Cost of Living (Tenant Protection) (Scotland) Bill: business regulatory impact assessment
Business and regulation impact assessment (BRIA) for the Cost of Living (Tenant Protection) (Scotland) Bill and sets out how this legislation considers the impact on businesses including costs and benefits.
The introduction of the measures in the Bill is likely to affect a proportion of private and social landlords although the impact will vary depending upon individual circumstances. The legislation should not alter the ability of new landlords to compete in the rental market as it only applies to in-tenancy rent increases and not between tenancy or new tenancy rent setting.
However, landlords in both the private and social rented sectors have indicated concern that these measures could lead to a reduction in the overall supply of rented accommodation across both sectors. This in turn could lead to a decrease in landlord competition and increased rents in the long term.
Will the measure directly or indirectly limit the number or range of suppliers?
There is some anecdotal evidence that landlords in the private rented sector are considering vacating the market, potentially reducing the supply of properties although the extent to which there is a net impact on supply will depend on whether exits are replaced with new entrants. This view was also expressed in response to the consultation on the Coronavirus (Recovery and Reform) (Scotland) Bill on proposed amendments to evictions where landlords noted they may leave the Private Rented Sector due to the increased uncertainty on regulation.
There is also some evidence and stakeholder feedback that investors in build to rent are pausing existing projects because of concern about market conditions and Scottish Government policy in this area. For example, reports that Springfield Properties has put all long-term fixed price affordable housing contracts on hold and temporarily suspended its expansion into the private rented sector. However, that was prior to the mitigations being finalised and the statement made by Springfield Properties also expressed confidence about the viability of the market. Scottish Government will work with landlord organisations throughout the period of this legislation.
Prior to 1 April 2023, the rent cap will have a limited impact on the social rented sector as rents are set once a year. However, there is some concern from social sector stakeholders that a 0% cap continuing after March 2023 will reduce rental income for Registered Social Landlords, with business plans going into high risk and a significant risk that some RSLs may fail, which would impact on tenants. In addition, if significant numbers of tenants do not pay rent and cannot be evicted this will put pressure on budgets, and the future rents of other tenants. The Scottish Government acknowledges these concerns and will work with the sector to understand the potential impacts well ahead of any decision about the future of the cap.
The number of landlords catering for students in the private rented sector is decreasing in some areas and a reduction in available properties in the private rented sector would create additional pressure for University and College halls of residence and PBSA. PBSA providers operate UK wide and PBSA is an attractive market for UK and overseas investors. It is difficult to predict what the impact of the provisions may be on the ongoing attractiveness for investment in this sector but certainty around costs and legislative requirements are likely be a key factor in investment decisions.
Will the measure limit the ability of suppliers to compete?
If tenants in the private sector do not pay rent and landlords cannot bring the tenancy to an end without significant delay and seek alternative tenants that could limit the ability for landlords to compete and invest in the sector further. It will depend on the individual circumstances of the landlords. In the social sector, it is likely to be RSLs who may struggle to develop the organisation if their ability to raise funds is limited.
In the college and university halls and PBSA sector, in the short term, we do not anticipate any significant impact as all providers will be subject to the same legislative provisions. However, given the investment driven nature of this sector we anticipate potential hesitancy should the provisions be extended over a longer period. This could result in lower investment levels, potential constraints on supply and resulting reductions in competition and competiveness within the sector. This would also entail additional pressures on the private rented sector which is already subject to high demand and low supply.
However, the legislation will be applied equally to all landlords in both the social and private rented sectors and providers of student accommodation.
Will the measure limit suppliers' incentives to compete vigorously?
Potentially – PRS landlord stakeholders have argued that there may be a reduction in interest in continuing to be a landlord as a result of these and other Government measures and due to external factors such as the buoyancy of the housing market. They suggest that the risks to landlords will outweigh the incentives to grow their portfolios.
Will the measure limit the choices and information available to consumers?
The private rented sector has grown by more than 2 and a half times from 120,000 to 340,000 households over the last 20 years, peaking at 370,000 households in 2016. There may be a reduced number of properties available in the private rented sector if landlords chose to sell their properties (although the buyer may, of course, continue to rent it out) or exit the market and just retain their property as a second home or holiday rental, although there are also additional requirements for short-term lets. Furthermore, landlords who remain may seek to reduce costs in response to the legislation measures impacting on the quality of PRS properties as a result. There may also be a change in landlord behaviour in the longer term as landlords move to raising rents more regularly due to uncertainty about future unexpected interventions or long term rent controls.
There may be impacts in the wider housing sector including greater caution by investors towards build to rent properties. This could be further impacted by restrained investment in housebuilding in the social rented sector in the event of longer term use of these measures which would likely impact on the people on lowest incomes within the private rented sector who can no longer compete with other renters.
Information about the measures will be available on the Scottish Government website and via advice agencies such as Shelter Scotland and Citizens Advice Scotland. In addition Programme for Government this year included a commitment to a tenants' rights campaign, showcasing existing rights and ensuring tenants are aware, for example, of their ability to challenge rent rises. The intention is for tenants' rights to form part of our wider cost of living campaign.
Whilst some of the communications work will have an online focus, there are also plans to raise awareness by other routes, to ensure that communities and individuals who have limited internet access will still have information on their rights.
The Scottish Government definition of a consumer is "anyone who buys goods or digital content, or uses goods or services either in the private or public sector, now or in the future". In the context of the rental sector, the consumer is the tenant. However, landlords could also be the consumer of services provided by letting agents.
Does the policy affect the quality, availability or price of any goods or services in a market?
The price and availability of properties to rent could be affected in the longer term if predictions of a contraction of supply come to fruition. During the period the measures are in force, existing tenants will have certainty over rent to be paid within their existing tenancy. However, where there is a new tenancy, the landlord will be able to set the rent, which will reflect the market conditions and would be impacted by a reduction in both private and social rented supply.
PBSA plays an important role in addressing student housing and certainty around costs and requirements is an important factor in investment decisions and the measures could impact on this. Again, if there is a contraction in supply, and a corresponding contraction in supply of private sector homes for students, it will impact on the cost and quality of accommodation available to students.
Does the policy affect the essential services market, such as energy or water?
Does the policy involve storage or increased use of consumer data?
Does the policy increase opportunities for unscrupulous suppliers to target consumers?
Potentially – during the moratorium on evictions in the Covid-19 pandemic there were indications of an increase in illegal evictions, which is why measures have been taken to temporarily increase the penalties for this within these emergency measures.
In addition, if there is a reduction in the supply it is possible that tenants pay additional money or accept lower standard accommodation for fear of not being able to secure an alternative. They may also fear a poor relationship with their landlord. The proposals have sought to limit the potential for these risks to arise but it would most likely impact those who are the least financially stable. This risk is also likely to be low for the initial period but will increase if the measures are extended.
Does the policy impact the information available to consumers on either goods or services, or their rights in relation to these?
Does the policy affect routes for consumers to seek advice or raise complaints on consumer issues?
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