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Review of the Private Rented Sector: Volume 1: Key Findings and Policy Implications

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3. Private Tenants: Characteristics and Experiences

Introduction

3.1 The review shows that the PRS houses a wide range of people in diverse social and economic circumstances. It also shows that the experiences of the different types of tenants in the sector often vary in ways which may or may not require different policy responses. Further details of the tenant sub-groups appear in the Tenants Survey ( TS:24-31). This Chapter considers the diverse characteristics and motivations of tenants within the PRS and the issues that affect them.

The diverse nature of tenants and implications for policy

3.2 The PRS accommodates about 233,000 households 13. These constitute a broad customer base of tenants attracted by the ease of access to and exit from the sector, as well as the wide variety of locations and property types available. The core demand tends to come from households requiring transitional accommodation, with the length of this transitional phase varying in accordance with housing aspirations, preferences, and supply and affordability of suitable accommodation in other sectors ( TS:11). However, there are also households for whom the PRS provides a long-term home, particularly in rural areas ( TS:29).

3.3 In summary, the main PRS demand comes from:

Students, traditionally concentrated around cities and larger urban areas. High-end professionals, traditionally attracted to city centre areas (and, increasingly, new developments) but in some cases more suburban areas where family homes are available. Traditional PRS - longstanding tenants, often older people who have never considered any alternative and who may still retain protected rights. Lower income households who are living in the sector either through choice or necessity, as they are unable to afford owner occupation and are unlikely to gain access to social housing. Accommodation linked to employment, particularly in rural areas. Newly formed households - including those following relationship breakdown Migrant workers - who may be subject to legal and practical constraints in accessing social housing, while affordability and other constraints inhibit access to owner occupation.

3.4 The characteristics of PRS households are, in many ways, distinctive, compared with the population as a whole ( TS:9-11). They tend to be younger, they are more likely to be single people or couples with no children. They also tend to have similar levels of economic activity to the population as a whole but with a higher level of economic inactivity due to undertaking education and training and less economic inactivity due to other reasons (such as retired, looking after home/family or permanently sick or disabled). As a result their incomes, although higher on average now than in 1999 (Chart 3.1), are still relatively low (median net income of highest income householder and spouse: £12,600 in 1999 and £15,600 in 2007) compared to all tenure groups (median net income of highest income householder and spouse: £14,600 in 1999 and £17,900 in 2007) 14.

Chart 3.1 Annual net income of highest income householder and spouse, by tenure

Chart 3.1 Annual net income of highest income householder and spouse, by tenure

Source: Scottish Household Survey ( see footnote 14 for detail)

3.5 Of course, this apparent change may in part be the result of rising incomes, but alternative explanations include:

The PRS is becoming a more attractive mainstream option for higher earners because property choice and quality is improving and it is taking longer for aspiring owner-occupiers to purchase a house. Social and demographic changes also mean it is taking longer for people to 'settle down' in a permanent location. The PRS has become a less viable choice for lower earners as competition for, and cost of, PRS accommodation increases. This raises the question of where these households go - bearing in mind the high demand for social housing - but the evidence suggests clear reductions in the proportions of lower income households living in the sector (Scottish Household Survey analysis).

3.6 Hence the sector is both different from other sectors ( TS:9-11) and highly diverse within itself. These differences may lead to a variety of experiences and views of the sector; key findings from various tenant groups are outlined below. The Tenants and Landlords Surveys contain further information. The discussion below focuses in the main on those tenant groups where the evidence suggests that they may be experiencing difficulties in aspects of renting.

The PRS plays a key role in housing low income households often receiving housing benefit

3.7 The review shows that the PRS appears to have a key role in housing low income households and also that the experiences and aspirations of housing benefit tenants are often different from other tenant groups.

3.8 Over the period since devolution, the proportion of PRS tenants receiving housing benefit has shown a decline, from around one quarter in 1999 to one fifth in 2007. In the Tenants Survey ( TS:65), 17% of respondents surveyed were in receipt of housing benefit (8% of respondents had all their rent paid, 6% had half their rent paid and 3% less than half). Compared with PRS tenants as a whole, households on housing benefit tend to be older, with nearly half aged over 50, and they were equally split between male and female heads of households. They showed a similar profile of household types to the sector as a whole (predominantly single person and two adult households), but with a slightly higher level of lone parents ( TS:66).

3.9 Survey findings show that tenants on housing benefit tended to be much more settled than other PRS tenants. For example, 35% of households on full or partial benefit have stayed in their current home for more than 5 years compared with 15% of those not receiving benefit ( TS:35). Furthermore, only 37% of HB tenants had lived in their home for less than two years, compared with 69% of those not in receipt of benefit. Likewise, only 18% expected to move in the next year ( TS:41).

3.10 However, despite the settled nature of their PRS experience, households receiving housing benefit were less likely to expect to remain in the PRS when they did next move home, with 42% saying that they were most likely to move to the social rented sector ( TS:41). Reasons for this are probably a combination of greater security of tenure in the social sector, more affordable properties and possibly satisfaction with property, although in each of these cases the difference in views between this group and others is significant but not substantial.

3.11 Despite, or perhaps because of, having more settled housing, security of tenure seems to be more important to households in receipt of housing benefit. They were slightly more likely to state a preference for a longer tenancy period; 4 in 10 stated a preference for a longer tenancy compared to 3 in 10 of those not receiving housing benefit 15 ( TS:72).

3.12 Although 3 in every 4 households on housing benefit said that they were satisfied with their home, satisfaction levels were slightly lower than for other tenants ( TS:53). This finding may be related to a lower standard of property condition or range of fittings given that households on housing benefit tend to live in cheaper properties ( TS:66). It may also relate to affordability, particularly for those in receipt of partial housing benefit.

3.13 Average rents have risen over the period but have been largely tracked by the amount of housing benefit received (Chart 3.2). Hence it is not surprising that the survey found that households on full housing benefit were the least likely to have any difficulty affording their rent. However, this was not the case for households on partial housing benefit, where over half said that they had difficulty affording their rent. The chart also shows that this may not remain the case in the future, as the difference between mean rent and mean housing benefit seems to be widening. Those in receipt of partial housing benefit are also more likely to be working and so rental affordability may become a key issue in deciding to remain in work.

Chart 3.2 Private renters receiving housing benefit (full or partial), the amount received and the rent paid

Chart 3.2 Private renters receiving housing benefit (full or partial), the amount received and the rent paid

Source: Scottish Household Survey

3.14 A number of changes have been introduced by the UK Government to the housing benefit regime and an evaluation of the scheme 16 as well as internal analysis undertaken as part of the review suggests that these changes may impact on some lower income tenants and their landlords. First, the reduction in the number of localities in Scotland (from April 2008) for the purposes of determining Local Reference Rents may affect the amount of housing benefit that existing claimants are entitled to. Secondly, the introduction of a flat-rate Local Housing Allowance ( LHA) for a property of appropriate size given a claimant's household circumstances has also affected all new claimants from April 2008. Thirdly, the new regulations mean rent will be paid directly to tenants, which the review has found to be a key disincentive to landlords (see Chapter 6).

3.15 Analysis by the Scottish Government prior to the changes being introduced suggested that, for existing HB claimants, the majority (88%) would see no change in their HB, with 5% likely to see a decrease 17. A hypothetical analysis comparing existing claimant's HB entitlement to what the same claimant would be eligible for on the LHA estimated that the new system would, on the whole, improve affordability for tenants. However, the analysis also found that the supply of affordable rented property in some areas of Scotland may be disproportionately affected, due to large rental boundaries being drawn across a number of local authority areas, particularly where boundaries bring together more affluent with cheaper areas. The analysis found that this could tend to increase concentrations of low income households in more deprived neighbourhoods.

3.16 Since the scheme was introduced in April 2008, a number of councils have raised concerns about the impact of the LHA on the affordability and supply of private rented housing in their local authority area. Councils are also concerned that the scheme is contributing to rent inflation, with evidence of landlords raising rents to match the flat rate for the area. This affects both HB and non- HB households, reducing choice and affordability.

3.17 The review has also found that seven in ten landlords preferred not to let accommodation to tenants who were in receipt of Housing Benefit or LHA or would only house them if they had voids in poorer quality properties that were difficult to let. In the focus groups landlords stated that the introduction of the LHA had increased this reluctance and where they may have let to HB claimants in the past, they would not do so now ( LS:79). Small landlords (individuals and couples with only a few properties) were more likely to be negative about housing HB recipients than larger landlords (i.e. companies and those with a higher number of properties). Three in ten landlords said they had no preference for or against HB claimants as tenants. There is, therefore, a market of PRS properties that are available to people claiming HB. A key question, however, is whether this market can be broad enough to offer lower-income households a reasonable choice in terms of property location and quality.

The student market is growing, fluid and shows a mix of views and experiences

3.18 The number of students studying at Scottish higher education institutions has grown substantially over recent years, from around 200,000 in 1994-95 to around 300,000 in 2006-07; a historic high ( TS:25). Although this increase undoubtedly puts pressure on the sector in some areas, the student sub-market appears to be reasonably responsive ( TS:25). Around 7% of landlords stated that they preferred renting to the student market ( LS:52) and students generally found it as easy, or difficult, to access properties as non-student households ( TS:38). However, it is worth noting that where students did have difficulties it tended to be related to rent levels and to a lack of accommodation of the right quality and location. This latter point was specific to student households and may reflect the areas in which many students wish to live - high-demand, city centre neighbourhoods, close to their place of study.

3.19 The Tenants Survey found, unsurprisingly, that students tended to be fairly young (84% were under 25 years old) and to share accommodation with other people (almost 8 in 10 properties with an HMO licence were occupied by students). Interestingly, a third of students were from overseas, and the profile of overseas students was very different from the profile of in-migrants overall, with 30% of overseas students from Western Europe and 20% from China, compared to 17% and 10% of in-migrants overall.

3.20 Students tend to have a different relationship to the sector than other tenants. They often found their property using a student accommodation service (25%) or the internet (22%), compared to only 1% and 10% of non-student tenants. They also gave as their main reason for renting that they wanted short-term accommodation (60% of students compared to 20% of other tenants) and that they intended to move on relatively quickly (with 55% saying that they intended to move within 6 months compared to 20% for non-students 18).

3.21 Students in the survey were as satisfied with their home and landlord as other tenants (Table 3.1). They also showed slightly better levels of awareness of rights, with 61% agreeing strongly that their landlord had explained their rights compared to 54% of non-students. Most students had paid a deposit and were far more likely to have an inventory of the property than non-student households ( TS:59). They were also significantly in favour of landlord accreditation, with 76% saying that they thought this would be very important in future moves; this is compared to 58% of non-student tenant households.

3.22 The one area that the survey shows is particularly problematic for students is affordability, with 43% of student households in the PRS saying that it is fairly or very difficult to afford their rent, compared to 25% of non-student tenant households. Affordability and supply of PRS housing is discussed in Chapter 7.

Table 3.1 Student Satisfaction with Landlord and Property

Landlord

Property

%

Very Satisfied

%

Fairly Satisfied

%

Very satisfied

%

Fairly Satisfied

Student

47

42

58

32

Non-Student

43

42

51

33

3.23 Another area which may be of concern is the concentration of student accommodation in HMOs. As noted above, 8 in 10 student households live in HMOs. The literature review (part of the Tenants Survey report TS:25) has noted concerns about the growth of the PRS and numbers of HMOs in particular urban areas, leading to neighbourhood management issues and concerns about the impact on local amenities. A number of local authorities (Edinburgh, Glasgow and Dundee) have introduced planning policies to control the density of HMOs in a given area, where planning permission for the HMO is needed. It should be noted that not all HMOs will require planning permission, which is required only where use as an HMO would be considered to constitute development. However, students, in particular, have raised concerns about this approach, stating that the policy will encourage landlords in affected areas to ignore HMO licensing and rent unregulated accommodation, which may be of poor quality 19. The Scottish Government has made clear in planning guidance 20 that local authorities should take into account the important role that HMOs can play in meeting the housing needs of certain groups, such as students and other young people. Revised guidance on planning for HMOs is expected in spring 2009.

3.24 On a related note, the review has found that around one in three HMO tenants - many of whom will be students - are unaware of what HMO licensing means and do not know whether their landlord has a licence. For HMO legislation to operate most effectively there needs to be clear understanding between tenants and landlords of rights and responsibilities (see Chapter 5).

3.25 Although there are concerns that students are particularly at risk of landlord bad practice - for example, in having deposits withheld or living in poor property conditions - the review has found little evidence that students are at a greater risk than other tenants (although there is some evidence that younger tenants are more likely to have deposits withheld). However, the review has found issues around affordability and the awareness of rights specific to HMO properties. The issues raised below in relation to minority ethnic groups are likely to be relevant to overseas students; a high proportion of student households are from different ethnic groups.

The PRS provides important accommodation for ethnic and religious minority groups

3.26 The PRS is a very important sector of the housing market for black and minority ethnic ( BME) households whether indigenous or new migrants: for example, one in three 'non-white' households live in the private rented sector compared to one in fourteen 'white' households. Data from the 2001 Census similarly suggest that the PRS has been an important provider of accommodation for households of particular religions. One third of households identifying as Hindu, one in five Buddhist households, and a similar proportion of Muslim households lived in the sector in 2001.

3.27 BME groups also play a role as private landlords; around 5% of PRS properties are owned by a landlord from a non-white ethnic group with this rising to 14% of all PRS properties in Glasgow ( LS:27).

Chart 3.3 Ethnicity by Tenure

Chart 3.3 Ethnicity by Tenure

Source: Scottish Household Survey 2005 & 2006

3.28 BME households do appear to face particular challenges in the sector. The tenants survey suggested that one in three non-white tenants had experienced problems accessing appropriate PRS housing, as opposed to one in five of all tenants ( TS:36). Work by Shelter has provided further evidence of the issues and barriers faced by BME communities when they wish to access housing and housing advice 21.

Migrant workers are very likely to make use of the PRS on arrival in Scotland but questions remain about access to suitable housing, overcrowding, affordability and awareness of rights

3.29 Evidence gathered for this review, and secondary evidence available to the review team, suggests that the private rented sector plays a major role in housing young and economically active migrants. To an extent there is an overlap between migrant workers and the issues discussed in relation to BME groups above. A migrant worker's first home in Scotland is highly likely to be in the PRS, because of the affordability and mortgage eligibility constraints of owner-occupation and legal and practical constraints in accessing social housing 22.

3.30 The Tenants Survey asked specifically about tenants born outside of the UK to identify more recent in-migrants. The survey found some indications that households born outside of the UK were facing greater barriers. For example those born outside the UK were disproportionately more likely to have paid an administration fee to secure their accommodation than tenants generally ( TS:61). They also tended to have lower levels of awareness of key rights and responsibilities such as HMO licensing, landlord registration, the Repairing Standard and the Private Rented Housing Panel, and mediation services. However, the Tenants Survey also shows that those born outside the UK have often actively chosen to live in the PRS, with 42% stating that they were looking for short-term accommodation ( TS:29). Many BME households will be students, around 23% of all tenants who were born in the UK were students whilst 40% of tenants who were born outside the UK were students.

3.31 Other evidence also suggests that access to housing, affordability and housing quality can be key problems for migrants, and that, although these are also issues for the general population, there is some evidence that migrants are more disadvantaged (see references below). The Tenants Survey suggests that just over one quarter of those born outside the UK (of whom a majority are likely to be migrant workers) had found it fairly or very difficult to find somewhere to live - perhaps in part because they appear to rely on word of mouth from friends and relations to secure accommodation 23 and therefore are not aware of or have difficulties using mainstream routes to finding accommodation.

3.32 The affordability of PRS accommodation for migrant workers has been cited as a problem in a number of studies 24. It would appear that, for many migrants, initial accommodation is shared, often as a means to keep costs down. An Edinburgh study found an average of 1.4 tenants sharing a bedroom, while 13 of the 67 interviewed had encountered problems of overcrowding 25. A Glasgow study cited 'widespread reports of overcrowding, unsafe living conditions and exploitation by landlords and even some unconfirmed reports of people sleeping in shifts to maximise accommodation' ( GHA, 2008). It is also often noted that many migrant workers choose, initiate, or are willing to accept overcrowding in the knowledge that it is only temporary and saves them money. This is usually, nonetheless, a breach of HMO licensing. The social problems caused by the combination of overcrowding and the occupation of sub-standard housing by migrant workers can be seen in areas like Govanhill in Glasgow. This can also lead to problems for neighbours and can impact upon the community as a whole.

3.33 The primary responsibility for effectively policing and enforcing the legislation in relation to landlord registration, HMO licensing and sub-standard private housing lies with local authorities. Their crucial role in this regard is dealt with in Chapter 5.

3.34 Three-quarters of landlords surveyed as part of the review said they had no preference in terms of letting their accommodation to workers from the A8 countries (the eight states which entered the European Union in 2004). The landlord focus groups found that on the whole "Experiences with housing migrant workers from European A8 countries was generally positive (often referred to as hardest working citizens and reliable payer)", although some landlords did note some bad experiences with overcrowding, when more people than expected lived in a letting, and around language problems when explaining lease conditions to new tenants ( LS:76). This, combined with the disadvantages noted above, does suggest that, while landlords (and agents) are content in principle to have migrant workers as tenants, in practice they may be more wary, to the disadvantage of migrant workers.

3.35 A further study reviewing the evidence on the wider impact of migration into Scotland since 2004, when the accession of the A8 to the European Union resulted in increased migration, has been carried out by the National Institute of Economic and Social Research. Recent Migration into Scotland: the Evidence Base is available at www.scotland.gsi.gov.uk

Young professionals appear well-catered for in the PRS market

3.36 The review suggests that the PRS is largely meeting the immediate housing needs of the young professional sub-market. For three-quarters of landlords ( LS:51), employed people were the tenants of choice and there was evidence that landlords are keen to buy properties in locations attractive to this group and provide facilities (such as broadband and a higher standard of furnishings) that meet their aspirations ( LS:73).

3.37 However, the review suggests that within this group there are two sets of motivations for tenants; one sub-set chooses the sector because of its ease and flexibility and because the property ownership responsibilities rest with the landlord, while another and larger sub-set has a key long-term aspiration to buy a home. Research for the Scottish Government on housing aspirations by Clegg et al, 2007, found that 88% of private renters wanted to move in the next 10 years and that 87% of those households expected to own their own home within 10 years (see TS:25). Recent house price rises and difficulties in obtaining mortgages may make this a less realistic aspiration than in the past, and it may be that the current economic climate leads to a structural shift in preferences towards the PRS rather than owner-occupation, but it is clear that policy responses relating to this group may not be PRS-specific and are about aspirations and access to owner-occupation.

Conclusions

3.38 The private rented sector is generally catering well to a diverse range of tenants in Scotland, including young professionals and students. However, the Scottish Government is concerned about the experiences of migrant workers in the PRS in Scotland and also the position of tenants in receipt of housing benefit. Given the importance of the PRS to BME households, the Scottish Government proposes that further research should be undertaken in order to explore issues that may be affecting this group in more depth. In particular, the Scottish Government wants to ensure that BME Communities, as well as new migrants, have equal access to housing advice and information.

3.39 The desire for owner-occupation among many young professional tenants is evident in the Tenants Survey and previous Scottish Government research on Housing Aspirations. One of the key drivers would appear to be the view of housing as a good investment. The Scottish Government is already taking a range of actions to help households meet their housing aspirations, including providing support to first-time buyers on low to moderate incomes through the Low-cost Initiative for First Time Buyers ( LIFT), in particular through the Open Market Shared Equity Pilot. However, with the economic downturn, it may be that the desire for home-ownership lessens and/or that the PRS becomes a longer-term option for professional households. The Scottish Government will keep a watching brief - possibly through new commissioned research - on the effect of economic change on housing aspirations over the next period. The impact that restricted access to owner-occupied housing may have on the supply of private rented housing is discussed in Chapter 7.

3.40 Given the emphasis placed on accredited landlords by students in particular, the Scottish Government will encourage LAS to work with student accommodation services to promote the marketing of accredited landlords to students in their area. The Scottish Government will also consider how best to raise awareness of the purpose of landlord registration and the importance of reporting inappropriate behaviour. This is considered further in Chapter 5.

3.41 It is crucial that migrant workers entering an unfamiliar housing system have information about their rights and responsibilities (see Chapter 5). The Scottish Government will consider the provision of targeted information, such as centrally-produced leaflets in all of the A8 languages, which could be distributed through local authorities and advice agencies, as well as being published on-line. We will also engage with migrant communities through established support networks, including the Scottish Migrants Network.

3.42 Many migrant workers, and students, live in HMOs, so continued work by local authorities in effectively policing and enforcing the HMO licensing requirements is necessary. The implementation of Part 5 of the Housing (Scotland) Act 2006 will provide stronger enforcement powers, including larger fines for failure to obtain a licence or breach of licence conditions. Local authorities will be able to serve a notice preventing rent from being payable in an unlicensed HMO. They will also have stronger powers to obtain information about the occupants of properties suspected of being HMOs, including details of family relationships.

3.43 In addition, the Scottish Government is considering the possibility of clarifying the definition of an HMO, which is required to be the only or main residence of its occupants. Councils have told us that in some cases, particularly where migrant workers are involved, landlords avoid licensing requirements by claiming the property is not the only or main residence because it is being let on a short-term basis and because the residents have main homes elsewhere. We will take this issue forward in discussion with local authorities and landlord organisations.

3.44 Even where properties are not HMOs, local authorities have powers under landlord registration to deal with landlords who are exploiting migrant worker tenants, since breaches of housing law can lead to a landlord being found to be not a fit and proper person. Local authorities also have a general power to take account of any information they think is relevant in their determination of the fitness of a landlord. These are wide-ranging powers and are designed to stamp out bad landlord practice. We strongly encourage all councils in Scotland to make full use of their powers. This is discussed in Chapter 5.

3.45 One of the purposes of HMO licensing is to prevent overcrowding, since licence conditions will include a restriction on the number of occupants permitted, appropriate to the individual property. For properties that are not licensable as HMOs, the legal definition of overcrowding is found in the Housing (Scotland) Act 1987. However, councils tell us it is difficult for them to take action on overcrowding as such, because some of the enforcement procedures in that Act are not operable. The Scottish Government will consider ways in which the issue of overcrowding could be addressed.

3.46 It should also be noted that regulation and enforcement of standards for migrant workers in the agricultural and food processing industry (which is a reserved matter) is the responsibility of the Gangmasters Licensing Authority ( GLA). That agency has a range of powers, including powers to close down a gangmaster on the basis of unsuitable accommodation. We want to ensure that those councils where there are concerns about gangmasters and housing quality are working closely with the GLA as a key enforcement agency.

3.47 The Scottish Government is concerned that reserved housing benefit policy is impacting upon the Scottish Government and Scottish local authorities' ability to deliver devolved housing policy. This is particularly concerning at a time when the Scottish Government is trying to make greater use of the private rented sector to house homeless households. As is evidenced in Chapter 6, the introduction of direct payment of rent to tenants has been identified by landlords as a major disincentive to housing those in receipt of LHA, with evidence of rent arrears and evictions as a result. The Scottish Government believes that DWP should review its safeguarding policy, and the circumstances in which monies can continue to be paid to the landlord, to ensure greater clarity among councils about the application of this policy.

3.48 There are also concerns that DWP's policy to determine rental allowances across large geographic areas is leading to problems in the supply and affordability of private rented housing in some local authorities in Scotland, which is making it difficult for some councils to meet housing need in their area. Councils have also suggested that, as a result, tenants are more likely to find housing they can afford in more deprived neighbourhoods. The Scottish Government is committed to achieving a mix of income and tenures in Scotland's communities and is concerned by these developments.

3.49 The Scottish Government believes that DWP should review its legislation to ensure that Rent Officers have the flexibility to take into account different market areas and the effects that may arise from grouping together more affluent and cheaper areas. In particular, the Scottish Government believes that Rent Officers should have the flexibility to take account of the circumstances of rural Scotland, where the scarcity of housing in some remote rural locations makes it difficult to fulfil the requirements of DWP's legislation that there be a sufficient range of different types of properties and tenures. The existing legislation has so far led to the establishment of very large Broad Rental Market Areas in rural Scotland, straddling multiple local authorities including the islands which councils advise is leading to problems of affordability and supply.

3.50 The Scottish Government believes that it will be best placed to deliver comprehensive and responsive housing policies in Scotland when housing benefit, and other tax, spending and social welfare issues, come within the ambit of the Scottish Parliament and Government.