Professor Douglas Robertson

The reform of any policy introduces a new set of dynamics within any system. Any policy’s success measured against its stated ambitions is influenced by many factors, some which predate the policy shift while others emerge later. Studying recent reforms of Scotland’s Private Rented Sector illustrates the importance and significance of such serendipity.

The RentBetter research has spanned 5 years engaging with almost 5,000 tenants and landlords. Importantly, it found that tenants feel more secure in their homes because of the new statutory tenancy. However, they don’t know about the new rights conferred on them by that tenancy and they rarely, if ever, sought to exercise them in the newly created First-Tier Tribunal.

Landlords found their initial hesitancy about the new Private Residential Tenancy (PRT) was misplaced, and now applaud the standardisation and simplicity it has brought to the letting process. However, they voice serious objections and anger at the subsequent advent of ‘emergency’ rent controls and concerns about the time taken to resolve certain disputes with their tenants. Then there is the perennial, and still unresolved issues surrounding affordability and forced evictions. Before we consider the findings in greater detail, lets first recap.

Scotland de-regulated in 1988 and then 30 years on re-regulated its private rented sector. This re-regulation occurred incrementally through a series of legislative reforms. In 2013 the Scottish Government published a strategy for private renting – ‘A Place to Stay – A Place to Call Home’. It sought to try and balance two distinct and competing ambitions: the tenants’ desire for greater protection with some control over rents and the landlords’ interests in seeking an overhaul of evictions procedures and a demand that rent controls would not be introduced. Three separate Acts were subsequently passed, the last of which did away with the Assured Tenancy regime replacing it with the Private Residential Tenancy (PRT).

The key features of the new Private Residential Tenancy (PRT) enacted in 2016 are as follows:-

• an open-ended tenancy contract with no fixed term;
• the notice period for tenants’ is standardised to 28 days;
• where tenants have lived in the property for six-months or longer landlords must now provide 84 days’ notice to leave;
• eviction proceedings are codified into 18 statutory grounds, with each providing a reason for eviction and the eradication of the ‘no faults grounds’ for eviction;
• rent can only be increased once every 12 months with three months’ notice and tenants are able to challenge what they consider an unfair rent increases by making a case to the rent officer.

Additionally, the Scottish Government provided a model PRT which can be signed electronically. The 2016 Act also gave local authorities powers to make a case to Scottish Ministers to implement ‘rent caps’ within designated areas – called ‘Rent Pressure Zones’ (RPZs) – if the authority could make a case that rent increases there had been ‘excessive’.

In funding the RentBetter research the Nationwide Foundation sought to:

• Understand if and how the changes to the tenancy regime in Scotland were achieving the aims of creating security of tenure, protecting against excessive rent increases and empowering tenants
• Explore and compare tenants’ experiences of living in the PRS under the previous regulations and under the new changes
• Understand the perspectives of landlords, local authorities and support/advice agencies on how the new regulations are working

So what did this study find?

1. The tenancy change has provided the foundational building block for safe and secure housing. Tenants consider that they are secure, with tenant confidence growing over the last five years. However, for tenants this is mainly associated with financial security, affordability and being able to pay the rent, rather than enhanced legal tenancy rights. It also involved having a trusting and positive relationship with their landlord. Tenants thus retain a subjective rather than an objective contractual relationship with their landlord, demonstrating the power of cultural norms established during 40 years of de-regulation. There were, however, signs of a culture shift. Landlords were increasingly moving to contractual relationships and professional management, via greater use of agents. Tenants for their part were demanding a higher quality in both property and services, particularly where rents had increased. However, as the previous Wave 2 report found, for those on low-incomes, or in housing need, little has really altered as they still live in precarious situations within poor quality and relative to their income expensive housing.
2. Landlords initial concerns about the PRT proved unfounded. Both landlords and agents are supportive of increased security of tenure and feel broadly neutral about the PRT and the risks it presents. The new PRT arrangements have through time bedded themselves in. Initial thinking was that the old Short Assured Tenancies (SATs), which ran for a fixed six-month period, would disappear within a year. That failed to happen because many landlords rolled them over for their sitting tenants. This early finding provided clear evidence that the previous tenancy arrangement was ill-suited to the increasing stability prevalent within the PRS. Seven years on there are still some SATs operating (estimated at around 1 in 5 tenancies), but the Scottish Government is (rightly) proposing their abolition as part of a forthcoming Housing Bill, a measure supported by this research.
3. Tenants still did not know their rights under the PRT, and therefore did not seek to enforce these new rights when tenancy issues arose between them and their landlord. This proved to be a complex area, as tenants still showed a great reluctance to raise formal complaints with their landlord for fear of losing their home. Rather they relied on the relationship with the landlord, if that existed, illustrating there is still something of a feudal power dynamic operating. Further, although ‘no faults evictions’ have gone, there does appear to be a loophole whereby some landlords achieve that end by seeking repossession on the ground that they intend to sell the property. In 20% of such cases a sale does not result.
4. Affordability and rent regulation still remain highly contested. Private tenants accept high rents. This study revealed that 23% of those interviewed paid more than 40% of their net income on housing costs[3]. Tenants paying such a high proportion of their income on rent are struggling financially. Yet only one in ten overall stated they found their rent difficult to afford. This exposes an apparent disconnect between the amount tenants are paying for property relative to their income, thus an ‘acceptance’ or ‘normalisation’ of high rents relative to their incomes. Tenants generally assessed affordability by comparing their rent to local rent levels, with judgements made around relative cost, quality and location. The rent becomes ‘affordable’ because that simply is the going local rate.

What this unique longitudinal study exposes is the complexity of the PRS and just how it is influenced by so many different and often competing factors. Public policy is but one such influence. While some of the policy ambitions set for the 2016  Act have come to fruition, most notably making the PRS more safe and security for tenants, it has failed to fully empower tenants. This has two parts: their ignorance of these new rights, and secondly their long-standing reluctance to challenge landlords given they still feel they have too much to lose. And the 2016 legislation, plus two additional pieces of ‘emergency’ legislation have not helped ensure affordability nor protected them from excessive rent increases.

Given this complex picture of changes occurring within Scotland’s private rented sector it is almost impossible to offer up a direct ‘cause and effect’ relationship linking back to the 2016 legislation. Clearly, the introduction of the PRT has impacted on the sector, but then so have the changes to the HMRC fiscal rules in 2018 which altered tax allowance deductions available to landlords. Then there was the Covid pandemic, and the emergency rent freeze, followed by the ‘Cost of Living Crisis’. Again, emergency rent control emerged, but perhaps more significantly has been the long-term impact on mortgage interest rate changes which meant for many landlords their outgoings changed markedly. Each of these constitutes a new dynamic that impacts on the PRS market.

This blog highlights the key findings from this extensive piece of PRS research. It provides also links to other blogs that explore some of these findings in greater detail given the complexity, nuance and discussion involved in drawing out these conclusions from the mass of collected data.

• Professor Douglas Robertson was the chair of the Scottish Government Advisory Group between 2009 and 2015 that made recommendations for reform and now sits of the RentBetter Advisory Group