Rent Adjudication (Temporary Modifications) (Scotland) Regulations 2024 – Business and Regulatory Impact Assessment

Footnotes

1. The 2022 Act was accompanied by a BRIA, as well other impact assessments, when it was introduced to the Scottish Parliament.

2. So if the gap between the market rent and the current rent is 10%, the landlord can increase the rent by 6% + (10% - 6%) / 3 = 7.33% (rounded to 2 decimal places)

3. Scottish Fiscal Commission, Scotland’s Economic and Fiscal Forecasts – December 2023. The measure of living standards used is real disposable income per person

4. See Section 4, Updated Economic Context in the latest Scottish Government three-monthly report to the Scottish Parliament under the 2022 Act.

5. Resolution Foundation (December 2023), From merry Christmas to a messy new year; see in particular P5 & P6 and Figure 5.

6. See Cost of Living Bill: economic background, in particular Section 6, for further discussion and data sources.

7. 34% of private rented households and 39% of social rented households, compared to 7% of households buying with a mortgage and 14% of households who own outright.,

8. 40% of private rented households and 47% of social rented households, compared to 10% of households buying with a mortgage and 18% of households who own outright.

9. 40% of private rented households and 63% of social rented households, compared to 24% of households buying with a mortgage and 9% of households owning outright.

10. From YouGov online polling for Scottish Government. Total sample size was c 1,000 adults. Fieldwork was undertaken between 12-14 December 2023. The survey was carried out online. The figures have been weighted and are representative of all adults in Scotland (aged 18+). Base size for private renters is 146. Data tables for all adults can be found at Public attitudes to cost of living and other topics: tracker - data tables.

11. 18% for private renters and 9% for all tenures. This was part of a prompted list of potential concerns in the next 2-3 months.

12. 62% of private renters compared to 49% of all tenures. This is the sum of households who said they were “struggling a little” or “struggling somewhat” or “struggling a lot”.

13. 30% of private renters compared to 21% for all tenures. This is the sum of households who said they were “not managing very well” or “having some financial difficulties” or “in deep financial trouble”.

14. The sum of households reporting their mental health had been negatively affected either “to some extent” or “to a large extent”. The corresponding figure for all households is 50%.

15. See Section 4, Updated Economic Context in the latest Scottish Government three-monthly report to the Scottish Parliament under the 2022 Act for more details on the modelling approach.

16. Private Sector Rent Statistics, Scotland, 2010 to 2023.

17. Zoopla, Rental Market Report: December 2023.

18. Knight Frank, UK house price forecasts: October 2023.

19. JLL, Residential Forecasts 2024-2028.

20. CBRE, UK Residential Forecasts Q4 2023.

21. See column labelled “gap to market rent” in each table.

22. Aberdeen City Council; Aberdeenshire Council; Age Scotland; Association of Local Authority Chief Housing Officers (ALACHO); Apache Capital; BMF Group; Buccleuch Property; Chartered Institute of Housing Scotland; Citizens Advice Scotland; Cullen Property Ltd; Dormont Estate; Dowbrae Real Estate Consultancy; Generation Rent; Glasgow City Council; Homes in Scotland; Kingcausie Estate; Kingsford Group; KR Developments; Let Tech Solutions; Lettingweb Ltd; Living Rent; Manor Estates Housing Association; Moda Living; PayProp UK; Platform_; Propertymark; Scottish Association of Landlords; Scottish Federation of Housing Associations (SFHA); Scottish Land and Estates; Scottish Property Federation; South Lanarkshire Council; Stirling Council; Summix Capital Ltd; UK Finance and 27 individuals.

23. It should be noted that a few respondents provided more than one response to the consultation.

24. Social landlords are affected in their capacity as providers of mid-market rent housing.

25. i.e. if the gap between the market rent and current rent is 6% or less, in an adjudication the rent will be set at the market level (provided this does not exceed the rent asked for by the landlord).

26. See Rationale.

27. The gradient is the additional rent increase permitted for each percent that the gap between market and current rent exceeds 6%, and is calculated as (10%-6% )/(20%-6%) = 0.286.

28. (15%-6%)/(30%-6%) = 0.375

29. (12%-6%)/(24%-6%) = 1/3

30. Indigo House (2020) RentBetter: Wave 1 tenants survey analysis report. See Section 4.7; the data in the second column of Table 1 is sourced from Figure 20.

31. The research identified that of those tenants reporting that their rent has stayed the same, 39% had been resident for less than a year. To remove this group, the share of respondents in this category was adjusted to 59% * 61% = 36%. The categories “not stated” and “prefer not say” were also removed. Shares were then rescaled relative to the total share of respondents who answered the question and who had been resident for longer than a year (this effectively assumes that respondents who did not reply had the same pattern of rent increase frequency as those who did reply).

32. Indigo House (2020) RentBetter: Wave 1 Landlord and letting agent survey findings. See Section 3.3; the data in Table 2 is taken from the chart in this section of the report. Note that since the exact figures are not provided in the chart, they have been estimated by visual inspection.

33. This is calculated as the sum of 26% for those who have a rent increase every year, 6.5% (13%/2) for those who have a rent increase every second year, and 3.3% (10%/3) for those who have a rent increase less frequently than every two years (the assumption for this final category that it will be every 3 years is made to give an upper bound for this estimate; to the extent that it is less frequent than this, the estimate will be somewhat lower).

34. This is calculated as the sum of 15% of landlords/letting agents who report raising rents each year, 12.5% (25%/2) of those who raise rents every second year, and 3.3% (10%/3) of those who follow another approach (again, the assumption for the final category that rents increase every three years is made in order to calculate an upper bound).

35. The RentBetter research notes that in Edinburgh, which had higher rental growth than the Scottish average prior to the survey, more frequent rent increases were reported by landlords/letting agents, with 30% of respondents indicating that they applied rent increases annually and a further 31% that they did so once every couple of years.

36. In order to simply the modelling, it is assumed that each year there is 32% probability that a tenant will move (based on Scottish Household Survey data for share of adults in private rented sector who have been at their address for less than a year), and that this probability is statistically independent of the length of tenure.

37. The database underlying the Scottish Government private rent statistics is largely drawn from new-let rents.

38. A key reason for this is because landlords do not raise rents for sitting tenants each year (as discussed above).

39. The initial period was somewhat over 6 months, since the rent increase notices served from 06 September 2022 were subject to the cap, but for modelling simplicity we treat the initial period as running from October 2022 to March 2023.

40. Over the period 1 April 2023 to 31 December 2023, 1,366 applications were received for prescribed property costs.

41. See section on Approach to estimating foregone rent.

42. For example, the total foregone income for the central assumptions of 8% future rental growth and 50% share of landlords who raise rents for sitting tenants is calculated as £479 (the average annual foregone rental income across different tenure lengths for a landlord who raises the rent when future rental growth is 8%, taken from Table 4) * 50% (share of landlords who raise rent for sitting tenant) * 340,000 (total privately rented properties in Scotland) = £81 million, as set out in Table 9.

43. Total rental income is estimated based on average two-bedroom property rents (the most common size). Under 8% per annum future rental growth, the average monthly rent in 2024-25 is estimated to be £948 (see Table 16), giving a total rental income of £948 * 12 months * 340,000 privately rented properties = £3.867bn.

44. See YouGov polling discussed in Rationale section.

45. See also discussion in section Approach to estimating foregone rent.

46. Data sourced from Bank of England Statistical Database.

47.This is based on an analysis of Scottish Landlord Register data between January 2022 and August 2023.

48. ONS, Consumer price inflation time series, time series code D7GR.

49. These are individuals and partnerships.

50. HMRC, Property rental income statistics: 2023.

51. Comprising 0.5 FTE (full-time equivalent) administrative staff member, 1 FTE rent officer, 0.125 FTE market evidence base rent officer, and 0.5 FTE (B2 band) senior rent officer.

52. RSS only deals with rent adjudication applications where the tenancy is a private residential tenancy.

53. This assumes a full day fee for both the legal and the surveyor member for the hearing, as well as a 50% fee for the legal member to write-up the decision and a 50% fee for the surveyor member to take account of pre-hearing work required.

54. Note that there might be expected to be a higher share of applications from private residential tenancies, as this form of tenancy becomes more common over time, but this not expected to affect the total caseload.

55. For more detail, see section on Consultation with business and organisations representing tenants.

57. On the grounds of prescribed property costs; the general rent cap is set at 3%.

58. Provided the proposed rent does not exceed market rents.

59. The SFC expects that CPI inflation will moderate to 3% in 2024-25, from 10% in 2022-2023 and around 6% in 2023-24.

60. For a Private Residential Tenancy, it is legal requirement that the rent cannot be increased more than once in a twelve-month period.

61. Scottish Government, Private Sector Rent Statistics, Scotland, 2010 to 2023.

62. The criterion used was to constrain the average of six monthly rents to the published annual average, and then choose the six-monthly rents so as to minimise the sum of the squares of the 6-month on 6-month change – this smooths the 6-month rents around the annual averages.