Private Rental Sector Crises

We are all undergoing a shock with the rise in interest rates and the exorbitant increases in the cost of living, but that shock does not only affect those who rent their home. It affects everyone.

The Scottish Government's consultation, A New Deal for Tenants, launched in December 2021, came with the sub-headline; ‘Views sought on plans to deliver fairer rented sector: Plans to deliver a new deal for tenants, with stronger rights, greater protections against eviction and access to greener, higher-quality, more affordable housing, have been launched.’ It is notable that the concept of ‘fairness’ in this instance appears only to extend to tenants. If this ‘green, high quality’ housing is to be on offer, how can it also be more affordable? Who is going to stump up the capital to carry out the works and provide these homes? Who could afford to do it if the rents do not in some way reflect the product? The constant march of legislation is more of a ‘stick’ than ‘carrot’ approach, and what is to become of the private rental sector?

In his ministerial foreword to the New deal for Tenants, draft strategy: consultation, Patrick Harvie refers to ‘the role rented housing will play over the next five years as we plan for a green economic recovery from the pandemic, respond to the climate emergency and… create a fairer country.’ He goes on to exhort that ‘the time is right to do more for people who rent their homes – to ensure everyone has a safe, high quality home that is affordable and meets their needs in a place they want to be.’ There is absolutely nothing wrong with this as a goal, and he is of course right that in this day and age, people should not live in substandard housing, but from an early age, we are taught that ‘fairness’ shows a consideration of both sides of the coin, and in all fairness, I am struggling to see a whiff of that here

Perhaps contrary to perception, Scotland’s private rental sector is apparently characterised by a large number of landlords owning small

Poppy Baggot

07557 973 220 poppy.baggott@galbraithgroup.com numbers of property. A number of these will have piled hard-won earnings into property as a stable investment aiming for a modest but steady return. The implications of ever increasing standards and compliance coupled with the exorbitant cost of building works and materials vs rent controls and caps, cannot fail but have an impact on this sector, and as such, on the goals of the Government, and ultimately the provision of homes and well-being of the population.

Back in 2017, the private rented sector (PRS) accounted for around 15% of all residential lets in Scotland, but according to government statistics this trajectory has slowed somewhat in the last few years, and this change in course should give us pause for thought. Why is the PRS diminishing? A few plausible suggestions would be:

Rent freeze/Rent Cap: The problem 1 with emergency legislation is that it gets pushed through without consultation, and then seems to remain frozen in place. While there is no longer a freeze – the cap remains, (although not across the board.) For those landlords who have mortgages to pay, as well as factoring in the property maintenance, this is not insignificant.

Rent Controls/Regulations: With 2 regard to rent controls and regulation, this is something more widely seen in Europe, and since 2017 in Ireland, and Scotland should take note prior to forging ahead. The goal in Ireland was to stabilise rents in high pressure areas by setting limits on rent increases. However, media reports would suggest that the regulation has not been successful. To counterbalance the fact that rent increases were going to be regulated, landlords set rents at a far higher initial level, and perhaps due to lack of knowledge, or the housing shortage, tenants did not report this. Furthermore, many exemptions were made (new homes, student accommodation, renovated homes etc.), and all of this coupled with lack of proper sanctions for offenders, and the lack of power granted to the regulator make this a lesson which the Scottish Government would be advised to heed.

Moratorium on eviction: I would 3 suggest that while this legislation has caused a bit of a hiatus, and has perhaps discouraged some landlords from remaining in the sector, it is a bit of a distraction, as under a PRT (private residential tenancy), eviction of a tenant basically requires tribunal involvement anyway. However, while it might be something of a red herring, it is worth noting as a ‘would be’ landlord, that evicting an antisocial, non-rent paying tenant will be a costly and time consuming business – tempting?

Net Zero goals and increased 4 compliance requirements: Scottish Land and Estates produced a note in February 2023 relating to Energy Efficiency in Domestic Properties. This was incredibly helpful, as the majority of us have probably been hovering between ‘head in the sand’ and panic as to how to bring managed let properties up to rating D…or is it C, and when by? SLE confirms that much of this confusion finds its source in shifting government policy, which has never actually been written into legislation, meaning that at present, although it is essential to have an EPC in place for a sale or let, the minimum standard remains unenforceable – for now. Take this as a breathing space, and programme in some works, as the

‘Heat in Buildings Bill’ is on the way. Either way, for some rural, older or listed properties, attaining the heady heights of an EPC C rating, would be financially unviable for a large number of landlords.

In April 2023, Propertymark published an article revealing data collated for a survey which the Scottish Government had requested. Timothy Douglas, their head of policy and campaigns commented; ‘The legislation is continuing to have an effect on landlord confidence. The majority of agents are still seeing landlords exiting the market. The crux of the housing problem is that demand is far outstripping supply, but the Cost-of-Living Act is having the opposite effect by pushing landlords out of the sector.’ According to the survey, 93% of agents have reported more landlords wishing to leave the PRS because of new measures designed to provide the best for tenants, but with little regard to how landlords are to achieve it.

In a podcast for BBC radio 4 entitled ‘All work and no homes,’ Pennie Stuart investigates the housing shortage in Ullapool and the Highlands. Tourism is one of the main sources of business in these areas, but hotels and local businesses are finding it very difficult to find staff, as they have nowhere to live. Houses are used for short self-catered lets, providing their owners with a better income and more flexibility should they decide they wish to sell, or use the house for another purpose. As such, while this brings tourists to the area to support the economy, it also removes the housing from families or workers who may need it to supply that economy. Badenoch and Strathspey council are hoping to legislate to prevent properties leaving the rental sector and becoming used for short lets by refusing planning but this does not remove the problem for the local economy. Unable to profit from a short let business, property owners are re-marketing and selling to second home owners. Far from a resolution, this then further damages the economy.

I am aware that in my rant above, I have highlighted problems rather than providing solutions, but as in every industry, there is no hard and fast rule about what might suit each individual circumstance. Some areas and properties are suited to longer lets, and some landlords do not have the time to consider the short let option. I would advise some careful thought before becoming a landlord, and if you would like some advice, or to discuss any concerns you may have, please do give one of us at Galbraith a call. n