Pressure groups call for further powers to improve quality of rental property and keep rent increases sustainable, says Jeff Salway
An overhaul of tenancy agreements and new limits on the regularity with which landlords can hike rents will be among the measures introduced next year under the Private Housing (Tenancies) (Scotland) Act.
The changes will commence in stages this year before taking full effect in late 2017, but opinion on the implications remains divided.
While landlords argue they will have little option but to increase rents, tenant groups say further legislation is needed to improve the quality of rented property in Scotland and protect people from unsustainable rent increases.
The issue has been driven up the political agenda in recent times by rising demand for private rented homes, steep hikes in rental costs, higher arrears levels and calls for more stability for tenants.
A slow first-time buyer market and a shortage of both social housing and affordable private homes north of the Border have fuelled demand for private rented accommodation in Scotland since the financial crisis.
One effect has been to drive thousands of Scots into poverty and homelessness, the Scotland Institute think tank warned last month. It said more than 200,000 Scots had fallen into poverty because of higher housing costs, with the number of social rental homes in Scotland falling by nearly half since 1990.
The crisis can only be tackled by “re-imagining local taxation to force unused land into use and curb land price inflation”, said Dr Azeem Ibrahim, chair of the institute.
Some 330,000 households rent from a private landlord in Scotland, including 85,000 that contain children, according to Shelter Scotland. More than four in ten calls made last year to the housing and homelessness charity’s helpline were from private rented tenants, even though they account for just 14 per cent of all households in Scotland.
Graeme Brown, director of Shelter Scotland, said: “All too often we hear of people living in disrepair, being evicted or rents increasing unreasonably, forcing families and individuals into the disruptive cycle of having to move house – every six months in some cases – preventing them from ever being able to put down strong roots and being part of a community.”
Even more tenants will be driven into poverty if rents continue to rise faster than wages, claimed Jon Black, of Living Rent Scotland. “Without regulation to curb rental costs, private sector tenants may end up paying twice as much rent as they did before the financial crisis,” he said.
The legislation passed in March and taking effect next year is a “step in the right direction”, he said.
The most eye-catching measure in the act is the end of the short assured tenancy agreement that has long been in place in Scotland. Landlords will no longer be able to use the “no-fault”ground for repossession, where they can ask tenants to leave simply because the tenancy has ended. Tenancies will instead continue indefinitely unless landlords can cite specific reasons to end them.
Rent increases will be limited to once a year, with three months’ notice to be given, and local authorities will have powers to implement rent controls in “rent pressure zones” where increases have caused concerns.
But while the changes should provide more security for tenants, critics point to likely consequences including reduced availability of private rental properties as investors leave the market.
Brian Armour, real estate partner at solicitors TLT, said: “As a result of the rent controls imposed by the act, landlords may be reluctant to purchase properties in certain areas as they may be unable to generate appropriate rents in order to see a return in their investment.”
One big omission from the reform is measures to improve the collection of data that would allow public authorities to assess its impact or to guide decisions around the implementation of rent controls, said Dan Cookson, spokesman for PRS 4 Scotland. “Those issues still need looked at while there is time before the act comes into force.”
Others say it doesn’t go far enough. “With more security, tenants can plan ahead and are less likely to face costly, stressful and time-consuming evictions,” said Black. “But when it comes to rent, Scotland is still playing catch-up with our European neighbours. In Germany and the Netherlands, for example, the private rented sector is thriving with rent controls and proper regulations.”
The act passed through Holyrood at the same time as both the UK and Scottish governments were setting out new tax rules on buy-to-let.
They include the new 3 per cent Land and Buildings Transaction Tax (LBTT) charge on the purchase of second homes and buy-to-let properties, which took effect in April, and the removal of mortgage interest tax relief from next year.
Landlords will inevitably need to find ways to offset the increase in costs, said Armour. “The reduction in potential tax relief could lead landlords to consider other ways to mitigate their losses, such as selling property or raising rents which will in turn affect tenants and the housing market.”
With the Scottish Government now reconvened after the May election the lobbying will begin for further changes. The act was largely welcomed by tenant groups, but they believe Scotland can go further in strengthening rent controls and tenant rights.
The current climate, in which rents and arrears continue to climb and landlords face increased costs, ensures the act represents just one stage in the battle to find a balance in the Scotland’s rental market.
“What we need to encourage more housing supply is regulatory certainty and there remains a concern that the legislation will carry with it a range of unintended consequences,” said Cookson.