A New Deal for Tenants - draft strategy: consultation

Chapter Five: Supply Of Rented Homes

Introduction

The Scottish Household Survey 2019^[47] figures show that over two-thirds of private rented households aspire to own their own home but we know that high rents and other factors including access to resources, economic circumstances and stage in life-cycle can make that very challenging to achieve for many. So, the demand for renting is linked to access to home ownership, which in turn depends on a range of factors.

However, there is clearly a strong demand for renting in its own right which may mean that renting is the right choice at any point in time. So that is why it is vital to ensure an adequate supply of homes for rent where they are needed, as this can also impact on choice and affordability.

The Affordable Housing Supply Programme seeks to increase supply primarily in the social sector but there is also an important role for private investment in the rented sector in order to keep up with rising demand and changing demographics. In the social sector we also want to consider how the available supply of social housing is used to ensure those who need it most are able to access the sector and suitable accommodation.

Increasing supply

Our long term strategy Housing to 2040 starts from the principle that everyone should have access to a good, safe, warm and secure home. Our long term commitment to deliver 110,000 homes, with at least 70 per cent for social rent and 10 per cent in our remote, rural and island communities, will be supported by £3.6 billion of Scottish Government investment.

As significant as this investment is, we recognise that on its own it will not deliver our ambitions to ensure that everyone has access to the home they need. To do that we need to continue to work in partnership with the private sector. Housing to 2040 sets out our desire to develop approaches and test new models to attract and accelerate investment into housing programmes and to transition to a decarbonised housing sector.

Housing supply affects affordability and quality across all tenures. Having an adequate supply of high quality, energy efficient housing is at the heart of ensuring that the people of Scotland can access the housing they need at a price they can afford. We need to consider the system wide interactions between demand and supply and the different challenges that this can pose across Scotland. Where there is a shortage of supply in one tenure this can manifest as an increase in demand for another.

Both private rented and social rented homes have a role to play in delivering affordable, quality housing and giving people choice and flexibility about where they live. Additional supply across the market can drive competition and lead to increases in quality.

We are determined to improve the quality and environmental performance of Scotland’s housing stock. Local authorities, as the statutory housing and planning authority, are key in this process at the local level and have a responsibility for developing Local Housing Strategies, which are required to consider all housing requirements locally and set out how these requirements will be effectively met. This is in addition to local development plans which guide planning decisions locally, including the delivery of new homes.

The Scottish Government is currently consulting on National Planning Framework 4 (NPF) which sets out how our approach to planning and development will help to achieve a net zero, sustainable Scotland by 2045. NPF provides the framework for how the planning system should support the delivery of more and better homes, in the right locations, providing choice across tenures that meet the diverse housing needs of people and communities across Scotland.

The following sections highlight the important role for each different type of investment in rental properties in addressing the overall supply of housing.

Affordable Housing Supply Programme - Increasing the Supply of Social Rented Homes

Within the social rented sector, the Scottish Government’s investment decisions through the Affordable Housing Supply Programme are directly informed by local housing priorities set out in Local Housing Strategies and Strategic Housing Investment Plans, including the type, location and size of housing required.

The majority of homes delivered through the programme are new build homes. However, the Affordable Housing Supply Programme has funded, and continues to be able to fund, acquisitions of existing homes that are for sale on the open market where it makes strategic sense for local authority and Registered Social Landlord partners to do so and where there are available resources. Whilst such acquisitions must make sense as part of these local strategies, there are examples where acquisition of stock provides clear opportunities. For example:

• consolidation of stock for management and improvement reasons – such as securing the remainder of a block when most flats are already socially rented, making it easier to refurbish or install energy efficiency measures^[48];
• securing stock where there is limited supply and limited development opportunities; and/or
• securing stock for households with particular requirements.

Funding can also be made available to remodel/rehabilitate existing properties.

Consultation Question: How do we ensure that we are achieving the right balance between building new properties and acquiring existing properties through the Affordable Housing Supply Programme?

Consultation Question: Where has the acquisition of existing stock for the Affordable Housing Supply Programme worked well and are there other opportunities to engage with owners/landlords to allow first refusal to those delivering the Affordable Housing Supply Programme? Please explain your answer.

Attracting Investment into the Private Rented Sector

Housing to 2040, sets out our plans to continue delivering quality homes for private rent.^[49] Over the next decade, we will continue to support the building of homes for private rent with a focus on maximising delivery of these homes at the affordable end of market rents, working with private sector investors and partners whose business models match our ambition to improve quality and affordability for tenants.

We have a strong track record when it comes to the development of new housing financing approaches, delivery models and ground breaking innovation. This has enabled the delivery of thousands of new homes across all tenures, positioning Scotland as a leader in this field. These initiatives are helping to create and strengthen communities, with several also contributing to our affordable homes targets and we are keen to do more.

Mid-market Rents

Mid-market rent (MMR) is a type of affordable housing aimed at assisting households on low to modest incomes to access affordable rented accommodation in the private rented sector, and helps those who have difficulty accessing social rented housing, buying their own home or renting privately on the open market. Since 1 December 2017, these homes are let under a Private Residential Tenancy.

Rents for MMR homes should be set at a level which is higher than social rents but lower than the midpoint of private rents and will vary across the country, depending on the size of property (number of bedrooms) and geographical location. It is important that prospective tenants are assessed by landlords on their ability to afford and sustain a tenancy, not just on specific income levels, and not be discriminated against as a result of the source of that income. For example, through a work or state pension or social security contributions.

Starting rent levels are generally no more than the relevant Local Housing Allowance and the most recent 30th percentile of market rent levels (as assessed by Rent Service Scotland) for the property size in question in the Broad Rental Market Area (BRMA).

In order to ensure MMR rent levels remain affordable to households on low to modest incomes, landlords in receipt of Scottish Government support are generally not permitted to increase rents above the mid-point of market rent levels for the relevant property size (in line with data collected and published by Rent Service Scotland), therefore these rents will fluctuate in line with local market conditions.

The majority of this housing is delivered by Registered Social Landlords (RSLs) using grant funding through the Affordable Housing Supply Programme. Providers have previously been supported through guarantees and Financial Transaction (FT) loans. There has also been investment through City Regional Deals that has helped unlock delivery of MMR. The Scottish National Investment Bank also has the ability to invest in housing which meets the Bank’s missions which could include further MMR delivery, depending on the specific investment proposal.

We collect policy monitoring information from MMR landlords and households which is then analysed and reported by the Scottish Government. Our latest published data shows that this policy continues to meet its intended aims.

Consultation Question: Beyond the routes already available to deliver MMR homes how could new, additional investment in this be supported?

Build to Rent Sector

The Build to Rent (BtR) sector has been an established part of the housing market in many major European cities for some time, but has not traditionally been a significant driver of the Scottish rental sector’s supply of new homes. BtR is recognised as a mainstream housing delivery mechanism, that can make an important contribution to the broader housing market and to the economy by boosting both investment and house building.

It offers a different financial model that can complement existing housing delivery models and help to increase the overall rate of delivery of housing. It can also contribute to the creation of well-designed, sustainable places at scale and as such is an important part of the supply landscape that can help us deliver the vision set out in Housing to 2040 and to meet the aims of the rented sector strategy of quality, affordable homes rented on fair terms.

BtR differs from traditional homes (built for sale) in a number of ways. It can be characterised by:

• single institutional ownership and professional on-site management of the entire development;
• individual units are self-contained and separately let; and
• resident access to shared, communal facilities and on-site amenities integrated as part of the development.

There is a substantial pipeline of around 9,000 BtR homes in Scotland’s major cities with several developments moving to construction stage and contributing to place-making and regeneration of city sites.

While our focus in Housing to 2040 is on maximising delivery of homes in this sector at the affordable end of market rents, BtR has an important role to play both in the housing market and the economy as a whole by boosting investment and housebuilding.

Like MMR, the Scottish National Investment Bank has the ability to invest in housing which meets the Bank’s missions which could include further BtR delivery, depending on the specific investment proposal.

We wish to continue to welcome investment in this sector, and to work with the private development industry to understand and, where appropriate, help to overcome any significant barriers to its continued growth in Scotland. We recognise that the BtR sector can make an important contribution to economic activity, tenant choice, place-making and driving up standards of management and maintenance in the private rented sector through the provision of professionally managed homes.

We are therefore keen to continue working constructively with this sector to consider how some of the proposals set out in this draft strategy can also encourage the BtR sector to invest and contribute to the raising of standards and regeneration which we have welcomed.

Consultation Question: What measures can we put in place to help encourage BtR developments in Scotland?

Short-Term Lets and Second Homes

Short-term lets can offer people a flexible and cheaper travel option, and have contributed positively to Scotland’s tourism industry and local economies across the country. However, we also know that in certain areas, particularly tourist hot spots, high numbers of lets can cause problems for neighbours and make it harder for people to find homes to live in.

Therefore regulation of short-term lets is vital to balance the needs and concerns communities have raised with wider economic and tourism interests. The new licensing scheme will help to ensure that all short-term lets are safe and that the people providing them are suitable and give local authorities powers to deal with issues faced by residents and neighbours such as noise and antisocial behaviour. It will also give local authorities greater knowledge about the prevalence and location of short-term lets in their local authority area. This will help them better understand the extent to which short-term lets are, or are not, contributing to local housing pressures.

Legislation allowing councils to establish short-term let control areas and manage numbers of short-term lets came into force in April 2021.

We have committed to working with local authorities to review levels of short-term let activity in hotspot areas in summer 2023 and this will assess how the actions are working and whether any further measures are required. If the review finds that local authorities continue to have issues managing high concentrations of short-term lets, we could take further action to enhance their powers. We will also be legislating to increase the levels of fine in respect of some short-term let licensing offences.

As outlined in Housing to 2040, we are committed to giving local authorities the powers to manage the numbers of second homes where they see this as a problem in their area. Numbers of second homes and short-term lets are related issues and this provides a further opportunity to ensure that local authorities have the powers they need to manage numbers of both.

Social Rented Sector Allocations

Given the important role social housing plays in the overall housing market, providing secure long-term housing solutions, social housing allocations policy is important in ensuring the right provision.

For example, Housing to 2040 sets out a commitment to better understand and address the barriers people from ethnic minorities face in accessing appropriate social housing and work with social landlords and tenants to review the approach to identifying housing need and to determining housing allocations in the social rented sector. One of those barriers can be that it is a challenge for larger families to find suitable accommodation in either the social or private sectors. The 2019 Scottish House Condition Survey, shows that there are far smaller proportions of 4+ bed sized properties in the private rented sector (8.0%) and social rented sector in particular (2.7%), compared with owner occupation (25.5%).

At present, all existing social landlords have a published allocation policy and a system in place for reviewing it to ensure it is meeting the needs of applicants, tenants and local authority and third sector partners. Landlords have a duty to make and publish rules covering priority of allocation of houses, transfers and exchanges^[50] and this means that any allocation policy should set out clearly how the landlord will decide on priority for housing.

This transparent approach is underpinned by a clear legal framework within which allocation policies must operate. Within these constraints, landlords have considerable discretion to develop their allocation policy and practice to meet the specific needs of the communities in which they operate. The Social Housing Allocations Practice Guide 2019 provides practical support for staff with responsibility for reviewing, monitoring and updating allocation policies and procedures to ensure the reasonable preference groups in their policy comply with those in the Housing (Scotland) Act 1987 (“the 1987 Act”), as amended by the Housing (Scotland) Act 2014.

Section 20 of the 1987 Act sets out three categories of applicants who should be given reasonable preference in an allocation policy: (1) homeless persons and persons threatened with homelessness (including those from the private rented sector), (2) people living under unsatisfactory housing conditions, and (3) under-occupying social housing tenants. Each social landlord can determine how much priority it wishes to give to those in each of the reasonable preference groups, although lesser preference to people facing homelessness than other groups of applicants can’t be the case. This means that allocations have an important part to play in preventing homelessness.

There is generally a three to five-yearly cycle in place for reviewing an allocation policy and when reviewing their policy landlords must consult with tenants, applicants and RTOs and consider how they will ensure that they meet housing need. Landlords should monitor the operation of their policy and develop a monitoring framework along with the policy to help ensure that the right mechanisms are in place from the start.

Consultation Question: Is the approach to allocations achieving the right balance between supporting existing social tenants and those who are seeking a home within the social sector?

Consultation Question: What more can be done to support people with protected characteristics trying to access social rented homes?

Conclusion

The Scottish Government recognises the importance of investing in and supporting the supply of rented homes. We already invest significantly through the Affordable Housing Supply Programme and work with private sector funders and deliverers to maximise the delivery of the right homes in the right places.

We are keen to gather views on what more can be done to maximise the delivery of rented homes and ways to leverage further private sector investment and welcome your views on what more can be done to ensure that supply continues to play a key role in addressing the affordability issues we are facing in Scotland.