Cost of Living (Tenant Protection) (Scotland) Act 2022: first report to the Scottish Parliament

6. Proposed approachin relation to the social sector rent cap beyond 31 March 2023

6.1 Section 9(7) of the Act sets out that, in respect of the reporting period ending 31 December 2022, Scottish Ministers must – in considering the application of the permitted rate (within the meaning of section 24A(1) of the Housing (Scotland) Act 2001) of 0% - explain whether they propose to:

a) retain the permitted rate at 0%;

b) increase the permitted rate;

c) make regulations under section 8(1) to provide for the expiry of paragraph 3 of schedule 1; or

d) make regulations under section 6(1) to suspend the operation of that paragraph.

6.2 In September 2022, the Scottish Government established a social sector Short Life Task and Finish Group to provide a forum for ongoing dialogue between the Scottish Government and key social rented sector representatives, as rapid work was undertaken to develop measures within the Act. The group were also tasked with:

• helping to inform social landlords' approach to rent setting consultations and business planning for 2023-24; and
• supporting the production of advice for Ministers – receiving feedback on viability of options from a Scottish Government perspective to inform shaping of the final approach in relation to the extension or expiry of the emergency measures in place for the social sector.

6.3 Social housing plays a key role in reducing poverty levels. Research from the Joseph Rowntree Foundation suggests that continued and consistent investment in social housing has kept housing costs, and thus poverty levels, lower than in other parts of the UK^[32].

6.4 Scotland leads the way in the delivery of affordable housing across the UK, and we have committed to delivering 110,000 affordable homes by 2032, of which at least 70% will be available for social rent and 10% will be in our remote, rural and island communities. Enabling continued investment in the delivery of high quality social housing is therefore crucial.

6.5 Social sector representatives have set out that the current costs crisis poses an enormous threat to this progress, with inflation rates having a far greater impact on the poorest 10% of the population, and living standards and real incomes expected to fall across the UK. The volatility of the economic environment also has significant consequences for housing associations, and the services they provide to tenants.

6.6 Over the last 12 months, the cost of developing homes has increased by 17%, with the average cost now well above £200,000 per home: and rising interest rates meaning this will increase further. Similarly, the cost of maintaining homes has increased by upwards of 20% for many associations. Housing associations must work on the basis of 30-year business plans; any changes to rents in a single year are therefore compounded and have a significant long-term impact across the plan^[33].

6.7 The rent setting practice in this sector involves rents being set annually, in consultation with tenants. Aside from the annual rent setting process further rent increases do not typically take place either inter or intra tenancy.

6.8 It is within this context that the Social Sector Short Life Task and Finish Group has been working to develop an agreed approach on rent setting for 2023-24 – taken forward on a voluntary basis - that would see an agreement with social housing landlords that ensures that rents remain affordable but still support continued investment in the sector. The Group stressed the fine balance between affordability and investment and the need to set social sector rents at a level that ensures adequate resources to support repairs and maintenance, new build programmes and energy efficiency and carbon neutral targets and to ensure they can continue to deliver the essential support services they provide for their tenants.

6.9 The outcome of discussions led by COSLA, in respect of local authorities, and the Scottish Federation of Housing Associations (SFHA) and Glasgow and West of Scotland Forum of Housing Associations for Registered Social Landlords, has reached an agreed position with their members that would see increases of 6.4% and 6.1% respectively, as an average across Scotland.

6.10 It is important to note that the agreement of an average figure, rather than a fixed cap, is essential to allow flexibility. The majority of rents will be increased at a level below the agreed 6.4% (for local authority landlords) and 6.1% (for registered social landlords) but there may be some social sector landlords who will, for specific reasons, go beyond these levels. However, all social sector rent increases will be kept below the level of inflation. This approach recognises that in some cases tenant feedback to the statutory rent consultations may be in favour of an increase higher than the overall averages agreed, for example to allow planned improvements or maintenance to proceed.

6.11 In reflection of the outcome of the work of the Social Sector Short Life Task and Finish Group, whereby an approach on rent setting for 2023-24 be taken forward on a voluntary basis has been agreed and the continued need for investment to support delivery of the Scottish Government's ambitious affordable housing targets, Scottish Ministers intend to make regulations under section 8(1) of the Act to provide for the expiry of the rent cap provisions for the social sector contained in Paragraph 3 of Schedule 1 of the Act.

6.12 This will ensure that social sector rent levels are adequate to support repairs, maintenance, meeting energy efficiency and carbon neutral targets and to ensure social landlords can continue to deliver the essential support services they provide for their tenants.

6.13 Scottish Ministers will bring forward regulations that will expire the rent cap measures for the social sector from 01 March 2023. This will allow social landlords to ensure they meet requirements in relation to notifying tenants of rent increases from 01 April 2023.