Consultation on a New Tenancy for the Private Sector: Analysis of Consultation Responses

4 Rent Levels

4.1 The consultation also asked three open questions about rent levels. The consultation paper notes that rent setting currently forms part of the existing assured tenancy system, and hence it seems sensible to consider rent setting and how this might work with the proposed new system.

Question 11a: What are your views on rent levels in the private rented sector in Scotland?

4.2 A total of 522 non-campaign respondents answered this question, and the text from Campaigns 1 and 2 also included a relevant comment. Comments varied in both length and focus, with some commenting on Scotland and/or the market as a whole, and others commenting on a particular area or part of the market with which they are familiar.

4.3 A number of respondents noted that rents are market-led and will determine their own level based on supply and demand. This was the most frequently raised issue by some degree, with around 1 out of 2 who commented making this point. Individuals, industry bodies, landlords, legal bodies and letting agents were particularly likely to have highlighted this issue and a number went on to note that this market-led approach should continue.

4.4 Some landlord and letting agent respondents commented on their own rent review policy, frequently reporting that they review rent levels on an annual basis to ensure they are in line with current market levels, and that a landlord cannot charge more than someone is prepared to pay. Respondents also noted that market level is not only a function of demand but also of property prices and associated mortgage costs.

4.5 The wider issue of supply of affordable housing was also raised and it was suggested that availability of good quality, affordable housing is an issue across much, or the whole of Scotland. Others highlighted the challenges that undersupply can create for local authorities seeking to comply with their obligations under homelessness legislation. Concerns of this type led some to conclude that increasing supply (both within the private rented sector but also more widely), will be key to achieving affordability.

4.6 Other general comments made about private rented sector rent levels included that there are significant variations across Scotland including at an area level. Local authority respondents were particularly likely to note these variations.

4.7 Other points raised or views expressed included:

• Rent levels are acceptable, reasonable, adequate or fair. Around 1 out of 6 of those commenting made this point; letting agents and individual respondents were most likely to say this.
• Rent levels have not, in the main, increased beyond levels of inflation or at a rate that exceeded that for the social rented sector. It was noted, for example, that rents increased at an average of less than 1% per year from 2008-13. Some of those raising this issue expressed some frustration that information about market 'hot spots', such as Aberdeen, can sometimes be used to suggest rents across the country are rising at a rate that is simply not the case. Industry bodies were particularly likely to raise these issues.
• In contrast, it was reported that recent figures suggest that rents in 2014 increased by 11.7% compared to 2013, and that the gap between private and social rented sector rents continues to grow. Overall, they are generally high and in some areas extremely high, particularly compared to the social rented sector. Campaign body, tenant group and union respondents were amongst those raising this concern.

4.8 More generally, a number of respondents pointed to the complexity of the market and, in particular, the relationship between supply and demand. It was noted that in some markets (with Aberdeen, Edinburgh and rural markets tending to be cited as examples), overall demand for housing exceeds supply and this will impact on costs across both the private rented and owner occupied sectors.

4.9 A number of respondents identified areas with particularly high cost markets more generally. Suggestions included Aberdeen, Aberdeenshire, City of Edinburgh, East Lothian, Midlothian, Moray, Shetland and the West End of Glasgow. Other area-related information supplied by respondents included:

• Areas in which rent levels were identified as reasonable, including being comparable to LHA rates, included Tayside and Angus.
• Areas identified as having experienced relatively static or some falls in rent levels included Clackmannanshire, Dumfries and Galloway, Dundee, North Lanarkshire, Renfrewshire and West Dunbartonshire.

4.10 Many other respondents focused their comments on tenants' capacity to afford current or future rent levels. For example, a campaign body respondent referred to their own analysis which suggests that a household with one full-time earner on median wage would need to spend 35% of net income to rent a 2 bedroom property in a number of Scottish local authority areas.

4.11 A number of respondents highlighted the particular affordability problems those on low income and/or in receipt of LHA can have in accessing the sector. Campaign body, advice service, local authority and individual respondents were amongst those raising this issue.

4.12 It was also suggested that the levels of LHA used to calculate Housing Benefit and Universal Credit are not reflective of the market, and that the under-35, shared room rate causes particular problems. It was also suggested that LHA rate caps are too inflexible as they are set for too wide an area; specific examples given were in relation to the 'Lothian' rate applying to the Edinburgh market and the 'Ayrshire' rate applying to South Ayrshire. This was a particular concern for local authority respondents.

Summary - Question 11a

A number of respondents noted that rents are market-led and will determine their own level based on supply and demand. This was the most frequently raised issue by some degree, with around 1 out of 2 who commented making this point. A number went on to note that this market-led approach should continue.

Other general comments included that there are significant variations in rent levels across Scotland including at a small area level. More generally, a number of respondents pointed to the complexity of the market and, in particular, the relationship between supply and demand. The wider issue of supply of affordable housing was also raised and it was suggested that availability of good quality, affordable housing is an issue across much, or the whole of Scotland.

Other respondents focused their comments on tenants' capacity to afford current or future rent levels with the particular affordability problems those on low income and/or in receipt of Local Housing Allowance (LHA) can have in accessing the sector.

Question 11b: What action, if any, should the Scottish Government take on rent levels in the private rented sector in Scotland?

4.13 A total of 526 non-campaign respondents made a comment at this question, and the text from all three campaigns also included a relevant comment. Overall, therefore, 2,508 respondents commented on this question.

4.14 Around 3 out of 4 respondents favoured the Scottish Government taking some form of action, including the 1,908 signatories to Campaign 3 (the Living Rent campaign), who called on the Scottish Government to bring rents under control, noted that in other countries there are laws that limit how much landlords can charge, and stated that this was the approach they wanted for Scotland.

4.15 Other suggestions tended to focus on the possibility or parameters of any 'rent control' type interventions. A small number of respondents, including both campaign body and local authority respondents, simply suggested it was appropriate to consider or begin discussions on rent setting or controls. A small number of others, including advice service respondents, stated that rent controls should be introduced. The importance of taking an approach which does not have significant negative consequences for landlords and tenants alike was highlighted, with some respondents noting the potential complexity of introducing rent controls. Local authority respondents were amongst those highlighting this issue.

4.16 Other actions which respondents suggested the Scottish Government could take included:

• Considering ways in which LHA rates could be made more sensitive to local market conditions.
• Continuing to allow the Private Rented Housing Panel and then allow the First-tier PRS Tribunal to rule on rent levels in the event of a dispute.

4.17 In recognition of the complexity of the issue and the importance of 'getting it right', some suggested that any rent regulation proposals must be subject to detailed modelling and further consultation before being introduced. It was also noted that there are good examples of rent regulation in other countries from which Scotland could learn; particular reference was made to the approach taken in the Netherlands.

4.18 Specific approaches or proposals put forward included:

• An approach which not only controls rents during a tenancy but also between tenancies. A suggested approach (as in the Netherlands) determines rents on a points system, with points given to a property based on characteristics such as size, condition, facilities and proximity to local services. Location and desirability are not taken into account. Rents can only be increased by a Government-set percentage.
• Protecting renters from unreasonable or unpredictable increases in their housing costs.
• Consider establishing bands for rent levels similar to Council Tax, with rents based on condition, standards and services of the property and the location.

4.19 Although the majority of all respondent's called for action, the analysis of further comments suggests that a clear majority of non-campaign respondents did not think the Scottish Government should take any action with regard to rent levels in the PRS. Around 2 out of 3 non-campaign respondents and those who supported Campaigns 1 and 2 made a comment which suggested the Scottish Government should take no action. More specifically, many respondents, particularly landlord, letting agent, industry body and individual respondents, simply stated that the Scottish Government should take no action, sometimes noting that it is not for Government to interfere in the market and that to do so could have significant, negative consequences.

4.20 Further reasons given for the Scottish Government not acting included that any intervention is likely to drive landlords out of the market, creating greater shortages of supply and causing rent levels to rise. Some respondents suggested that it would deter larger, institutional investors in particular. A small number of respondents also referred to the outcome of previous UK rent control interventions and suggested that the evidence points to them not working. In particular, it was noted that they stifled the market and arguably kept rent levels artificially high. Reference was also made to experience in other European countries (Denmark and France), and to recent work by the Institute of Economic Affairs which identified a range of negative consequences likely to flow from introducing mid-tenancy rent controls.

4.21 The potential complexity of introducing any form of rent control or cap was also noted, not least because of the diversity of the sector, both across different areas of Scotland and in terms of different types of property.

4.22 Another possible consequence of intervention highlighted was that landlords will be able to invest less into property maintenance, with an inevitable impact on the condition of the housing stock.

4.23 Those who opposed or made no specific reference to any intervention on rent levels sometimes suggested that the Government's focus should be on encouraging or facilitating investment in the housing sector more widely or the private rented sector specifically. Within the rural context, the example of the Rural Homes for Rent Scheme pilot was cited. It was also suggested that the focus should be on increasing supply in the social rented sector in particular. Some of those supporting some form of intervention also highlighted this need.

4.24 Some respondents pointed to the need for further information to be gathered. Suggestions included collecting and publishing rent level data, including local averages. In terms of an approach, it was suggested that consideration could be given to linking rent data collection to the landlord registration process and reports from the Scottish Rent Service.

Summary - Question 11b

Overall, 2,508 respondents commented on whether the Scottish Government should take any action on rent levels. Around 3 out of 4 respondents favoured the Scottish Government taking some form of action, including the 1,908 signatories to Campaign 3 (the Living Rent campaign), who called on the Scottish Government to bring rents under control, noted that in other countries there are laws that limit how much landlords can charge, and stated that this was the approach they wanted for Scotland.

However, the majority of non-campaign respondents did not think the Scottish Government should take any action with regard to rent levels in the PRS. Around 2 out of 3 non-campaign respondents, and those who supported Campaigns 1 and 2, made a comment which suggested the Scottish Government should take no action, sometimes noting that it is not for Government to interfere in the market and that to do so could have significant, negative consequences.

Question 11c: What rent review conditions, if any, should the new tenancy system include?

4.25 A total of 490 non-campaign respondents commented at this question, and the text from Campaigns 1 and 2 also included a relevant comment. Around 1 out of 3 respondents simply re-stated their opposition to Government intervention regarding rent levels. This group of respondents included some who noted that this should be an arrangement between the landlord and the tenant and set out in the lease.

4.26 Some respondents suggested that there is no need to make changes to the current system. Similarly, respondents frequently made reference to an annual review of some kind^[6]. This group also consisted of around 1 out of 3 of those who commented.

4.27 With regard to the basis on which rents would be reviewed or the processes which would be required, the following points were raised:

• The proposed model tenancy should contain a set mechanism or wording to ensure a consistent approach is taken and prevent potentially unfair rent review clauses being inserted.
• The annual review should have a minimum notice period. Suggested periods were 12, 8 or 4 weeks.
• The rent should be reviewed by comparison to the current market rent, the change in CPI/RPI since the last increase or based on an RPI benchmark.
• Increases should be constrained to RPI unless there has been significant investment in or refurbishment of the property.
• There should be an appeal to the PRHP or Rent Assessment Committee when parties cannot agree. More specifically, it was suggested that a tenant should be able to have their rent reviewed by an independent panel which can assess the rent according to any rent regulations in force.
• Other factors which respondents suggested could be taken into account as part of a rent review process included property condition. In particular, it was suggested that account should be taken of whether the property meets a minimum housing standard.

4.28 Other respondents commented more generally on what any rent review conditions should be aiming to achieve. For example, it was suggested that the focus should be on bringing a degree of predictability and certainty to the frequency and nature of subsequent rent increases.

4.29 Finally, as with the principle of introducing rent regulation, some respondents noted that this is a complex issue and should be considered in more detail as part of a wider review of rents and affordability in the private rented sector. Local authority respondents were particularly likely to raise this issue.

Summary - Question 11c

Around 1 out of 3 respondents simply re-stated their opposition to Government intervention regarding rent levels, with some respondents suggesting that there is no need to make changes to the current system.

The other frequently raised issue - also by around 1 out of 3 who commented - was that annual rent reviews are either current practice and/or would be an acceptable way forward.

Other respondents commented more generally on what any rent review conditions should be aiming to achieve. For example, it was suggested that the focus should be on bringing a degree of predictability and certainty to the frequency and nature of subsequent rent increases. As with the principle of introducing rent regulation, some respondents noted that this is a complex issue and should be considered in more detail as part of a wider review of rents and affordability in the private rented sector.