Rented sector reform: landlord and tenant engagement questionnaire - analysis report

3: Rent control

General view from stakeholder discussion groups

As noted in the introduction, in addition to the questionnaire, the Scottish Government held two discussion groups, one with the PRS Stakeholder Engagement Group and the other with members of Propertymark. Some of those attending stakeholder discussion groups were disappointed that they were not given an opportunity to express their concerns about the introduction of rent controls.

Specific concerns, mostly expressed by those taking a landlord perspective, included that rent controls:

• Will have the unintended consequence of pushing rental prices up, including because of private landlords leaving the sector.
• Could potentially discourage or block investment. There was an associated query as to what engagement there has been with UK Finance or others on behalf of the lenders with regards to the implementation of a permanent rent control framework.
• Could lead to private landlords increasing rent by more than they otherwise would have, in anticipation of the measures being introduced.

There was also a query as to how the policy would be monitored and reviewed, when the parameters for rent controls would be known and whether any consideration had been given to cost/benefit analysis.

Area basis for rent controls

In summary, the proposals are that:

• Local authorities would be required to carry out an assessment of conditions in relation to rent in their area and make a recommendation about whether Scottish Ministers should impose rent controls in all or part of their area. There would be a mandatory requirement to re-assess rent conditions on a regular basis.
• Scottish Ministers would be the final decision maker about whether to impose rent controls, taking account of the outcome of the assessment process.
• In any area where rent controls are introduced, there would be a restriction on the amount by which rents can be increased in that area. This would be via the imposition of a rent cap based on a fixed percentage or a formula by which the increase could be calculated.

Question 6 – Do you think rent control should be introduced on a local basis, where assessment shows that there is a need, or should rent control be universally applied across Scotland?

Responses to Question 6 by respondent type are set out in Table 5 below.

Respondents were divided on this issue, with 59% of those answering thinking that rent control should be universally applied across Scotland and 41% that it should be introduced on a local basis where assessment shows there is a need. The respondent groups divided very clearly between those favouring the universal approach and those preferring the local one:

• A substantial majority of PRS and SRS tenants, SRS tenant organisations and the ‘None of the above’ and ‘None selected’ groups supported rent control being universally applied. Levels of support ranged from 80% to 97%.
• A substantial majority of PRS landlords and landlord organisations, SRS landlords and landlord organisations and PRS tenant organisations supported rent control being introduced on a local basis where assessment shows there is a need. Levels of support ranged from 79% to 90%.

Points from stakeholder discussion groups

With reference to local authorities being required to carry out an assessment of conditions in relation to rent in their area, a participant at the Propertymark discussion group flagged the lack of reliable/robust data on private rent levels. There was also a concern that local authorities could choose different systems of data collection as, for example, they have with regard to short term lets. There were also queries as to whether there would be guidelines or a framework for local authorities to adhere to when assessing local circumstances.

Tenancy stage

In summary, the proposal is that rent controls would apply to increases in rent that take place both during a tenancy and where the rent is set for a new tenant.

Question 7 – Where restrictions on rent increases are being applied, do you think those restrictions should apply to:

• Both sitting tenants and in-between tenancies; or
• Sitting tenants only

Responses to Question 7 by respondent type are set out in Table 6 below.

Respondents were also divided on whether any restrictions should be applied to both sitting tenants and in-between tenancies or to sitting tenants only. The majority, 58% of the answering the question, thought they should apply to both sitting tenants and in between tenancies, while the remaining 42% thought they should apply to sitting tenants only.

As at the previous question, the respondent groups divided between those favouring one or other of the approaches:

• A substantial majority of PRS and SRS tenants, SRS tenant organisations and the ‘None of the above’ and ‘None selected’ groups supported restrictions applying to both sitting tenants and in-between tenancies. Levels of support ranged from 80% to 100% of those answering. A majority of SRS landlord organisations (57% of those answering) also selected this option.
• A majority of PRS landlords, PRS landlord organisations, SRS landlords, and PRS tenant organisations supported restrictions for sitting tenants only. Levels of support ranged from 62% to 88% of those answering.

Points from stakeholder discussion groups

This issue was also covered at the discussion groups, with a concern voiced that between-tenancy rent controls could potentially remove the incentive for landlords to upgrade properties.

Timing of rent increases

In summary, the proposals are that:

• In most cases, a landlord would not be able to increase their tenant’s rent until at least 12 months after the tenancy started.
• Rent increases in areas where rent controls are in place would be limited to one increase per property in any 12-month period, even if the tenant changes within that time.
• If the let property in a new tenancy is substantially the same as the let property in the preceding tenancy, the rent for that property could only be increased once in any 12-month period regardless of how many different tenancies are entered into in that period.
• Rent controls would apply to increases in rent that take place both during a tenancy and where the rent is set for a new tenant.

Question 8 – Do you agree that, if rent controls in a rent control area apply both within and between tenancies, the first rent increase in a tenancy should be possible at any point after the start of the tenancy provided that at least 12 months has passed since the rent was last increased during the previous tenancy?

Responses to Question 8 by respondent type are set out in Table 7 below.

A majority of respondents, 80% of those answering the question, agreed that, if rent controls in a rent control area apply both within and between tenancies, the first rent increase in a tenancy should be possible at any point after the start of the tenancy, provided that at least 12 months has passed since the rent was last increased during the previous tenancy.

Support was strongest amongst PRS and SRS tenants and in the ‘None of the above’ and ‘None selected’ groups (ranging from 95% to 98%). The majority of PRS landlords and PRS landlord organisations also agreed, with support at 61% and 66% respectively. SRS landlords were the only group in which a small majority (51% of those answering) did not agree.

Exemptions from rent control

The proposal is to class the following types of tenancy as being “new to market” and therefore exempt from rent control:

i. The first tenancy of a property which has not been let as a principal home before.

ii. The first tenancy of a property following it being purchased with vacant possession by the current landlord.

iii. The first tenancy of a property which has been empty for a prolonged period.

iv. The first private residential tenancy of a property where the previous tenancy was a regulated tenancy under the Rent (Scotland) Act 1984.

Question 9 – Which of the following types of tenancy should be classed as “new to market” and therefore exempt from rent control when the first rent is set?

Responses to Question 9 by respondent type are set out in Table 8 below. Respondents were given each of the four options listed above (of which they could select one or more) or they could select ‘None of the above’.

The most-frequently selected answer, at 61% of all those answering, was ‘None of the above’. A substantial majority of PRS and SRS tenants and the ‘None of the above’ and ‘None selected’ groups thought that no types of tenancy should be exempt from rent control when the first rent is set, with support ranging from 92% to 98%.

In terms of the four options presented, 36% supported an exemption for the first tenancy of a property which has not been let as a principal home before, and 34% both the first tenancy of a property following it being purchased with vacant possession by the current landlord and the first tenancy of a property which has been empty for a prolonged period. The first private residential tenancy of a property where the previous tenancy was a regulated tenancy under the Rent (Scotland) Act 1984 was supported by 29% of those answering the question.

Many of those who selected at least one of the four options selected all four. For example, 53% of the private landlords who selected at least one of the options selected all four.

Time period for rent control areas

The proposal is that any rent control area would be in place for a fixed time period, with re-designation based on further assessment showing a continued need for rent control.

Question 10 – It is proposed that any rent control area will be in place for a fixed time period. To what extent do you agree with the following statements?

• Rent control areas should only last for a fixed amount of time. They can only be extended if a new assessment shows they are still needed/
• The duration of rent control areas should be flexible, and able to be extended beyond the designated time period, permitting indefinite continuation where required.
• There should not be a time limit on the duration of rent control areas and any decision to end rent control would be based upon a new assessment indicating they are no longer necessary.

Question 10 asked respondents to agree or disagree with three statements based on a 5-point scale (Strongly agree, Agree, Neither agree nor disagree, Disagree, Strongly Disagree).

Full results for all respondent groups are included at Annex A. Chart 1 below shows the results for PRS landlords and PRS tenants, along with the total for all respondents. PRS landlords and tenants have been selected as broadly representative of the two positions that respondents tended to take at this question.

For all three options, views tended to be relatively polarised, with respondents tending to strongly agree or strongly disagree, and with relatively few respondents selecting the Agree, Neither agree nor disagree or Disagree options.

Rent control areas should only last for a fixed amount of time

A small majority, 52% of those answering the question, strongly disagreed that rent controls should only last for a fixed amount of time. The proportion of PRS tenants strongly disagreeing rose to 94%, while in contrast 74% of PRS landlords strongly agreed.

The duration of rent control areas should be flexible

A small majority, 51% of those answering the question, strongly agreed that the duration of rent control areas should be flexible, and able to be extended beyond the designated time period, permitting indefinite continuation where required. The proportion of PRS tenants strongly agreeing rose to 94%, while in contrast 68% of PRS landlords strongly disagreed.

There should not be a time limit on the duration of rent control areas

A majority of respondents, 55% of those answering the question, strongly agreed that there should not be a time limit on the duration of rent control areas and any decision to end rent control would be based upon a new assessment indicating they are no longer necessary. The proportion of PRS tenants strongly agreeing rose to 96%, while in contrast 64% of PRS landlords strongly disagreed.

Question 11 – Where an area is designated as a rent control area, do you agree that if there are changes in local circumstances there should be a re-assessment before the fixed time period ends so that the designation could be brought to an end earlier than the fixed period?

Responses to Question 11 by respondent type are set out in Table 9 below.

Overall, respondents were relatively evenly divided on whether, if there are changes in local circumstances, there should be a re-assessment before the fixed time period ends so that the designation could be ended earlier. A small majority, 54% of the answering the question, thought there should not, and the remaining 46% that there should be a re-assessment.

However, different respondent groups tended to a clear position:

• A substantial majority of PRS and SRS tenants and the ‘None of the above’ and ‘None selected’ groups did not agree that there should be a re-assessment. Levels of support for this view ranged from 91% to 97% of those answering.
• In contrast, a substantial majority of PRS landlords, PRS landlord organisations, SRS landlords, and SRS landlord organisations agreed that there should be a reassessment, with levels of support ranging from 81% to 92% of those answering. A majority of PRS and SRS tenant organisations also agreed (at 54% and 60% respectively).

Question 12 – If rent control areas are put in place for fixed time periods, which time period would you consider to be most appropriate?

Responses to Question 12 by respondent type are set out in Table 10 below.

Of the six options presented, 50% of respondents answering the question considered that a time period of more than 5 years would be most appropriate while, at the other end of the spectrum, 41% favoured a 1-year period. Relatively few respondents favoured a period of 2, 3, 4 or 5 years.

PRS and SRS tenants and respondents in the ‘None of the above’ and ‘None selected’ groups tended to favour more than 5 years, with levels of support ranging from 90% to 96%. In contrast, PRS landlords, PRS landlord organisations and SRS landlords tended to favour a time period of 1 year, with levels of support ranging from 84% down to 88%.

Albeit that overall numbers with their groups are small, SRS landlord organisations and PRS and SRS tenant organisations tended to be divided on this issue, although were most likely to favour the 1-year option.

Duty to consult

The proposal is that any rent control area would be in place for a fixed time period, with re-designation based on further assessment showing a continued need for rent control.

Question 13 – Where Scottish Ministers intend to introduce rent control to an area, should there be a duty to consult with landlord groups, tenant groups and local authorities in the local area before introducing rent control to that area?

Responses to Question 13 by respondent type are set out in Table 11 below.

Respondents were almost unanimous agreeing that there should there be a duty to consult with landlord groups, tenant groups and local authorities in the local area before introducing rent control to that area. Overall, 98% of those answering the question agreed.

Mechanisms for increasing rent above a cap

Question 14 – Should there be a mechanism that allows landlords to increase the rent above the annual rent cap in cases where they have not previously raised the rent for the let property when they were permitted to do so i.e. if the landlord chooses not to increase rent for a period of years then they would be allowed to increase it by an amount above the cap at the next rent increase?

Responses to Question 14 by respondent type are set out in Table 12 below.

Overall, respondents were evenly divided on whether there should be a mechanism that allows landlords to increase the rent above the annual rent cap in cases where they have not previously raised the rent for the let property when they were permitted to do so; 51% thought there should not be a mechanism to increase the rent, and 49% that there should.

However, different respondent groups again tended to take very different views:

• PRS and SRS tenants, SRS tenant organisations and respondents in the ‘None of the above’ or ‘None selected’ groups generally thought there should not be a mechanism for increasing rents, with that view taken by 80% to 98% of respondents in those groups.
• PRS landlords, PRS landlord organisations and SRS landlords generally thought there should be a mechanism that allows landlords to increase the rent, with this view expressed by 93% to 97% of respondents in those groups. Smaller majorities of SRS landlord organisations and PRS tenant organisations favoured a mechanism for increasing rents, at 64% and 54% respectively.

Question 15 – If there was a mechanism that allows landlords to increase the rent above the annual rent cap in cases where they have not previously raised the rent for the let property when they were permitted to do so, should this only apply to the first rent increase after a rent control area comes into force or to any rent increase while a rent control area is in force?

Responses to Question 15 by respondent type are set out in Table 13 below.

A majority of respondents, 60% of those answering the question, thought that any mechanism that allows landlords to increase the rent above the annual rent cap should only apply to the first rent increase after a rent control area comes into force. The remaining 40% of those answering the question thought it should apply to any rent increase while a rent control area is in force.

A substantial majority of PRS and SRS tenants, and those in ‘None of the above’ or ‘None selected’ groups favoured a mechanism that would apply only to the first rent increase after a rent control are comes into force with support for this option ranging from 93% to 97%. A majority of SRS landlord organisations and SRS tenant organisations also favoured this option, at 69% and 75% respectively.

However, a substantial majority of PRS landlords and PRS landlord organisations, (80% and 83% respectively) thought it should apply to any rent increase while a rent control area is in force. A majority of SRS landlords and PRS tenant organisations also favoured this approach (68% and 62% respectively).

Question 16 – Do you think there should be a mechanism to allow landlords to raise the rent above the rent cap, on a case-by-case basis, in certain circumstances such as where there have been improvements to the let property?

Responses to Question 16 by respondent type are set out in Table 14 below.

Overall, respondents were evenly divided on whether there should be a mechanism to allow landlords to raise the rent above the rent cap, on a case-by-case basis, in certain circumstances such as where there have been improvements to the let property.

A substantial majority of PRS landlords, PRS landlord organisations, SRS landlords, SRS landlord organisations and PRS tenant organisations thought that there should be a mechanism to raise rent: support for a mechanism within these groups ranged from 85% to 98%.

In contrast, a substantial majority of PRS and SRS tenants and those in the ‘None and the above’ and ‘None selected’ groups thought there should not be a mechanism to allow landlords to raise the rent. From 90% to 98% of respondents in these groups were of that view, as were 60% of SRS tenant organisation respondents.

Question 17 – If there were to be a mechanism to allow landlords to raise the rent above the rent cap on a case-by case basis, which of the following circumstances do you think this should apply to?

Responses to Question 17 by respondent type are set out in Table 15 below. Respondents were given three sets of circumstances, of which they could selected one or more.

In terms of the circumstances under which landlords could be able to raise the rent above the rent cap, were such a mechanism to be available, there were high levels of support for both improvements to the quality of fixtures and fittings and to the energy efficiency of the property; in both cases, 96% of those answering the question thought it could apply under these circumstances. A clear majority across all the respondent groups supported an approach in which these two circumstances could be taken into account.

Overall, only 45% of those responding supported landlord’s costs incurred in letting the property having increased being taken into account. However, this circumstance did attract substantial support from some groups of respondents; support for its inclusion from PRS landlords, PRS landlord organisations, SRS landlords and SRS landlord organisations ranged from 79% to 95%.

Verification routes

The proposal is to introduce a route by which tenants in a rent control area can verify that any proposed rent increase is in line with the rent cap. This could cover cases where the tenant believes their landlord may be proposing to increase the rent by more than the amount allowed.

Question 18 – Do you agree with this proposal?

Responses to Question 18 by respondent type are set out in Table 16 below.

A substantial majority of respondents, 84% of those answering the question, thought should be a route by which tenants can check whether a proposed rent increase is allowed under the rent cap.

There were very strong levels of support for the proposal from PRS and SRS tenants and respondents and the ‘None of the above’ or ‘None selected’ groups (ranging from 97% to 100%). Although a clear majority of PRS and SRS landlords also supported the proposals, it was at a lower level of 69% and 63% respectively.

Property-type exemptions

The questionnaire form noted the important part that investment plays in the housing sector in Scotland, including in the PRS. It went on to suggest that, while some investors may see rent control as a deterrent to investment, regulated markets can be attractive to institutional investors.

Nevertheless, Scottish Ministers are considering whether there should be the facility to exempt certain categories of housing from rent controls.

Question 19 – Do you consider that any of the categories of housing below should be considered for exemption from rent controls?

Respondents were presented with four possible options at Question 19 and were asked to select only one. Responses by respondent type are set out in Table 17 below.

A majority of respondents, 71% of those answering the question, thought that no categories of housing should be exempt from rent controls. A substantial majority of PRS and SRS tenants, and respondents in the ‘None of the above’ and ‘None selected’ groups favoured this option; from 93% to 99% of respondents thought no categories of housing should be exempt. Although in a minority, 42% of PRS landlords and 37% of PRS landlord organisations also did not think there should be exemptions.

In terms of the other options, 15% of all respondents favoured an exemption for rented property offered for social good where rents are controlled below market level, but only 2% for ‘Build to Rent’ properties, although 12% thought that both categories should be exempt. Among PRS landlords 32% supported exemption for properties offered for social good and 23% supported exemption for both categories.

Among SRS landlords, support for an exemption for rented property offered for social good stood at 29% rising to 37% for exemption in both categories. For SRS landlord organisations support for these options stood at 50% and 36% respectively.