From rental reform to housing emergency: Scotland’s experience
In May, the Scottish Government declared a national housing emergency, swiftly attributing the crisis to UK Government budget cuts, the Local Housing Allowance (LHA) rate freeze and Brexit-related labour shortages. However, the roots of the problem may lie closer to home. Eleanor Bateman, senior public affairs officer explains more.
A national emergency
Scotland has been at the forefront of private rented sector reform. But despite launching its new regime, designed to improve tenants’ rights and outcomes, nearly seven years ago, the sector is reaching breaking point and undergoing yet further change.
The announcement that Scotland was facing a national housing emergency came as a surprise to few within the sector, with pressure on homelessness services having forced several local authorities, including City of Edinburgh, Glasgow City and Fife Councils to declare local housing emergencies in the last year.
But acknowledging an emergency and dealing with it are two different matters, and so far, the Scottish Government has taken little action to tackle the core issue: an undersupply of homes.
The housing shortage affects all tenures, but in the private rented sector it is exacerbated by nearly a decade of legislative changes, rising mortgage and maintenance costs, and ‘emergency’ legislation aimed at preventing repossessions and restricting rent increases.
Pioneering rental reform
The Scottish Government has implemented a host of reforms, beginning in 2017 with the Private Housing (Tenancies) (Scotland) Act 2016. The Act prevented the creation of new fixed-term short-assured tenancies (SATs) and introduced Private Residential Tenancies (PRTs), removing the certainty of a minimum six-month tenancy and abolishing the ‘no fault’ notice to quit to improve experiences for tenants.
The introduction of the PRT applied to new tenancies only, allowing SATs to be phased out. Yet, despite this approach the impact on the sector was significant and the reforms have not benefitted all households.
Some lower income tenants have been adversely affected by the reforms, which have reduced supply of private rented homes. The Rent Better Wave 2 report, which considered the impact of the PRT regime (before the introduction of emergency rent control legislation), found a reduction of 8,000 private rented homes and noted that half of the surveyed landlords were considering leaving the sector within five years.
Research by the Chartered Institute of Housing Scotland (CIH Scotland) and Fife Council corroborates this and shows that 68% of local authorities report private landlords leaving the market.
The Scottish Household Survey suggests that the proportion of households in the private rented sector decreased from 360,000 households (15%) in 2017 to 320,000 households (13%) in 2022. A similar decrease is evident in the Scottish Landlord Register, which recorded 338,237 households in 2022, down from 361,884 in 2017.
Rent control to the rescue?
In 2022, the Scottish Government responded to the cost-of-living crisis with the Cost of Living (Tenant Protection) Scotland Act, which capped mid-tenancy rent increases at 0% until March 2023, and 3% (with some exceptions) until March 2024. Despite the cap on mid-tenancy increases, new tenancy rent pressure pushed market rates up in line with England, where no cap existed.
Despite the cap, rents rose broadly in line with England, where no such cap existed. Moreover, Scottish property firm Rettie and Co. estimate that £3.2 billion of private rented sector investment has been halted since rent control measures were put in place.
Earlier this year, the Scottish Government published the Housing (Scotland) Bill for consultation.
The Bill aims to further improve tenants’ rights, enhance eviction protections, mandates domestic abuse policies for social landlords and introduces new obligations for homelessness prevention.
It also proposes a system of local rent controls to apply to both in-tenancy and between-tenancy restrictions, unlike the emergency rent cap brought in under the Cost of Living (Tenant Protection) Act 2022, which expired in March 2024 and applied to in-tenancy increases only.
An assessment of the Housing (Scotland) Bill published this week appears to all but confirm the introduction of rent controls. The report notes that the Scottish Government is considering “the detail of how rent control will be implemented”
The proposed system requires local authorities to assess rents in their area every five years and recommend designation of rent control areas to Scottish ministers if it believes controls are needed “to protect the social and economic interest of tenants in the area”.
Once in place, rent control areas will limit rent increases to a level in line with inflation annually or market rates between tenancies. However, as the mass of evidence suggests, this is likely to reduce both the availability and quality of homes to rent, making remaining properties relatively more expensive.
Instead of alleviating the housing emergency, the Housing Bill, as proposed, will further erode landlord confidence to invest and restrict the already limited supply of private rented homes, forcing tenants to accept poorer quality and less affordable options. NRLA analysis of possession claims between 1 December 2023 and 29 February 2024 shows that the number of claims was around 50% higher than in the preceding six month period. Notably, 50% of landlords who sought possession did so with the intention of selling the property, which is more than double the pre-pandemic rate.
Lessons for the UK Government
With the Renters’ Rights Bill anticipated soon, the UK Government should reflect on Scotland’s experience, which has resulted in a housing emergency and left many households worse off than pre-reform.
The Scottish Government’s current approach risks plunging it further into disaster by deterring landlords from entering and staying in the sector. It serves as a cautionary tale: improving renters’ rights requires a delicate balance, and if the risk of investing becomes too great, a chronic scarcity of homes could escalate into a crisis that takes decades to resolve.
