by 4.8% in 2026/27.

7. Agree that shared ownership rents are increased by 5% in 2026/27.

8. Agree that charges for communal facilities, parking spaces, cooking gas and use of laundry facilities are increased by 3% in 2026/27.

9. Agree that charges for garages are increased by 10% in 2026/27.

10. Agree that the District Heating unit charge per kWh remains at 13.09 pence per kWh.

11. Agree that the decision to reduce the price of District Heating Charges during 2026/27 be delegated to the Assistant Director of Housing in conjunction with the Assistant Director of Financial Services following consultation with the Cabinet Member for Housing. The delegation would only be used to respond to a change in Government policy or a significant change in the Ofgem price cap that has the effect of a lower unit price.

12. Approve the draft Housing Revenue Account budget for 2026/27 as shown in Appendix 8.

Minutes:

At the Chair’s invitation the Cabinet Member for Housing introduced the report highlighting the starting premise was that everyone deserved a safe, warm home, and the aim was to be the best social housing provider.

The HRA was ring-fenced and self-funding, with no reliance on council tax. It covered all housing-related costs, including repairs, maintenance, property upgrades (e.g., kitchens, bathrooms, roofs), new builds, acquisitions, and housing and neighbourhood support services.

Historically, rents were kept as low as possible, but the service faced increasing challenges and regulatory requirements, alongside ambitions to maintain high standards. Recent and upcoming changes included Awaab's Law (damp and mould management), stock condition surveys (for compliance and quality assurance), and minimum energy efficiency ratings (C), which would be costly. Future changes under the Decent Homes Standard were anticipated but unclear.

The team planned to present proposals on rent, rent convergence, garage rents, and fees. The Chair then handed over to the housing team for the presentation.

The Assistant Director of Housing and the Head of Housing Income and Support Services ran through the presentation. Before presenting proposals, additional background was provided on the Housing Revenue Account (HRA). As noted, the HRA was a self-financing, ring-fenced account funded by rents, used for repairs, maintenance, and investment in housing stock. The HRA business plan was reviewed annually to ensure 30-year viability, which had become increasingly difficult due to significant pressures.

Risks were highlighted: both locally and nationally, the HRA had been under pressure for several years. Key factors included increased regulatory requirements, such as the Social Housing Regulation Act, fire safety changes, and Awaab's Law which were not anticipated when self-financing was introduced in 2012. Self-financing meant no government subsidy; income was limited to rent collected. This created challenges in balancing investment in existing stock (a priority) against new stock. Economic pressures, including inflation and rent increases not keeping pace with costs, further compounding the situation.

Further background was provided on pressures facing the HRA. While compliance with legal and regulatory requirements was clear, upcoming government announcements were expected to add further pressure. Consultation on changes to the Decent Homes Standard was ongoing; costs would remain unclear until details were confirmed.

Locally, investment continued in both existing stock and new builds, supported by borrowing. Internal challenges included securing a new repairs and maintenance contract, expected to cost more, and the completion of stock condition surveys on all 19,000 properties to enable a shift from responsive to planned repairs.

Nationally, Rotherham participated in lobbying for greater HRA support and flexibility. Government responses included a longer-term rent settlement, changes to Right to Buy eligibility, and funding announcements, £39 million nationally for new homes over 10 years, with £700 million allocated to the South Yorkshire Mayoral Combined Authority area. However, clarity was still awaited on self-financing, energy efficiency, low-carbon requirements, and Decent Homes 2 standards.

Significant risks and costs were highlighted for the HRA due to the upcoming regulations. Funding these pressures would rely solely on rental income, as the HRA was self-financing. The Government’s proposals on rent convergence remained under consultation, with decisions deferred from November to January 2026. Many of the Council’s proposals were based on the assumption that rent convergence would proceed.

Rent convergence aimed to ensure tenants in similar properties paid the same rent. Currently, long-standing tenants often paid less than new tenants, who were charged at the government-set formula rent. Government proposals allowed for additional increases of either £1 or £2 per week (excluding inflation), meaning convergence would take eight years at £1 per week or four years at £2 per week to take full effect. Around 3,000 tenants already paid formula rent.

A comparison of proposed rents (including a 4.8% increase plus £2 convergence) against private sector rents showed social rents remained significantly lower across all property sizes.

The options for rent increases were outlined. The first option, CPI + 1%, aligned with the government’s social rent formula and would generate approximately £4.1 million additional income for the HRA. This could fund, for example, 780 kitchen replacements, 1,400 bathrooms, 21 home acquisitions, or 12 new builds.

The second option, CPI + 1% plus £1 per week convergence, would generate around £4.9 million, while the third option, CPI + 1% plus £2 per week convergence, would generate approximately £5.6 million. A summary table in the report compared potential outcomes for each option.

Rent convergence would also support the continuation of the housing growth programme, enabling an extension of the current 1,000-homes build by an additional 500 units through to 2037–38. Factoring in Right to Buy restrictions, this would result in a net increase of around 300 homes.

The impact of the proposals on tenants was considered. Of 19,500 tenancies, approximately 15,000 received housing benefit or universal credit, meaning rent increases would be covered in full or part. Around 4,500 tenancies without benefits would be directly affected, though analysis indicated minimal financial impact in most cases, even with the highest increase. Recent changes to child benefit caps were expected to improve affordability further. Around 15% of tenants already paid formula rent due to existing policy.

Support packages were highlighted, including tenancy support services offering wraparound assistance for tenants at risk of losing their homes due to financial or other crises. Additional tenant support services were outlined. These included the Money and Benefit Advice Service, assisting thousands annually to access entitled benefits; a Benefit Advisory Service via Age UK for pension-age tenants; and support for Discretionary Housing Payments through the Revenues and Benefits Service.

For working tenants, the Employment Support Programme provided help with job access, training, and coaching to improve financial stability. The RMBC Household Support Fund offered assistance such as free school meals during holidays and an Energy Crisis Support Fund, granting £250 to residents with less than £150 disposable income per month.

Rent increase impacts were summarised: at £2 per week convergence, the average rent would rise to £101.07 per week, with differences between options ranging from £4.56 to £6.70. Modelling showed that adopting CPI + 1% plus £2 convergence would generate approximately £83 million additional income over the life of the business plan.

Significant upfront regulatory costs over the next four to five years, coinciding with completion of the 1,000 Homes Growth Programme, would create early cash flow pressures. The proposal was to borrow in the initial years to fund compliance with Awaab's Law, minimum energy efficiency standards, Decent Homes requirements, and improvements identified through stock condition surveys. Borrowing costs and minimum reserve balances were detailed in the report, with repayment planned in later years when cash flow improved.

The financial implications of rent options were summarised. Minimum reserve positions ranged from 11 years under CPI + 1% to two years under CPI + 1% plus £2 convergence. The plan proposed further investment of £213 million in housing growth, delivering 860 additional units, 360 to complete the 1,000 Homes Programme and 500 new homes by 2037-38. Significant upfront investment was also planned for existing stock to ensure homes were safe and warm, increasing average investment per unit from £45,000 to £60,000 over the 30-year plan.

Additional commitments included increasing energy efficiency investment by £24 million (to meet standards by 2030) and a 10% increase in garage rents, generating £90–95k annually to fund garage site improvements. Proposals also included:

Rent increase of 4.8% plus £2 convergence, subject to government confirmation in January; if not approved, increase would revert to CPI + 1%.
Affordable rents to increase by 4.8%, with revaluation at re-let for compliance.
Shared ownership rents to increase by 5%.
Garage rents to increase by 10%.
Furnished home charges frozen; other fees and charges up by 3%.
District heating unit rate maintained at 13.09p/kWh, keeping bills £60–£70 below forecast gas price cap.

Budget proposals included £37.7m for supervision and management (up £2.5m), with allocations for service delivery transition, repairs model review, and interim changes. Repairs and maintenance revenue was set at £30.5m, an increase of £2.9m over three years, to meet demand and address repairs identified through stock condition surveys and regulatory requirements.

Further financial details were provided. An additional £2.9m per year was allocated to cover rising costs and regulatory requirements, retained from 2029-30 onwards to offset anticipated increases when the repairs contract was renewed in 2030. A further £1.2m was added for planned repairs and £200k for estate caretaking to meet service demand.

On the capital side, the housing delivery programme budget was increased by £230m, continuing new home development through to 2037-38. Repairs and maintenance capital investment was significantly increased, raising average investment per unit from £45,000 to £60,000 over 30 years, totalling approximately £1.3bn. Energy efficiency investment was increased to £41m to achieve EPC Band C by 2030. A further £13.2m was allocated to improve district heating system networks from 2028–29 onwards, aiming to enhance efficiency and reduce tenant bills.

The Chair invited members of the Overview and Scrutiny Management Board (OSMB) to raise questions and queries.

Councillor A Carter asked for clarification on the £1.2 billion investment in existing housing stock referenced in the presentation. He queried whether this related to Awaab's Law and energy efficiency requirements and requested details on the anticipated overall costs for Awaab's Law compliance and energy rating improvements.

In response, officers confirmed that Awaab's Law would initially result in increased revenue spend, with £2.9m per year added to the repairs and maintenance budget to part-fund these costs. For energy performance improvements, £41m was included in the plan to enhance thermal comfort and make auxiliary upgrades such as LED lighting. The larger £1.2bn investment related to stock condition survey outcomes, ensuring significant upgrades which included aspects such as kitchens, bathrooms, re-roofing, re-pointing, and new heating systems. This increase aimed to raise the average investment per unit from £45,000 to £60,000 over the 30-year plan, delivering safe, warm, and secure homes.

In a Supplementary Question, Councillor A Carter asked if the £2.9m allocation was specifically to part-fund legal changes under Awaab's Law and whether this implied that properties did not currently meet damp prevention criteria.

The Head of Housing Income and Support Services confirmed that the £2.9m was to enable the service to meet new regulatory standards under Awaab's Law, which required hazards such as damp and mould to be addressed within strict timelines, sometimes within 24 hours. This significantly increased service and contractor costs to mobilise immediate repairs. Historically, such issues could be addressed within 28 days; now urgent cases must be resolved within one day.

In response to a question from the Chair, the Head of Housing Income and Support Services reiterated that severe damp or mould cases now required action within 24 hours, compared to previous 28-day timescales, driving higher costs. The Cabinet Member for Housing added that the service would triage cases using photographs submitted by tenants, with response times depending on severity. The stock condition surveys were ongoing, and while initial results on issues of damp and mould findings were positive, only a small proportion of surveys had been completed, so assumptions were limited. The £2.8 - £2.9m allocation was based on current estimates but could vary depending on survey findings. It was clarified that costs included not only treatment (e.g., spraying walls) but also preventative measures such as installing ventilation and bathroom fans.

Councillor Blackham referred to Appendix 3 on HRA reserve levels and queried how the figures had been calculated. He noted that while the graph showed a logical correlation between rent increases and reserve levels, the paper did not explain the methodology. He stressed that, given the major capital programme and borrowing requirements, the integrity of reserve level calculations was fundamental to the business plan through 2030 and beyond and requested clarification on the calculation process.

The Head of Housing Income and Support Services explained that under HRA regulations there was no prescribed minimum reserve level. The Council was moving to a risk-based reserve approach, identifying potential risks to ensure sufficient funding at property level. Current reserve levels shown in the plan increased significantly toward the end of the period, but these were not expected to remain at that level once additional regulatory costs, such as Decent Homes 2 and minimum energy efficiency standards, were confirmed. Reserves would likely reduce when the plan was refreshed next year, once the full scope of required work was understood.

In his supplementary question Councillor Blackham requested that the calculations used to determine the reserve levels shown in Appendix 3 be shared at a later date, noting the importance of understanding the methodology given the major capital programme and borrowing requirements. It was confirmed that this information could be shared after the meeting.

Councillor Brent asked for clarification on whether the proposals included both a one-year rent increase and longer-term projections for rent convergence and formula funding over four years.

The Head of Housing Income and Support Services confirmed that the funding projection related to rent convergence, which could run for up to 10 years under government proposals. Final details would depend on the government announcement expected in January 2026.

It was noted that rent increases would be reviewed again next year. The model for Mrs. Smith’s house and Mrs. Jones’s property showed a figure of 108. The inflationary impact on rent increases was acknowledged, and the four-year convergence projection was questioned in light of inflation. In response, inflation was confirmed as being built into the plan. Convergence was noted as being separate from inflation. It was explained that rents would still increase annually by CPI plus 1%, if agreed by the council. The £8 difference between £100 and £108 would only reduce gradually by adding £1–£2 per week, as both rents increased at the same inflation rate. It was confirmed that inflation would affect the four-year convergence rate. The £2 adjustment was intended to apply for four years to support convergence, while rents would also rise annually by CPI plus 1%, subject to council decision. The inflation level would vary each year based on CPI.

Councillor Harper noted that discussions often focused on the 76% of tenants who did not pay all their rent, while the 24% who paid in full were sometimes overlooked. A request was made for a profile of this 24% to understand how close they were to requiring support. Concern was raised that tenants on affordable rent who had not yet moved to formula rent faced an increase of around £30 per month, which could push more tenants into arrears next year.

It was acknowledged that, unlike national government, the council did not have access to HMRC data for impact assessments. Affordability checks were confirmed as being carried out at tenancy sign-up, but ongoing income changes were not monitored, and tenants typically came to attention only when claiming benefits. It was reported that 3,000 tenants were already on formula rent, representing about 15%, and clarification was sought on what proportion of these paid in full. It was also noted that rent cards did not indicate whether tenants were on formula or affordable rent. The proposal had already been publicised on the BBC website and in the Advertiser, meaning residents were likely aware of potential changes. It was highlighted that £2 of the proposed adjustment depended on national government policy. A request was made for data on the 24% who paid in full, specifically how close they were to needing benefits as a result of the £30 monthly increase.

In response it was reported that of the 3,000 tenants paying formula rent, around 640 paid the full amount themselves. An affordability overview based on different household circumstances had been included in the report appendices, with further analysis to be provided after the meeting showing average rent increases by ward and property type to illustrate the impact of convergence. Appendix 5 contained the relevant details. It was noted that a clear communications plan was essential to ensure residents understood their rent type and whether convergence applied. Once tenants reached convergence, they would only pay the additional £1 or £2 until alignment was achieved, and this could be reviewed again next year. It was highlighted that delaying convergence would widen the gap and affect the sustainability of the HRA, as rental income would be lost each year. Previous rent reductions of 1% over four years and capped inflation increases had left the business plan behind target, and these shortfalls had not been recovered. The long-term impact of decisions on the HRA was emphasised.

The Cabinet member for Housing responded to Councillor Harper’s point regarding income data, confirming that the Council had no way of knowing tenants’ earnings if they were not on benefits, as it did not have access to salary records.

Councillor Harper queried the year the council began automatically moving tenants to formula rent and whether tenants could determine this based on their tenancy start date. The Head of Housing Income and Support Services confirmed they would provide clarification after the meeting on when the transition to rent convergence began.

Councillor Monk noted that the HRA faced significant demands, making it difficult to determine the highest priority at present. It was questioned how priorities would be managed between acquiring new homes, meeting the Decent Homes Standard, and improving energy efficiency if costs continued to rise, as had been seen over the past five years, particularly in building and maintenance. The Head of Housing Income and Support Services noted that regulatory requirements would take priority. The team confirmed that stress testing was carried out on the approved business plan to identify the inflation point at which it would fail. From this, contingency actions were developed to restore balance and ensure delivery of all mandatory requirements. Existing stock remained a priority, and proposals under Decent Homes 2 were expected to incorporate minimum energy efficiency standards. Once these requirements were clarified, the programme could be planned to move from individual damp and mould repairs to capital investment works that would bring properties up to standard.

A question was raised, by Councillor Keenan, about the robustness of support packages, particularly RMBC Money and Benefits services. It was asked whether support was provided beyond online channels, such as through roadshows or in libraries, to ensure accessibility for disadvantaged and working households. Clarification was sought on whether physical staff were available at locations such as GP surgeries, dentists, and colleges to assist young people with applications and provide advice.

In response it was reported that the wider financial inclusion team, including tenancy support and money and benefits advice, provided home visits where necessary and continued support until families or individuals were stable or referred to other agencies for issues such as addiction or mental health. The wider service offer was primarily online, but a telephone call-back and home visit option were available for those unable to access services digitally. Previous community drop-in sessions in libraries and centres had low uptake despite extensive promotion, but the council was willing to trial similar services again. It was emphasised that the aim was early intervention rather than crisis response, using data analytics to predict arrears and proactively offer support.

Clarification was sought by Councillor Blackham on Appendix 9 regarding whether the right-hand column showing surplus or deficit carried forward was being treated as a reserve. It was confirmed that while this was not technically a balance sheet reserve, it could become one. A question was raised about whether the calculation accounted for recent issues where new social housing had been written down in balance sheet value because it was classified as social housing.

It was confirmed that the capital asset value was discounted due to being social housing. Councillor Blackham noted that the surplus shown was not a true balance sheet reserve but a potential income surplus, and highlighted that the plan did not show the full balance sheet position, including assets, liabilities, and potential write-offs, to indicate a long-term reserve. The Head of Housing Income and Support Services acknowledged this and stated that work was underway with corporate finance colleagues to establish a risk-based reserve position during the financial year. They offered to seek confirmation from the treasury management team on the calculation after the meeting.

A question was raised by Councillor Monk about stock condition surveys and whether there was overlap between repairs identified through surveys and those reported by tenants. Clarification was sought on whether surveys focused solely on large capital projects, and whether any overlap could be used to optimise contractor activity by encouraging early resident reporting.

It was confirmed that there was an opportunity to raise awareness through stock condition survey letters, reminding tenants to report existing repairs when appointments were booked. The importance of prompt reporting was emphasised to prevent issues from worsening and to avoid higher costs, as well as ensuring tenants did not live in damp or cold homes. It was noted that any hazards identified during surveys were addressed immediately rather than scheduled, with Category 2 hazards assessed under the Housing Health and Safety Rating System. Surveys also included EPC assessments, enabling data-driven investment planning. This approach would allow for more efficient capital programmes rather than isolated repairs.

A question was raised by Councillor Bacon about the use of the Retail Price Index in calculating shared ownership rent and why a different formula applied. Clarification was sought on whether there were plans to phase out this approach by the end of the decade, as the report did not explain the rationale. It was confirmed that shared ownership rents were dictated by grant conditions. The Head of Housing Income and Support Services stated they would confirm after the meeting whether plans existed to phase out the use of RPI by the end of the decade. Councillor Bacon noted that RPI traditionally produced higher figures and referenced a previous paper suggesting its removal due to being outdated. The Head of Housing Income and Support Services agreed to provide a response following the meeting.

In response to a question from Councillor Tinsley about whether rental convergence for tenants in receipt of housing benefit was covered through government funding, it was confirmed that it was.

Councillor Harper noted that the report contained issues likely to affect a particular estate represented by the speaker. Decent Homes 2 was identified as a current risk with associated costs being factored in. Concerns were raised about Heat Network Regulations and billing performance: tenants previously assured that council billing would improve over Land 10’s system reported delays (e.g., missing October bills followed by three bills issued in December), which was recognised as challenging for families in the current climate. Reference was made to “hard?to?heat” homes under Decent Homes 2, where costs could exceed £10,000 due to poor insulation and fixed?ceiling construction; clarification was requested on whether some properties might exceed £10,000 and what would happen to those that did in meeting EPC C.

It was reported that heat network studies were underway on district heating systems to inform future investment programmes. Significant energy efficiency issues were noted in some properties, and the council aimed to maximise use of available grant funding, such as Warmer Homes and social housing grants, alongside HRA resources. Clarity was still awaited on minimum energy efficiency standards and their link to Decent Homes requirements. It was stressed that the council would not exclude homes requiring over £10,000 of work, as this was not considered an appropriate response. Programmes for the Fitzwilliam estate, including new windows, were mentioned, and completion of heat network studies was identified as essential to determine solutions aligned with energy efficiency standards and decency works.

The Chair moved to a vote for those in favour of supporting the recommendations within the report. Two members of the Board voted against this proposal with ten members voting in favour, therefore the proposed recommendations were supported.

Resolved: That the Overview and Scrutiny Management Board supported the recommendations that Cabinet recommends to Council to:

Approve the proposed 2026/27 HRA Business Plan.