Rent Pressure Zone: application requirements

Background

1. Section 35 of the Act enables a local authority to apply to the Scottish Ministers to ask that all or part of the authority's area be designated as an RPZ.

2. Within 18 weeks of receiving a valid application, Ministers must lay before the Scottish Parliament, either draft regulations designating an RPZ, or a document explaining why they have not done so. An application will only be valid if it fulfils all of the specified requirements in this document. The 18 week period will only begin once an application has been assessed as valid.

3. The RPZ provisions (sections 35 to 43 of the Act) are intended to be used by a local authority to protect existing tenants who have a Private Residential Tenancy from rents rising by too much.

4. Authorities must provide a profile of Private Rented Sector ( PRS) properties in the proposed area. Property characteristics will include such details as house type, size, age, location etc. If the rental profile of any area has changed and contributed to rent rises, details of this change and impact on rent rises should also be provided.

5. Authorities will need to collect rent data to evidence a rent rise. Rent data used in the application must be about existing tenants, who have had a rent increase in the same property, but may include different types of tenancy. The rent data must be representative of the property profile. For an RPZ to be designated, authorities must show that rents are rising by too much across most property characteristics in the profile and most properties in the proposed area.

6. Section 38 of the Act requires that any rent cap set by Ministers must allow rents in an RPZ to rise by at least the percentage change in the Consumer Price Index ( CPI) since the last rent change (or tenancy began) + one percentage point (see Box 1), although when setting the rent cap, Ministers will have the power to add additional percentage points to this if they consider this appropriate. Therefore, as a minimum, authorities will need to provide evidence of rent rises greater than CPI + 1 percentage point for existing tenants in order to demonstrate that rents are rising too much in the proposed RPZ.

7. Evidence of rent rises alone will not be sufficient to prove that they are rising by too much. Authorities also need to prove that rent rises in the proposed RPZ are causing undue hardship to tenants; and the rises are having a detrimental effect on the local authority's broader housing system.

Limits on a designation

8. The RPZ provisions have been designed in such way as to prohibit the introduction of blanket national rent capping.

9. Section 39 of the Act provides that the Scottish Ministers cannot designate an area as an RPZ without receiving a valid application from the appropriate local authority.

10. An area can only be designated as an RPZ once on the basis of the same application.

11. If Ministers designate an RPZ, the cap set by Ministers will apply to rent increases for existing tenants, in the same properties, in that zone who have a private residential tenancy. The cap set will not affect rent increases for any other private tenants in the zone e.g. those who have a short assured or assured tenancy (under the Housing (Scotland) Act 1988) or a regulated tenancy (a private tenancy which began before 2 January 1989).

12. The regulations designating the RPZ will cease to have effect after five years unless they, or another enactment, provide that they cease to have effect sooner, or unless they are revoked before the five years have elapsed.

Outcomes

13. By capping rents in a particular area, and using this as part of a wider housing strategy, a local authority could expect to achieve the following outcomes:

• existing tenants who have a private residential tenancy will be protected from rents rising by too much in the same properties;
• investors will feel confident when planning their investment knowing that any cap set by Ministers will be at least CPI + one percentage point;
• property improvements will continue as landlords can recover costs to reflect improvements made;
• initial rents for new tenancies are not affected by the rent cap and will continue to be market-led;
• the PRS will remain attractive to those that live, work and invest in it.