Scotland steps closer to long term rent controls

Dan Wilson Craw, Deputy Chief Executive, Generation Rent

Scotland is far ahead of other UK nations on making renting fairer for renters. As England slowly abolishes arbitrary Section 21 evictions, landlords in Scotland have needed a reason to evict tenants since 2017. Now the Scottish Government is seeking to introduce permanent rent controls through a Housing Bill.

The proposed rent controls go further than the rent freeze and subsequent cap in force under emergency powers in 2022-24. As well as limiting rent rises within tenancies, rents will also be controlled between tenancies, to prevent tenants encountering a cliff face when moving, and to prevent landlords seeking to force tenants out just to jack up the rent.

But these controls will only apply to rent control zones – areas where local authorities find that excessive rent inflation has been taking place and which have been designated by the Scottish Government after at least eight weeks of consultation. Tenants outside these zones will only be able to use the existing Rent Officer and Tribunal system to challenge in-tenancy rent rises – leaving them vulnerable to rents set by the market that could rise more rapidly than wages.

Yesterday I gave evidence to the Scottish Parliament’s Local Government, Housing and Planning Committee, alongside other representatives of tenants’ groups and charities. These are some of the main points I raised:

The cap

The Scottish Government has proposed limiting rent rises to the rate of Consumer Price Index (CPI) inflation plus 1%, to a maximum of 6%. We have long advocated for the lower of wage growth or CPI to make sure that the typical renter is able to afford a rent rise – instead the proposed formula is generous to landlords, and would leave tenants vulnerable to unaffordable rent rises and being forced to move away from their workplaces and communities.

One reason the government has for using CPI is to reflect landlords’ costs. But HMRC figures suggest that maintenance – one common type of expense that would be affected by inflation – is worth a small proportion of landlords’ rental income. A large chunk of a rent increase in line with CPI+1 is therefore pure profit, particularly for the 58% of landlords who don’t declare mortgage interest on their tax returns. We don’t think CPI is a reasonable guide to landlords’ costs, though combined with wage growth would help reflect affordability for tenants.

Rent control zones

The process of setting up rent control zones, rather than having a national rent cap, involves two risks:

  • First, it’s not clear how long it will take for councils and the Scottish Government to identify areas that are facing excessive rent inflation and then decide to bring in controls – though a consultation would need to take place over eight weeks. If rents rise rapidly for several months before a rent control zone is designated, then these rises will get locked in.
  • Second, it’s hard to predict how long a market upswing in rents will last – though Glasgow’s recent period of high rent inflation has begun to subside, after about two and a half years. There’s a chance a generous CPI+1 cap could allow landlords to raise rents at unaffordable rates for several years after the initial spike has subsided.

Both these effects risk shutting the stable door after the horse has bolted.

Data to determine rent control zones

A previous attempt to introduce rent controls (through “Rent Pressure Zones”) failed because poor data on rents made it difficult for local authorities to make a strong enough case to the Scottish Government. It’s still an area of concern, but there have been a couple of useful developments:

  • Since late 2023 the Office for National Statistics has published monthly data on rents at a local level (Broad Rental Market Area level in Scotland). In Scotland the figures reflect rents on new tenancies so it is a helpful early warning system and gives local authorities some indication of whether renters are facing extra pressures. However, data isn’t available at neighbourhood level, and within BRMAs there can be cheaper and more expensive areas (e.g. in Lothian there is Edinburgh and a large rural hinterland).
  • Between April 2024 and March this year, there are extra protections through the existing rent assessment process which cap rent rises using a taper, with an absolute maximum of 12%. This extra protection has encouraged hundreds more tenants to use Rent Service Scotland, which publishes its decisions, including the local advertised rents it observes. The 874 cases between April and 16 January could be a source of useful neighbourhood level data – but after protections end in April this year it is likely that fewer tenants will challenge rent rises. In the 12 months before the first set of protections was announced, just 104 tenants challenged rent increases.

Ultimately it would be much more valuable for rents on every tenancy to be collected through the existing landlord registration system in Scotland. This would not only help the authorities make decisions about rent control zones, but would also help tenants check that their landlord was abiding by the cap and issuing rent rise notices lawfully.

The Housing (Scotland) Bill is now at Stage 2 (of three stages). This is akin to Committee Stage in England, with MSPs able to table amendments which will be considered only by members of the Local Government, Housing and Planning Committee.

There is a lot the Scottish Parliament still needs to get right, both on rent controls, and longer notice periods when landlords wish to sell or move in, to match those tenants in England will soon have. A successful system in Scotland could be a model for the rest of the UK. We’ll keep following it closely over the months ahead, working with MSPs in an attempt to strengthen the Bill as much as possible, so tenants across Scotland have access to secure and affordable homes.

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