Responding to a perception of an overheated rental sector partly contributing to a cost-of-living crisis, the Scottish Government has attempted to apply a 6 month freeze to the market.
The Rent Freeze is a reality that all those working in the rented sector in Scotland will have to deal with over the next six months at least. Although it may help tenants in managing their income and costs, it will likely place pressure on landlords, who are not immune to the cost of living crisis.”
1. About the bill
The Cost of Living (Tenant Protection) Bill will run until end March 2023 (although this could be extended by a year) and sets a temporary power to cap rents with tenancies. The initial cap is set at 0%.
2. Potential consequences
Probably limited impact all round if it lasts just 6 months, but more significant if extended. Will affect new housing development, Net Zero commitments and energy efficiency drives.
3. Challenging conceptions
Danger of policy being made based on misconceptions and lack of data. Rents seem to be largely stable, generally affordable and deliver modest income returns for landlords.
Reaction to the Bill
The legislation applies to residential tenancies in Scotland, private and public, including Build to Rent (BTR) and Purpose Built Student Accommodation (PBSA).
Some tenant and consumer groups have welcomed the announcement. Living Rent called the legislation, “a massive relief.” Shelter Scotland also broadly welcomed it. However, the Scottish Federation of Housing Associations (SFHA) has flagged the possibility of extending a rent freeze into next year as a threat to affordable housing provision, while housing providers in the private rental sector (PRS) have also expressed strong concerns.
Many conceptions of the rental sector are often used to justify policies like rent freezes and controls. It’s important in policymaking to have a proper and objective analysis of the evidence before embarking on extensive legislative change. We explore this topic in more detail in our full Rettie & Co. Market Briefing on the Rent Freeze legislation, which you can download here.
Some Tentative Conclusions
- The Rent Freeze is a reality that all those working in the rented sector in Scotland will have to deal with over the next six months at least. Although it may help tenants in managing their income and costs, it will likely place pressure on landlords, who are not immune to the cost of living crisis.
- It is not a complete rent freeze and evictions ban. There is a number of ways in which landlords can legitimately look to increase rent and evict tenants in special circumstances.
- If temporary, the impact may be minor in terms of the support it offers tenants and the difficulties it creates for landlords and investors. If extended, there are concerns about impact on the availability of rental stock going forward. In a country with a housing crisis, legislating against new supply is something the Government needs to be cautious about.
- There also needs to be a much calmer analysis of what is actually happening in rental markets based on reputable data and evidence, and less on assertion, anecdote and the twisting of often limited data to attempt to prove a point. The rental sector in Scotland is complex and the data on the market is very thin. Without the data to baseline, let alone monitor and evaluate, we risk pulling policy levers in the dark.
- Lessons of rent control in other countries also need to be heeded.
Your Questions Answered
- How does the rent freeze work?
Rents aren’t currently permitted to rise during the period of the freeze up to the end of March 2023. However, the Government has the ability to change the permitted rate of increase (the rent cap, which is currently set at 0%). Purpose Built Student Accommodation (PBSA) provisions are slightly different in that the cap only applies from when the legislation comes into force and only impacts on aspects of the charges applied.
- Are all rents affected?
The Bill only applies to increases in rent (within tenancies) from 6 September 2022. It does not affect rents at the start of tenancies or rent increase notices if they were served before 6th September 2022.
- What if landlords are running into financial difficulty as a result of the freeze and increased running costs?
Landlords can apply to a rent officer for a rent increase to cover up to half of the increase in prescribed property costs, including mortgage interest; insurance premiums (other than general building and contents insurance); and a service charge paid for by the landlord and for which the tenant is liable in terms of the lease. The maximum increase that can be claimed is up to 50%, capped at 3% of the passing rent.
- How long is the rent freeze to last?
It’s intended to last until the end of March 2023, but Scottish Ministers have the power to extend this to 30 September 2023 and 31 March 2024. However, the Government must review the provisions to assess whether they remain necessary and proportionate, having regard to the cost of living, and report every 3 months on that review. Ministers also have the ability to end the rent freeze earlier.
- Are there any exemptions to the ban on evictions?
The Bill prevents the enforcement of eviction orders for a maximum period of 6 months. Landlords can still serve a notice of proceedings or a notice to leave and raise eviction proceedings in the Sheriff Court or First Tier Tribunal. For private residential tenancies, exemptions to the moratorium include where the property is to be sold by a lender (e.g. after being repossessed); where the tenant has engaged in criminal or anti-social behaviour; where a private landlord needs to sell or live in the property due to financial hardship; and where substantial rent arrears have been built-up (i.e. around 6 months’ rent in the private rented sector and £2,250 in the social rented sector). Student tenancies are treated differently, with the only exception on the grounds of the student engaging in criminal or anti-social behaviour.
- Wasn’t the Scottish Government already committed to introducing a national system of rent controls by 2025?
Yes, and they have been consulting widely on this, with the aim of achieving a broad political consensus through the Cross Party Group on Housing at Holyrood (which Rettie & Co. is represented on). Details of this Group’s latest report can be found here. Proposals to introduce a 2-year rent freeze had been advocated by the Scottish Labour Party but voted down by the Government and its Green MSP partners. However, the Government has now introduced a rent freeze of its own as a ‘humanitarian measure.’