Scottish Housing Market Review: Q2 2023

4. Private Rental Sector

Private Housing Rental Prices

Note: In previous editions of the quarterly housing market review the ONS Private Rental Sector index was used to monitor changes in the private rents. However, the methodology used for this index, in particular the assumptions which are made about the behaviour of rents paid by existing tenants due to limited data on actual trends in this sub-sector in Scotland, means that the behaviour of the index may not robustly capture the impact of the Cost of Living (Tenant Protection) Act on capping rents for existing tenants (see next section). Therefore the analysis in this section focuses on data from letting agents, which covers rents for new tenants, and is not affected by the emergency legislation.

Letting agencies only cover around half of the private rented sector, and each letting agent's data will be affected by its market coverage, which will vary by geography and market segment. Subject to these caveats, data from Citylets, which showed a 12.4% annual increase in its Private Housing Rental Price Index in Q1 2023, and Rightmove, which recorded a 12.3% increase in its Rental Tracker, tell a similar story about recent trends in rents for new tenants in Scotland. Between 2010 and 2021, nominal growth in rents for new tenants, as measured by the Citylets index, had largely ranged between 0% and 5%, (see Chart 4.1), before rental growth began to accelerate in 2022.

In real terms (adjusting for inflation, using the Consumer Price Index), the annual change in the Citylets private rental prices index in Q1 2023 was 2.0%, due to CPI inflation reaching 10.4% over the same period. The heightened level of CPI inflation can be partly explained by a substantial increase in the price of Housing and Household Services, principally from electricity, gas, and other fuels.

Source: Citylets, Quarterly Report, Q1 2023

Rent Freeze and Evictions Moratorium

Tenants have increased protection from rent increases and evictions during the cost of living crisis under emergency legislation passed by the Scottish Parliament. The Cost of Living (Tenant Protection) Act introduced a temporary rent cap, a temporary moratorium on the enforcement of evictions (except in a number of specified circumstances), and increased the level of damages for unlawful evictions to a maximum of 36 months' worth of rent.

This cap, which applies to in-tenancy rent increases, was initially set at 0% for rent-increase notices served from 6 September 2022 until 31 March 2023. The cap has since been extended to 30 September 2023, with changes meaning that from 1 April 2023 if a private landlord serves a notice to increase a tenant's rent mid-tenancy then the increase will be capped at 3%. Private landlords will alternatively be able to apply for a rent increase of up to 6% (previously 3%) to help cover certain increases in costs in defined and limited circumstances. Enforcement of evictions will continue to be paused for up to six months except in a number of specified circumstances.

The rent cap for student accommodation has been suspended, recognising its limited impact on annual rents set on the basis of an academic year, and the social sector rent cap has been replaced with agreements from landlords to keep any rent increase for 2023-24 well below inflation.

Tenants' Rights Minister Patrick Harvie has set out proposals to extended the current measures until 31st March 2024, at the latest, subject to parliamentary approval.