Cost of Living (Tenant Protection) (Scotland) Act 2022 - 2nd proposed extension: statement of reasons

Annex D

Summary of 2^nd Call for Evidence

Note: The following summary was prepared on the basis of evidence supplied in response to a targeted call for evidence from key stakeholder groups by the Scottish Government in April/May 2023.

The evidence outlined in these submissions was drawn from a wide variety of sources including; anecdotal evidence, lived experience examples, internal stakeholder data such as member surveys, stakeholder perspectives and externally published data.

In most cases, it has not been possible for Scottish Government analysts to verify the data provided in these submissions.

In total, 38 responses were received to the call for evidence, as follows:

• 4 from tenant representative and advice groups;
• 4 from housing professionals membership organisations;
• 1 from an independent private landlord; and
• 29 from landlord/financial/investor representative groups, local authorities and housing associations, of which;
  • i. 6 represent interests in the private rented sector;
  • ii. 15 represent interests in the social rented sector;
  • iii. 5 represent interests in both the private and social rented sector;
  • iv. 3 represent interests from student accommodation providers.

Main findings

1. Private Sector Rent Cap: 1 April 2023 increase from 0% to 3%

1.1 As the Cost of Living (Tenant Protection) (Scotland) Act has been in force for over six months, stakeholders were asked whether the provisions within the Act had helped to support private tenants. Some responses from advice groups and tenant representative organisations reported that the provisions in the Act may have helped to prevent substantial rent increases, delayed or even avoided eviction during the cost of living crisis and continue to provide reassurance and protection to tenants. These organisations called for protections to remain in place to provide support to tenants in what they say remains an unprecedented economic position.

1.2 Although many responses noted it was too soon to judge the impact of the rent cap increasing from 0% to 3% as of 1 April, some financial/investor stakeholders advised that their members viewed this as a positive move, and described the increase as welcomed, allowing a degree of flexibility for private landlords. However, several private landlord representative bodies advised the increase was not sufficient to alleviate financial pressures on landlords. It was also suggested that the uncertainly around whether the Act will be extended after 30 September 2023 is making it difficult for landlords to manage their finances. As a result, several stakeholders have reported landlords delaying rent increases until the cap is lifted, which may result in a high number of significant rent increases occurring at the same time.

1.3 Across the board, private landlord representative bodies set out significant concerns that the emergency measures may be leading to landlords leaving the sector due to their business no longer being financially viable and concerns about further legislation having a detrimental impact. One landlord group referred to a member survey carried out in March 2023, which found that 44% of landlords surveyed reported an intention to reduce their portfolio size in the next 5 years, with 19% intending to expand. Of those intending to reduce their portfolio, 87% cite the Act as a factor in their decision, or the sole reason (26%). A local authority provided information from their landlord registration data to evidence the decline in private sector landlords in recent years; at the end of 2021/22 4,907 landlords with a total of 7,626 properties were registered, however at the end of 2022/23 this had fallen to 4,640 and 7,368 respectively.

1.4 Some landlord groups suggested that the current safeguard within the legislation relating to a maximum 6% uplift for prescribed property costs is not sufficient to cover the additional cost of borrowing for landlords with Buy to Let mortgages given the scale of interest rate rises in recent months. A Mid-Market Rent (MMR) provider with a large portfolio of properties also raised concerns around the bureaucracy of the application process, which requires an individual application for each property given each rent increase affects an individual tenancy, stating that this places an excessive demand on staff and would detract from their work to support tenants facing financial difficulty.

1.5 It was also suggested by a number of private landlord representative bodies that, as a direct result of the emergency measures, landlords behaviours are changing including raising rents significantly between tenancies, or intending to do so in the future to offset rising property costs. They note that the fear of rent controls in the future is also reported by landlords as a contributing factor in setting higher rents. A landlord representative group also observed a higher reluctance in tenants to move property due to mid-tenancy rents being lower than rents for new tenancies. A further concern was that some surveyed landlords reported to be delaying planned improvement works, with specific concerns raised around the level of investment required to meet minimum energy efficiency standards, particularly in older homes.

1.6 A response from an advice group reported accounts of landlords attempting to apply rent increases of above the 3% cap, and apply rent increases without the correct notice period, which they feel may be going unreported in some cases.

1.7 Private landlord representative bodies also raised concerns around investment and financial planning in the MMR sector. Increased construction costs coupled with the rent cap were cited as reasons for delaying or halting development of sites designated for MMR, as they are no longer deemed to be financially viable. Anecdotal evidence provided suggests this comes at a time of increased demand for MMR as a result of the decline in availability of private rented sector properties. In responses from a local authority and social sector organisations, their view is that MMR properties should be considered separately to any rent cap measures, as they already have a strategic commitment to keep rents as low as possible and need to build financial reserves in order for their business model to remain viable and to maintain properties to a good standard for tenants.

1.8 Some financial/investor stakeholders set out examples of new Build to Rent developments being placed on hold due to the impact of the emergency measures, asserting that this was primarily due to decreased investor confidence and uncertainty around future legislation. A particular issue was the concern that investor confidence had been impacted negatively by the introduction of the emergency legislation, without prior consultation.

1.9 In addition some landlord and financial/investor stakeholder respondents set out that the risks of investing in Scotland have now increased, making it less attractive to financial institutions than other parts of the UK. Some other concerns point out that alongside regulatory changes, wider economic issues are also presenting challenges in the housing sector, such as the cost price inflation on building materials, supply chain issues and skills and labour constrains. They feel that the culmination of the emergency legislation and economic challenges will have a negative impact on the supply of housing across all tenures. Furthermore, a financial sector respondent noted that lenders may begin to consider lending policy where the ability to evict non-paying tenants is restricted.

1.10 Many private landlord representative bodies stressed their concerns around the impact the emergency measures are having on the supply of housing, with reference made to a combination of factors. Responses highlight the potential impact of the departure of landlords from the private rented sector, the decline in investment in Scotland's housing stock and changing demands post-Covid as factors that will compound to exacerbate the issue of housing supply. One group also emphasised that these potential impacts may be felt more acutely in rural areas.

1.11 In addition, several respondents have called for transparency and clarity on how and when the emergency legislation will be lifted, and stressed the need for further support for landlords.

2. Expiry of the Social Sector Rent Cap

2.1 A voluntary, collective agreement was reached on rent setting for 2023-24 with social landlords, and the rent cap provisions were expired for the social rented sector from 26 February. Several responses welcomed the expiry of the rent cap in the social renter sector, which they say has allowed for rent reviews that account for affordability whilst promoting and maintaining investment in housing stock.

3. Suspension of the Student Accommodation Rent Cap

3.1 The rent cap for student accommodation was suspended on 31 March, with Ministers recognising its limited impact on annual rents set on the basis of an academic year. There was limited response to the call for evidence from student tenant representative organisations. Of those who responded, a minimal impact on the student rented sector was reported.

3.2 The main theme emerging from the responses received related to the supply of student rented accommodation. Respondents reported experiencing an increased demand on university-managed accommodation. As students look to the private rented sector as an alternative, there was a common concern among respondents that the temporary rent cap measures may have had the unintended effect of causing landlords and investors to choose to exit the sector, therefore further constricting supply of private rented properties. One educational stakeholder response urged the Scottish Government to consider what actions it can take to promote investor and business confidence to increase supply of Purpose Built Student Accommodation and private properties more broadly.

4. Evictions Moratorium

4.1 From a social sector perspective, due to eviction already being a last resort, the eviction moratorium provisions appear to be having minimal impact. Some respondents highlighted that where eviction action is taken in relation to rent arrears, the amount already accumulated is usually above the threshold set out in the legislation. Some respondents also highlighted that the moratorium has made some landlords more willing to engage with their tenants, provided more time for prevention activities before moving towards legal action and encouraged more active support to help tenants sustain their tenancy. It is also noted by one local authority that the moratorium has helped to protect their scarce supply of temporary accommodation.

4.2 However, a number of social sector representatives have outlined concerns about the definition of substantial rent arrears i.e. equal to or more than £2,250, as it is being perceived as an acceptable level of debt by some. They state that the moratorium may have resulted in tenants not paying rent, or deprioritising the payment of rent, and reduced the incentive for tenants already in rent arrears to work with their landlord. They say this is leading to larger arrears, putting the tenancy at risk in the longer term. One social sector landlord highlighted that rent arrears are higher in this financial year than last, however stated it would be impossible to evidence whether this was due to perceptions of eviction being less likely or other factors. Responses also raised concern about the impact of increasing rent arrears both on housing association finances and tenants accumulating such debts, without offering any obvious reduction in the number of evictions taking place.

4.3 Some financial/investor stakeholder respondents set out examples of new build social housing developments being placed on hold, or revising business plans, due to the impact of the emergency measures, financial uncertainty and difficult forecasting. A particular issue of concern in this respect was the impact on investor confidence caused by the introduction of the emergency legislation without prior consultation.

4.4 Two responses from local authorities referred to increases in the number of homelessness applications from private rented sector tenants due to landlords selling their properties, although one of the responses refers to the limited evidence available on this as well as there being no evidence to confirm that this is a direct consequence of the legislation, and the other is based on an analysis of financial year homelessness figures by broad category which are not split by a post October 2022 time period. There are concerns that an increase in the number of homelessness applications will create significant challenges in terms of availability and rent levels in the private rented sector, as well as placing an additional demand on social housing.

4.5 Social sector tenant representative groups say policy that protects tenants and their families is welcomed, and feel the temporary moratorium on evictions is providing some well-needed breathing space during the cost of living crisis.

4.6 One tenant representative group suggests some private tenants have been more likely to question and sometimes contest a notice to quit, as well as feel more able to have the time to find suitable alternative accommodation, since the introduction of the legislation.

4.7 A response from an advice group highlighted the issue of unlawful evictions, stating that some landlords are not complying with the correct eviction procedures and may not properly understand the provisions. They note that demand for advice about unlawful evictions has been growing recently, as well as demand for advice on threatened homelessness due to possession action. A tenant representative group said that they felt the temporary unlawful eviction provisions have deterred illegal evictions and called for this to remain a permanent fixture in legislation. They note that whilst most landlords are complying with the emergency legislation, they have heard some anecdotal evidence of landlords threatening evictions to pressure tenants into agreeing to rent increases above the 3% rent cap.

4.8 There was a limited response from educational stakeholders regarding the impact of the evictions moratorium on the student rented sector. One response reported that there is evidence to suggest that the evictions moratorium has made it difficult to move students on from accommodation at the end of their tenancies, therefore making it more difficult to manage the flow of supply.

4.9 For the private rented sector, one tenant representative group flagged the importance of the emergency measures remaining in place as they are crucial to continue to support tenants and provide reassurance whilst the unprecedented economic situation persists. They feel that the temporary unlawful evictions provisions should be a permanent fixture as they help to prevent landlords abusing grounds for eviction and allow tenants to more easily demonstrate and challenge wrongful use of an eviction ground.

4.10 One private rural landlord representative group suggests that the eviction moratorium measures may have resulted in behavioural changes between landlord and tenant, with landlords moving to eviction proceedings more quickly than they would otherwise have done in the absence of the emergency measures. It was also suggested landlords are becoming more cautious in the selection process for new tenancies making access to the private rented sector more difficult. They also highlighted the issue of landlords delaying or cancelling property upgrades, such as energy efficiency improvements, which they feel is particularly damaging to a sector with high levels of fuel poverty. In relation to the eviction moratorium measures, they also noted that it is common for farms and estates to have employees who, as part of their terms, have the option to occupy a property. Previously these properties would be let out with the understanding that the tenant would leave if an employee chose to occupy the property. The group advised that these properties are now not being let out as it is deemed too high risk that the tenant will not leave on request. Similarly, the group reported that some holiday lets are usually let for longer terms in the winter, with tenants being asked to leave in the summer, but increased perception of risk has resulted in these lying empty over winter.

4.11 Another response from a social sector tenant representative group stressed the need for guidance around how debt will be handled when the moratorium is lifted, and say that without a clear approach and guidance to the sector, eviction rates may end up being just as high as they might have been without the moratorium.

4.12 A number of responses referenced the length of time taken to bring evictions proceedings to the First-tier Tribunal. An advice group highlighted cases where this has dissuaded clients from making an application. Another response highlighted that, where substantial arrears required to evict a tenant must be equal to, or greater than, six months' rent, the lengthy tribunal process may result in arrears going considerably beyond this amount by the time an eviction order is granted. They urged that any transition away from the emergency legislation should be coupled with an increase in resource provided to Rent Officers and the First-tier Tribunal in order that delays are reduced.

4.13 Many responses across all sectors called for the Scottish Government to continue raising awareness of the emergency legislation to ensure both tenants and landlords are aware of their rights, and understand how the provisions apply to their specific circumstances. Many respondents highlighted the need for continued consultation and post-legislative scrutiny to understand the potential unintended consequences of the legislation.