Rented Sector Reform: Island Communities Impact Screening Assessment

Gathering data and identifying stakeholders

The National Records of Scotland reported the Scottish islands had a population of 102,914 in 2021 (up from 99,151 in 2001)^[3], which represents approximately 2% of Scotland’s population. Although the overall population of Scotland’s islands has grown, population growth across the Scottish Islands is slower than that of mainland Scotland^[4].

There are six local authorities representing island communities: Argyll and Bute Council, Comhairle nan Eilean Siar/Western Isles; Highland Council; North Ayrshire Council; Shetland Islands Council and Orkney Islands Council. Of these, Orkney, Shetland and Western Isles are entirely island authorities, while Argyll and Bute, Highland and North Ayrshire local authorities cover island regions as well as mainland regions. Na h-Eileanan Siar has a population of 26,120, Shetland Islands has 23,020 and Orkney Islands 22,020^[5].

Only 4% of Scottish Island data zones fall within the most deprived 20% of Scottish Index of Multiple Deprivation (“SIMD”) data zones^[6]. For example, in Orkney there are no data zones at all which fall into the 20% most deprived. The highest SIMD decile for all island data zones was 5.7. Great Cumbrae Island contained, on average the highest number of more deprived data zones, followed by Bute^[7]. Although levels of deprivation on islands may be lower than average, poverty in remote and rural areas may be ‘hidden’ and under-represented as deprivation is more widely dispersed and not clustered, in comparison with urban areas^[8].

In 2020, most island data zones were amongst the least deprived across Scotland, with 59% of data zones above the 5^th SIMD decile (with 1 being most deprived and 10 the least deprived).

As set out in the Scottish Government’s New Deal for Tenants, Draft Rented Sector Strategy Consultation^[9], influences on rent levels are multiple and complex and the picture of both rent levels and rent inflation are not the same across the country, with huge geographical differences in experiences.

Supply of, and demand for, private rented accommodation can be impacted by a wide range of circumstances including the prevalence of holiday lets and second homes, investment in the sector, macro-economic changes such as changes to interest rates, levels of demand, the cost of home ownership and demographic change.

The chart on the following page provides an illustration of variability in private rental affordability at a local level, based on a comparison of 30^th percentile market rents at a broad rental market area level with separate modelled gross household income distribution estimates at a local authority level. This measure of affordability is currently used within the Housing Need and Demand Assessment Tool^[10], when estimating future demand for housing by tenure.

Estimated percentage of all households who would need to spend more than 25% of income on 1-bed or 2-bed rents, at the 30th percentile of advertised market rents

This chart is based on a comparison of 30^th percentile advertised market rents as published as part of the annual Local Housing Allowance figures for 2019-20^[11] to modelled all-tenure local level gross household income distribution estimates^[12].

Note the following caveats that apply: the rental figures are at a broad rental market area rather than local authority level, with an approximate mapping applied between the two sets of figures. The income estimates cover all households, and not just PRS households. Many of the lower income households will be in the social rented or affordable rented sectors. and therefore may not be spending more than 25% of income on rent, and in addition may be receiving housing benefit to cover some or all of the cost of the rent. Some households will be owner-occupied households with lower housing costs, especially if they no longer have a mortgage. The rental figures are largely based on advertised rents, whereas rents for sitting tenants may be lower on average.

There are significant social and economic challenges arising from the location and geography of the island communities which impact on logistics and the cost of living, as well as issues of depopulation and demographic imbalance and the vulnerability of the traditional industries of fishing, weaving and crofting. The Scottish Islands Data Dashboard shows most island local authorities had a higher employment rate than the Scottish average in 2022, with the exception of the Highlands^[13]. It also shows island populations are either declining or growing more slowly than in mainland areas and have an increasingly older age profile across all island groups.

There is evidence to suggest that there are unique elements to the experiences of renting in remote and rural areas such as islands. For example, there is evidence that young people in rural areas may have more precarious experiences of housing, closely tied to educational opportunities and labour markets than their peers in urban areas. A study of young peoples’ experiences of the housing market on Mull in 2017 found that, while some young people chose to leave the island due to factors such as social desires and expectations, others found that they struggled to compete in a housing market constrained by complex factors including a lack of availability of social housing, and a PRS with limited supply that respondents believed to be constrained by a preference for landlords for more profitable short term lets. Young respondents also described competition for available PRS properties in areas influenced by tourism and holiday lets that priced them out^[14].

Also, on housing in rural areas, the character of both the market and housing stock are different, for example, there are higher proportions of second homes, vacant homes and short term lets compared with the national average as illustrated in the table below^[15]:

Vacant dwellings and second homes, 2023

Emerging data on applications for Short Term Lets licences show that by December 2023, the 6 island authorities had received and validated 4,575 applications, accounting for 31% of the Scotland total of 14,539. Although this data does not include all applications that have been received by local authorities as some are still being processed and validated, it does suggest that these local authorities are likely to have proportionally higher numbers of STL licences compared to the rest of Scotland.^[16]

Engagement as part of the development of the Scottish Government’s Rural and Island’s Action Plan^[17] identified the delivery of affordable housing as being one of the distinct needs of island communities. One of the particular barriers identified included a lack of affordable housing, with short-term lets and second homes contributing to a shortage of housing. The Action Plan recognises the complexity of delivering more homes in the right places in remote, rural and island communities and that a one size fits all approach does not work. Interventions that work in one community may not be applicable in others and understanding housing supply, market drivers and demand as well as issues of tenure and affordability is key to the delivery of appropriate place-based housing solutions.

Rented Housing

The Scottish Government’s Private Rented Sector Statistics 2010-2023^[18] provides a profile of rental trends in the Highlands and Islands Broad Rental Market Area. The average rent on a two-bed property (the most common size) in the Highlands and Islands rose by 3.0% between 2022 and 2023 (as compared to 14.3% for Scotland as a whole), and by an average of 2.1% between 2010 and 2023 (as compared to an average of 3.3% for Scotland as a whole)^[19].

Data from the Family Resources Survey shows that at a national level since 2006-07, people living in the PRS have generally spent the highest proportion of their income on housing across the different tenures^[20], with data for 2019-20 showing that the median housing-costs-to-net-household-income ratio was 26% in the private rented sector, compared to 24% for social rented and 7% for owner occupiers^[21]; this difference is even more marked when controlling for different levels of income in the various tenures^[22].

Across all six local authorities representing island communities, a lower proportion of households rent privately compared with the Scottish average of 13% in March 2024. In March 2022, across five out of six local authorities representing island communities, a lower proportion of households rent from the social sector compared with the Scottish average of 23%.

The tables below illustrate these points^{[23],[24],[25]}.

Estimated size of private rented sector, March 2024

Estimated size of social rented sector, March 2022

Other living costs

A 2021 Scottish Government report, produced by Loughborough University, finds that additional minimum living costs for households in remote rural Scotland typically add between 15% and 30% to a household budget, compared with urban parts of the UK^[26]. This is due to a number of factors including additional costs related to items including food, clothing, household goods and most of all the significantly higher costs associated with travel. While costs of living in remote and rural areas of Scotland are higher than in urban areas, those living in remote and rural areas are less likely to experience income poverty than those living in the rest of the country; however, poverty in rural areas is heterogeneous and may be difficult to identify within wider populations^[27]. This higher cost of living is reflected through an uplift to the Minimum Income Standard (“MIS”) applied to remote rural, remote small town and island (“RRRSTI”) areas as part of the Scottish definition of fuel poverty. The Centre for Research in Social Policy at Loughborough University undertook research for the Scottish Government to determine the percentage uplifts to the UK MIS required in RRRSTI areas^[28]. As calculated in “The cost of remoteness: reflecting higher living costs in remote rural Scotland 2022 update”^[29], 90% of the UK MIS^[30] ranged from between £9,220 for a single pensioner to 24,060 for a couple with two children^[31], while in RRRSTI areas it ranged from between £11,580 for a single pensioner and £27,660 for a couple with two children to reflect the higher cost of living.

Fuel poverty on the islands

The way that homes are heated in remote and rural Scotland, including the islands, varies from urban areas in that homes in rural Scotland are less likely to use mains gas as their primary source of heating and are more likely to use heating oil, solid fuel, bottled gas or even electric heat than their urban counterparts. In 2022, levels of fuel poverty across Scotland among households using electricity as their primary heating fuel were higher, at 46%, than households using gas (29%), and oil (28%), but similar to households using other fuel (41%) as their primary heating fuel^[32].

Under the £1,690 Ofgem price cap for April 2024 these figures are now estimated to be slightly higher for electricity (50%) and oil (32%), although unchanged for gas (29%) and other fuels (41%)^[33]. Furthermore, over the 2017-2019 period Na h-Eileanan Siar (40%), Highland (33%), Argyll and Bute (32%), Moray (32%), Shetland Islands (31%) and Orkney Islands (31%) had significantly higher fuel poverty rates than the national average of 24%^[34].

Under the Scottish definition of fuel poverty as set out in the Fuel Poverty (Targets, Definition and Strategy) (Scotland) Act 2019^[35], a household is in fuel poverty if:

• in order to maintain a satisfactory heating regime, total fuel costs necessary for the home are more than 10% of the household's adjusted (i.e. after housing costs) net income (and more than 20% in the case of extreme fuel poverty); and
• if, after deducting those fuel costs, benefits received for a care need or disability and childcare costs, the household's remaining adjusted net income is insufficient to maintain an acceptable standard of living.

Under this definition, a household’s adjusted after-housing-costs net income is net of income tax, national insurance contributions, mortgage or rent payments, childcare costs, council tax, water and sewerage charges. The remaining adjusted net income must be at least 90% of the UK MIS to be considered an acceptable standard of living. To account for the higher cost of living in RRRSTI communities, an RRRSTI uplift is added for these areas, which results in a higher MIS threshold for households to be considered in fuel poverty.

Estimated fuel poverty rate by urban-rural classification, 2022 and April 2024

As shown in the table above, both in 2022 and under the April 2024 Ofgem price cap of £1,690, remote rural households have higher rates of fuel poverty than other rural-urban classification types such as large urban, other urban, accessible small towns, and accessible rural areas. The next table presents estimates of the numbers of households in fuel poverty by rural-urban classification.

Estimated number of households in fuel poverty by rural-urban classification, 2022 and April 2024

Lived experience research on fuel poverty in Scotland, as well as work specifically undertaken in the Outer Hebrides^[36], suggests that there are a number of characteristics of remote and island areas that make heating homes to comfort more challenging than in urban areas including: difficulty making homes wind and water tight; more extreme weather; higher fuel costs associated with off-grid fuel types; poorer availability of qualified tradespeople for upkeep and energy efficiency measures^[37]; as well as a lack of economies of scale and a higher percentage of restricted meters which restricts energy efficiency interventions and ability to switch to cheaper energy tariffs.

Key stakeholders in island communities in regard to the rental reform measures are:

• local authorities;
• private and social tenants;
• private and social landlords;
• representative bodies of tenants such as Citizens Advice Scotland, Shelter Scotland, Living Rent and Generation Rent;
• representative bodies of landlords and letting agents such as the Scottish Association of Landlords, Scottish Land & Estates, Scottish Federation of Housing Associations and PropertyMark; and
• financial institutions and investors such as the Scottish Property Federation and UK Finance.

Data gathered above shows different levels between islands where a breakdown at that level is available.

The measures in the Bill create the framework to deliver a nationally consistent approach to the consideration of the need for rent control, whilst maintaining the link to local circumstances. Local authorities will take the lead in carrying out mandatory assessments in their areas, ensuring that local circumstances are taken into account, to reflect the geographical variations that can exist in conditions relating to rents across Scotland.

Further consultation in the development of secondary legislation for a number of the provisions in the Bill will also provide an opportunity for further consideration of any particular issues, or alternative requirements for island communities.