Last updated: 29 September 2022
On 6 September 2022, the Scottish Government announced in the Programme for Government (PFG) that emergency legislation would be introduced to implement a rent freeze for tenants in private rented and social housing, and a moratorium on evictions. As the PFG stated:
“We recognise the huge pressures the cost crisis is placing on households, and the particular issues that will be faced by many people who rent their home. Given the UK Government has not as yet provided sufficient support in response to the cost crisis, we are looking at all action we can take within devolved powers to support people in Scotland. As part of this we intend to introduce emergency legislation to protect tenants by freezing rents and imposing a moratorium on evictions until at least 31 March 2023. We also intend to act to prevent immediate rent increases.”Scottish Government, A Stronger and More Resilient Scotland, The Programme for Government 2022-23
SPICe has received enquiries relating to this announcement. At the time of writing, we don’t have any further detail than that contained in the PFG.
The Cost of Living (Protection of Tenants) (Scotland) Bill, containing the rent freeze measures, is planned to be introduced in the Scottish Parliament on Tuesday 4 October. The Stage 1 debate focussing on the general principles of the Bill will take place in the Chamber on the afternoon of 4 October with the Stage 2 detailed amendments being considered on Wednesday 5 October and the final Stage 3 debate on Thursday 6 October. The Bill will be available on the Scottish Parliament’s Bills webpage. We will update the blog after the Bill has completed its parliamentary stages.
In the meantime, this blog provides some background information on the rent freeze proposals. Another blog looks at the planned evictions moratorium.
In addition to the emergency legislation, the PFG also announced additional support for tenants including:
- a £5m increase in the Discretionary Housing Payment budget. These payments, administered by councils, can help those eligible for housing benefit or Universal Credit with their rent payments
- flexibility to use Discretionary Housing Payment for help with energy costs as well as rent payments
- extended eligibility criteria for the Tenant Grant Fund so that it can help those struggling to pay rent as a result of wider cost of living increases.
- a new tenants rights information campaign.
Below we’ve added a contents popout to help readers navigate this longer blog.
The Scottish Government’s planned rent freeze – private rented homes
What are rent levels in private rented housing and how have they increased?
There are different data sources on private rents, all of which have some limitations. The Scottish Government is working to improve collection of data on private rents.
Scottish Government data shows that for a privately rented 2-bed property the national average rent during September 2021 was £693 a month. This average conceals wide geographical variations, for example, the Lothian Broad Market Rental Area (BMRA) had a substantially higher average at £942 a month, with Dumfries and Galloway BRMA lower at £477. There are 18 BRMAs in Scotland used for the purposes of setting Local Housing Allowance rates (i.e. the maximum housing costs support in Universal Credit or Housing Benefit for private tenants).
The average private rent for a 2-bed property increased by 0.6% between 2019-20 and 2020-21, which was lower than them 1.5% increase in CPI inflation over the same period.
Longer term, over the 11-year period from 2010 to 2021, average rents for a 2-bed property have shown an estimated 25.1% cumulative increase, compared to a cumulative CPI increase of 24.3%.
Again, there are wide geographical variations with four areas (Lothian, Greater Glasgow, Fife and Forth Valley) having rent increases above the level of CPI inflation. Lothian (41.7%) and Greater Glasgow (41.4%) have seen particularly large increases. For the remaining areas of Scotland, cumulative increases have been below CPI inflation and have ranged from 1.0% in Aberdeen and Shire to 24.0% in East Dunbartonshire.
More recent Citylets data from Q1 2022 confirms a higher annual increase in Scottish rents of 9.9%, with monthly rents reaching an all-time high (for all property sizes) of £970 a month. Annual increases in Edinburgh and Dundee were around 15%.
Both the above datasets are largely based on advertised rents, so they won’t cover rents of existing tenancies. The ONS Private rental index, which does make an allowance for rent changes in existing lets, but only provides data at a Scotland wide level, shows that rental prices in Scotland grew by 3.6% in the 12 months to August 2022.
On the other hand, some landlords may only increase the rent for new tenants after a tenancy has ended. The Nationwide Foundation’s Rent Better research project reported findings from both waves of its research which showed that many tenants rent had stayed the same since they moved in. Landlords interviewed “provided a sense that they wanted to keep ‘good’ tenants and so not putting up rents helped to keep them”.
Without consistent data, it’s difficult to get a picture of what is happening to in-tenancy rent rises in different parts of Scotland.
High rent costs put a financial strain on some households
Despite the limitations of existing rental data, it remains the case that housing costs are a relatively large proportion of an average household’s expenditure.
Although low-income tenants may be eligible for the housing element of Universal Credit to support housing costs the Local Housing Allowance (used to determine maximum rental support) won’t always cover the full rent.
Low-income households are also more likely to be paying a higher proportion of their income on rent.
The Scottish Government’s consultation paper on A New Deal for Tenants noted that over the period 2017-20, private rented sector households in the lowest income quintile (i.e. the 20% of households with the lowest income) were paying an average of almost half (47%) of their household income on housing costs, compared to only 17% for private rented sector households in the highest income quintile (i.e. the 20% of households with the highest income).
The Rent Better research also found that people on lower incomes are more likely to be paying a higher proportion of their income on rent and struggling with affordability challenges. Research participants, “described living from month to month and being careful or doing without. Single mothers, families and pensioners emerged as especially struggling.”
Other research has highlighted that for some landlords, rental income is the primary source of their income. Private landlords could be affected by the recent cost crisis, for example, by having to pay increased bills for repair and maintenance, or by making increased mortgage payments on buy to let properties following interest rate rises. This may put pressure on landlords to increase their rents to cover their costs.
What are the current rules on rent increases in private rented housing?
The rules on rent increases depends on the type of tenancy in place. Since 1 December 2017, new tenancies will be a private residential tenancy governed by the Private Housing (Tenancies) (Scotland) Act 2016. The most common other type of tenancy is the short assured tenancy governed by the Housing (Scotland) Act 1988.
Shelter Scotland has a useful tenancy checker for anyone unsure about their tenancy agreement.
For the private residential tenancy:
- Landlords can only increase the rent once in every 12 months after having given the tenant at least three months’ notice.
- Tenants can challenge the rent increase by applying to Rent Service Scotland for a decision on the rent by a Rent Officer. The Rent Officer will compare the proposed rent to the market rent for similar properties in the area and will decide an appropriate rent. The circumstances of the landlord or the tenant and the affordability of the rent don’t form part of the decision making process.
- A Rent Officer’s decision can be appealed to the First-tier Tribunal (Housing and Property Chamber).
- Rent pressure zones can be designated which would limit rent increases by a specified amount for existing tenants. There are no rent pressure zones at present.
One of the criticisms of the current system of rent adjudication is that Rent Officers could potentially increase the proposed rent which might put tenants off making an application. However, data on adjudications shows that to date referred rent increases are either maintained at the proposed increase or set at a level lower than the proposed rent.
For the short assured tenancy, landlords can increase the rent when they renew the tenancy agreement at the end of the fixed term. They can’t increase the rent during the fixed term. Tenants can apply to the Tribunal to challenge the rent in certain circumstances. However, there is a risk that if the Tribunal disagrees with the landlord’s decision, landlords could try to evict the tenant when the fixed term ends.
There are no restrictions on how landlords can increase the rent between tenancies.
Initial reaction to the proposals and next steps
Initial reaction to the rent freeze plans has been mixed. For example, Scottish Housing News reported a positive reaction from Age Scotland and the STUC. Tenant’s union Living Rent, who campaigned for a rent freeze, also welcomed the announcement, but await further details.
On the other hand, private landlord representative groups have not been supportive. For example, the Scottish Association of Landlords has accused the Scottish Government of attacking landlords, arguing that the supply of private rented accommodation will be negatively affected.
Some of the areas that may need to be clarified or questioned as part of the parliamentary scrutiny of the legislation include:
- The First Minister said the rent freeze would take effect immediately upon the announcement i.e. from 6 September. It’s not clear how this will work in practice. For example, a landlord who has relatively recently served a rent increase notice which has not been appealed would currently appear to still have the right to increase the rent in the absence of legislation preventing this.
- What happens if a landlord tries to increase rent when the freeze is in place.
- Whether purpose built student accommodation (PBSA) is affected. PBSA is currently excluded from the private residential tenancy regime. This generally means that PBSA tenancies are common law tenancies, regulated by the contract between landlord and renter, rather than a specific law. The Scottish Government has been recently quoted as saying that it intends to “give the same levels of protection to students in halls or other types of purpose-built accommodation” and that it is working on “how best to achieve parity of protection.”
- Whether the proposal will affect rent increases between tenancies.
- How will the Scottish Government decide what might happen after the end of March 2023.
Around 550,000 households in Scotland live in social housing. The Scottish Housing Regulator (SHR) and Chartered Institute of Housing have both highlighted the impact of the cost of living crisis on these households For example, the SHR reports that:
“Our most recent findings from the survey of the National Panel of Tenants and Service User included that 28% of tenants that responded have experienced difficulties affording their rent and other housing costs in the last year, up from the previous year but down from the level in 2020. More than 9 in 10 respondents identified energy and food costs as to the fore in terms of increased cost of living, and just over 7 in 10 were concerned about future affordability of their rent.”Scottish Housing Regulator (2022) Rent Increases by Scottish Social Landlords : A thematic review
Some tenants may be protected from the impact of any rent increase if their rent is fully covered by benefit.
What does tenants’ rent pay for?
Rent is the main source of social landlord income. That income must cover a variety of costs including:
- maintaining existing homes
- meeting required standards, such as the Energy Efficiency Standard for Social Housing
- repaying loans for building of new houses
- delivering housing services
- staff costs.
Social landlords need to make sure these costs are covered, and that they can continue to be financially viable organisations. But at the same time, rents need to be affordable to their tenants.
A recently published report from the SHR, Rent increases by Scottish social landlords: A thematic review, provides useful background information on rents.
Data in the report shows that the average weekly rent in 2021-22 was £85.36, up 1.8% from the previous year (see chart below). Planned increases for 2022-23 ranged from 0% to 6% and averaged 3%. This means all social landlords were planning a below inflation rent increase (the Consumer Price Index (CPI) was 9% when the rent increase was applied in April 2022).
Final average rent figures for 2022-23 will be confirmed by the SHR later in the year.
Each social landlord sets their own rents and decide their rent increases. This means that rents will vary between landlords.
Social landlords must comply with the outcomes and standards set out in the Scottish Social Housing Charter. This requires that:
“Social landlords manage all aspects of their businesses so that:
- tenants, owners and other customers receive services that provide continually improving value for the rent and other charges they pay.”
“Social landlords set rents and service charges in consultation with their tenants and other customers so that:
- a balance is struck between the level of services provided, the cost of the services, and how far current and prospective tenants and service users can afford them
- tenants get clear information on how rent and other money is spent, including details of any individual items of expenditure above thresholds agreed between landlords and tenants.”
The Standards of Governance and Financial Management for Registered Social Landlords (RSLs) also states that, “The RSL manages its resources to ensure its financial well-being, while maintaining rents at a level that tenants can afford to pay.”
The Housing (Scotland) Act 2001, requires landlords to consult their tenants on any proposed rent increase and to have regard to the views expressed. Normally, social landlords would consult with their tenants in the autumn/winter period for any rent rises taking effect from the following April.
Apart from the requirement to consult, legislation does not specify how social landlords should set their rent or limit possible rent increases.
While the Scottish Housing Regulator emphasises the need for social landlords to consider the affordability of their rents for their tenants it does not have any specific power to control the rent levels that social landlords can charge. Neither it, nor the Scottish Government, produce any guidance on what affordability constitutes.
A variety of different methods are used by social landlords to set their rent. For example, the Scottish Federation of Housing Associations and Housemark have developed a rent setting tool that their members can use.
The level of inflation, as measured by the CPI, has been a key measure for most landlords’ business planning and for decisions on rent levels. Given current high levels of inflation (10.1%) in the year to July 22, and the Bank of England’s expectation of inflation remaining at elevated levels throughout much of 2023, the SHR warns that:
“A period of sustained higher inflation may make the continued use of inflation as a determinant of annual rent increases difficult to sustain, particularly if inflation is likely to be at a rate that is above that of increases in tenants’ incomes.”
At the same time, social landlords are facing a range of cost pressures including increased interest rates for borrowing, increased energy costs for offices and vehicle fleets, pay increases for staff and other staff costs.
Scottish Housing Regulator, Rent increases by Scottish Social Landlords: A thematic report
- “Landlords are experiencing significant inflationary pressures in terms of staffing, maintenance and, for many, construction costs. They will also face a range of major new demands on them in the coming years such as net zero carbon commitments.
- The forthcoming annual rent setting exercise, and potentially those for some years to come, is likely to be the most difficult that landlords have faced, in which they will need to consider rising costs and inflation while recognising the financial hardship that is a reality for many of their tenants.
- The Scottish Government may need to consider what more it can do to help social landlords to keep rents affordable and to continue to deliver for current and future tenants.”
The Scottish Federation of Housing Associations (SFHA) has argued that:
“..a rent freeze in the social sector will jeopardise the Scottish government’s targets both on affordable housebuilding and energy efficiency, as well as reduce the sector’s ability to maintain existing stock to the standards required.”Inside Housing, 16 September 2022 “Scotland’s rent freeze will lead to fewer social homes, poorer-quality housing and an end to the sector’s role as a leader on decarbonisation”
As social landlords implement rent increases in April each year, there won’t be any immediate effect for tenants or social landlords following the announcement.
Further detail from the Scottish Government is needed about longer term plans and whether this might affect potential rent increases applying from April 2023 onwards.
Kate Berry, Senior Researcher, SPICe
Cover Image: SPICe