Private rented housing condition standards: consultation assessment (part two)

2. Purpose And Intended Effect

Background

The Scottish Government's housing vision is for all people in Scotland to live in high quality sustainable homes. The vision for warm, high quality, affordable, low carbon homes is set out in the Sustainable Housing Strategy and a manifesto commitment promised to consult on a national standard for private rented homes to ensure a good basic standard of accommodation.

The private rented sector has grown significantly as a proportion of all housing since 2000. The most recent estimate is that there are 350,000 private rented homes in Scotland.

(Scottish Household Survey (2015) - Households by Tenure and Year) ^[1]

In general, owner occupiers are in a better position to make informed decisions about the condition of their homes. It is reasonable for people living in rented accommodation to expect that housing standards ensure their homes are fit for human habitation and do not pose health risks. The Scottish Housing Quality Standard ( SHQS) applies to houses rented by social landlords (local authorities and registered social landlords) and the Repairing Standard applies to houses rented by private landlords.

Objective

Responses to the Scottish Government's previous consultation on the sustainable housing strategy (Homes That Don't Cost the Earth) supported changes to rented standards. Respondents, particularly local authorities, were also concerned about the practicalities of enforcement and there were concerns about the possible impact on the supply of private rented housing, which could further increase the demand for social housing. Some stakeholders also identified safety issues that should be part of a rented housing standard, in addition to the physical condition and energy efficiency of homes.

The Scottish Government set up a Common Housing Quality Standard ( CHQS) Forum in 2015. The aim of the Forum was to enable discussion with and between stakeholders on key issues affecting house condition to inform recommendations by the Scottish Government for changes to housing standards. Papers from the forum are published online /publications/common-housing-quality-standard-topic-papers/

Scottish Ministers made a Manifesto commitment to consult on a national standard for private rented homes to ensure a good basic standard of accommodation. The changes proposed to the repairing standard in this consultation are intended to meet that commitment.

Taking account of CHQS Forum members' responses, it has been concluded that the best way forward is to consult in two phases. The first stage ( this consultation ) will consult on proposals to make changes to the repairing standard, some of which will bring in elements that are currently in the Scottish Housing Quality Standard ( SHQS). Other proposed changes as outlined in the consultation document include additional safety elements. Consideration will also be given to the repairing standard being extended to include some other lets such as agricultural tenancies and will look at costs, timing and enforcement. The second stage (provisionally later in 2017) will go further and consult on condition issues affecting housing generally, across all tenures.

Changes to the repairing standard will help reduce levels of disrepair in Scotland's private rented housing stock. It will contribute to the Scottish Government's Safer and Stronger Strategic objective and will impact on the National Outcome:

• We live in well-designed, sustainable places where we are able to access the amenities and services we need.

Improving the condition of private rented homes in Scotland including the energy efficiency proposals outlined in part one of this consultation, will have wider positive impacts. It will contribute towards achieving the Climate Change target to reduce greenhouse gas emissions by 42% by 2020 and 80% by 2050. It will also be in line with RPP2 proposals and help reduce the number of families living in fuel poverty.

It is of course recognised that some elements currently in the repairing standard are not in SHQS, specifically those around safety relating to electricity, fires and carbon monoxide requirements. Although these elements are not included in SHQS, the Scottish Government believes that most social housing will already comply with them. Some additional safety elements as outlined in the consultation document are not currently required by SHQS and the intention is that this will be taken forward through engagement with the sector after the current review of the Energy Efficiency Standard for Social Housing ( EESSH) is complete.

Rationale for Government intervention

Misaligned Incentives

The cost of improving Private Rented properties falls on landlords, while the benefits of these improvements ( e.g. improved health, decreased fuel bills, and improved comfort) are received by tenants. In a theoretical, perfectly functioning rental market, rent levels would fully reflect the quality of a property, thus aligning the incentives faced by landlords and tenants However, due to the presence of market failures, such as imperfect information, the quality of rental properties may not be fully reflected in the rent charged on them. Government regulation by increasing the minimum standard for rental properties will help to mitigate the problems caused to tenants by these misaligned incentives.

Imperfect Information

While poor housing standards can have negative impacts on occupants, a lack of information can make it difficult for tenants to make informed decisions about their housing options. One issue may be that landlords are likely to have more information about the quality of a property, perhaps due to some complex quality issues not being clear to tenants on first inspection when deciding which property to rent, or due to landlords having greater opportunity to understand quality issues, e.g. because they are responsible for undertaking repairs and maintenance, and will therefore be better placed than the tenant to know the quality of the materials and labour used. The relatively short length of tenure in the PRS increases this imbalance between the tenants' and landlords' knowledge about the condition of a property.

There is also evidence to show that the source of information can heavily influence the weight given to this information during a decision making process. ^[2] For example, research has found that receiving information from a trusted source is valuable to those considering energy efficiency improvements. ^[3] Given this issue of imperfect information, government regulation backed by enforcement measures may help to provide tenants with greater confidence that any dwelling they rent will meet certain minimum standards, thus improving the functioning of the private rented sector.

Failures of Rationality

Empirical evidence suggests that people can have particular difficulties of weighing up the impact of factors which are spread over time. In the case of housing quality, the costs of improving quality are borne upfront while the benefits of undertaking these improvements ( e.g. decreased maintenance costs, improvements to tenants health etc) will be spread over a longer future time period. This issue adds to the complexity of the calculation which landlords must make in order to decide whether it is worthwhile undertaking improvements; and this complexity may lead landlords to incorrectly conclude that undertaking improvements is not an optimal decision.

Equity Impacts

Scottish Government figures show that 33% of those living in the private rented sector are in poverty after housing costs (compared to 35% of those in the social rented sector), which indicates that minimum standards to protect vulnerable households are as important in the private rented as in the social rented sector ^[4] . Furthermore, the CHQS Forum identified the importance of consistency between standards as they apply to social and private let properties, particularly as the lack of a common standard can be an obstacle in organising repair and maintenance in mixed-tenure buildings. As a first step the Scottish Government is proceeding to consult on proposals for changes to the repairing standard to ensure tenants living in private lets enjoy the same standard of accommodation as those in social let properties. In the longer term, consideration will be given to wider standards being developed to apply across all tenures.

Health Impacts

A Scottish Government research report found that a wealth of studies have consistently documented statistically significant associations between poor housing conditions and poor health and that improvements to housing conditions can positively impact both physical and mental health. ^[5]