Cost of Living (Tenant Protection) (Scotland) Bill: business regulatory impact assessment

Cost of Living (Tenant Protection) (Scotland) Bill 2022

Purpose and intended effect

1. The purpose of the Cost of Living (Tenant Protection) Bill ("the Bill") is to respond to the emergency situation caused by the impact of the cost crisis on those living in the rented sector in Scotland by introducing a temporary rent freeze and a temporary moratorium on evictions, along with increased damages for unlawful evictions, until at least 31 March 2023, and with additional powers to temporarily reform rent adjudication in connection with the expiry of the rent freeze. The intended effect of the Bill is to:

1. protect tenants by stabilising their housing costs;

2. where possible, during the cost crisis, reduce impacts on the health and wellbeing of tenants caused by being evicted and/or being made homeless by giving them more time to find alternative accommodation; and

3. seek to avoid tenants being evicted from the rented sector by a landlord wanting to raise rents between tenancies during the temporary measures and reduce unlawful evictions, through the complementary measures of a moratorium on evictions and raising the level of damages that may be awarded.

As this is emergency legislation, it is intended that a reporting requirement will be included to demonstrate the need for provisions to either continue or expire, where appropriate, based on evidence at the relevant time.

Background

On 6 September the Programme for Government (PfG) committed to a suite of emergency measures in response to the cost crisis. This emergency legislation will offer protection to tenants in recognition of the particular issues that will affect people who rent their home. Households in the rented sector, especially those on lower incomes, generally pay more of their income on housing costs than owner occupiers and have less resilience to cope with financial shocks.

Further information about the background, rationale and policy intention behind the Bill is set out in the Policy Memorandum which accompanies the Bill. The Bill, Policy Memorandum and other accompanying documents are available from the Scottish Parliament website and are linked to from this Bill webpage.

It is the Scottish Government's view that the following measures will support those most vulnerable to the cost crisis through a temporary restriction on rent increases, temporary moratorium on evictions, increased temporary penalties for unlawful evictions and additional powers to temporarily reform rent adjudication.

Although the Bill aims primarily to support tenants, it is recognised that the impacts of the cost crisis may also be felt by some landlords so appropriate safeguards have been considered as part of the Bill development process and provided for within the Bill.

Objective

The over-arching objective of the Bill is to provide greater temporary support and protection to tenants during the cost crisis and are detailed above. Given the impacts of the cost crisis may also be felt by landlords, and the legislation needs to strike a balance between supporting tenants and reducing the impact of the measures on landlords. Therefore a range of appropriate safeguards have been considered as part of the Bill development process to offer protection against tenants accumulating unsustainable debts, recognise the costs associated with offering a property for rent and ensure there is a continued clear legal disincentive to tenants from choosing not to pay their rent when they can afford to do so.

Rationale for Government intervention

It is the Scottish Government's view that this emergency legislation is necessary to urgently respond to the specific circumstances of the current cost crisis to support those who rent their homes. Households living in the rental sectors have less ability than owner occupiers to respond to the cost crisis because their housing costs, relative to their incomes, tend to be higher.

It is essential that the proposed changes are delivered urgently to ensure that we achieve our aim of protecting tenants from the health and financial stress which are particularly acute as a result of the costs crisis. Any delay in bringing forward this legislation would heighten the risks for tenants and it is therefore essential that the protections are in place before the winter period given the projected significant fuel costs and the disproportionate impact this has on tenants.

The rented sectors have a higher proportion of people who are in relative poverty (39% of in social rented households and 34% in private rented households, compared to 7% in households buying with a mortgage and 14% in households who own outright), as well as children in relative poverty (47% in social rented households and 40% in private rented households are, compared to 10% in households buying with a mortgage and 18% in households who own outright).^[1]

Households in the rented sector are also more likely to be financially vulnerable^[2] (63% of social rented households and 40% of private rented households in Scotland are categorised as financially vulnerable, compared with 24% of households buying with a mortgage and 9% of households owning outright^[3]), which reduces their ability to cope with rental increases alongside other inflationary increases and financial shocks.

Students, often reliant on fixed funding streams such as bursaries, grants and loans, are also vulnerable to cost of living increases, making it more likely they will be pushed into poverty. A June 2022 NUS survey found that 92% of UK students said the cost-of-living crisis was impacting their mental health, 96% are cutting back, 68% can no longer afford course materials, and more than 1 in 10 are using food banks.^[4] This survey further confirms the challenges faced by students highlighted in a February 2022 survey undertaken by NUS Scotland, prior to the intensification of the cost of living crisis.^[5]

Despite the decision of the UK Government to introduce the Energy Price Guarantee from 1 October 2022, capping typical household energy bills at £2,500, there will be significant increases in fuel poverty rates, particularly in the private and social rented sectors, with around half of households in these sectors being in fuel poverty despite the Energy Price Guarantee.

Whilst grants and support payments in a number of forms are being provided to mitigate this^[6], these mitigations will not be sufficient to offset the impact of higher energy costs.

Households on pre-payment meters will be particularly affected by the increase in energy prices, as around 80% of annual household gas consumption falls within the winter months, and these households are unable to spread the costs over a longer period. The share of households on pre-payment meters is much higher in the private rented sector (22%) and social rented sector (43%) than in the owner occupier sector (6%). Households on pre-payment meters are more likely to be in fuel poverty than those paying by other means, with around three-fifths of households who live in the rented sectors and who have a pre-payment meter being in fuel poverty.

Households will need to use more of their income to pay their energy bills, and this impact is being felt at the same time as a large increase in other types of inflation. CPI inflation, which averaged 4% in 2021/22, has accelerated to nearly 10% in August 2022. Increases in wages and benefits are not keeping pace with the higher inflation rate, meaning that in real terms households are worse off. Households will struggle to cover non-energy related inflation, even before attempting to pay for energy bills, meaning they will either need to draw on any savings or cut back on consumption. These spending choices will be particularly challenging for households who have low or no savings.

For households who depend partly or fully on benefit income, the situation is more precarious. The Scottish Government have uprated most devolved benefits by 6% in contrast to the UK Government's 3.1%, but despite this additional protection, the spike in inflation means that the value of devolved benefits has also fallen in real terms, albeit by less than reserved benefits.

Students renting college and university and PBSA accommodation did not receive the £400 energy support and will not be eligible for the household energy price cap. Energy cost increases may be passed onto students and although students are eligible for support from other routes such as through hardship funds, these are already under significant pressure^[7]. There is no uniform contract across all providers and not all providers of student accommodation are members of bodies where they agree to meet certain minimum standards . If there is no intervention, landlords may pass on these costs to their tenants where the contract allows.

Figures from the ONS Private Rental Index show that the annual increase in private rents across all tenants in Scotland has risen over recent months. In data from letting agents (noting that they will not have complete market coverage) for the latest quarter Apr-Jun 2022 compared with Apr-Jun 2021, Citylets have reported that advertised rents have increased by 15.1% in Edinburgh, 13.0% in Glasgow, and 4.4% in Aberdeen. Rightmove have reported that advertised rents in Scotland have increased by 12.5% over the same time period.^[8]

Information from the Scottish Housing Regulator highlights that social landlords in Scotland applied an average rent increase in April 2022 that was below the CPI inflation rate of 9% at that time, with some not increasing rents at all. Social landlords rent increases for 2022/23 were 2.98% on average, with increases ranging from 0% to 6%, an increase of 1.8% on the previous year.

Over the last six years, the average compound increase in rents has been 16.2%, equating to an annualised rate of 2.5%. Social landlords have made significant efforts to minimise the level of rent increases, especially in the last couple of years, with many applying increases below those assumed in their business plans.

The NUS/UNIPOL accommodation costs survey showed that, in 2021/22 the average annual rent for purpose built student accommodation in the UK was £7,374, an increase of £309 (+4.4%) on last year and since 2011/12, average rents have risen by 61% overall^[9].

With respect to the issue of how often rents are increased, a variety of anecdotal and survey evidence suggests that a significant share of sitting tenants within the private rented sector do not experience a rent increase each year. A survey undertaken for the Nationwide RentBetter Project found that over half^[10] of tenants responding to the survey had not experienced a rent increase during their current tenancy. A survey of landlords and letting agents undertaken for the RentBetter project reported that of those responding to the survey, around half reported never increasing rents or only on change of tenancy.^[11] Of the remainder, only around a third reported that they increased rents each year, and for landlords who increase rents less frequently than each year, only a portion of their tenants will experience a rent increase in any given year. Recent experience therefore suggests that, on average, most tenants would not expect a rent increase over the 6 months period ahead. However, as noted above the cost crisis creates a less predictable environment in which rent increases may be more likely and would be much harder for tenants to meet.

Recent research^[12] carried out in 2021/2022 with predominantly low-income tenants in the PRS in Scotland, undertaken by researchers on behalf of the Joseph Rowntree Foundation and the Scottish Government, found tenants' difficulties in accessing suitable accommodation centre around affordability, competition for limited properties and, for those on low incomes, additional barriers in passing pre-tenancy checks alongside the unwillingness of some landlords to rent to people in receipt of benefits.

This research also found that many respondents reported worry about spending significant proportions of their income on rent. 44% of low income renters surveyed worry about being able to pay their rent and more than half worry about being able to afford other essentials in future.^[13] People on Universal Credit (UC) / Local Housing Allowance (LHA), women, people with disabilities and people with children are more likely to report worry and cut backs on essential spending.

The Scottish Government is satisfied that there is a strong justification for the interventions included in the Bill, and is satisfied that all of the measures contained in the Bill are appropriate and proportionate. However, it recognises that while these interventions offer the required support for tenants, it will also have an impact on landlords and as such safeguards for landlords have been considered as part of the development of the emergency measures.

There is recognition that the measures may have wider consequences for the housing system, housing support and supply of homes for rent in Scotland, therefore, the measures are time limited and their ongoing necessity will be kept under review by Ministers. Ministers are also reserving powers to modify the measures should that be necessary.