CIH Scotland response to the use of powers within Housing (Scotland) Bill consultation

CIH Scotland response to the Scottish government’s consultation on how certain powers within the Housing (Scotland) Bill could be used. This response focusses on potential exemptions from rent control in the private rented sector (PRS). 

General comments 

In developing this consultation response, we have drawn on the experience and expertise of our members and stakeholders across the housing sector. We also hosted an online workshop in partnership with the Association of Local Authority Chief Housing Officers (ALACHO) giving members of both organisations an opportunity to discuss the consultation proposals in more detail. 

Exemptions for mid-market rent

We support the proposal to introduce an exemption from rent controls for mid-market rent (MMR) properties. Our members and others in the sector have repeatedly raised concerns that the possibility of rent control being applied to MMR risks causing uncertainty and in turn creating a challenging environment for investment. 

MMR homes provide an alternative tenure for people who would struggle to buy a home but may not be able to access social housing as demand outstrips supply. MMR homes are let below market rents and can be delivered with less subsidy than traditional social housing providing much needed new homes and a valuable contribution to the Scottish Government’s Affordable Housing Supply Programme (AHSP). A recent Freedom of Information Request (FOI) response confirmed that over 13,000 MMR homes have been delivered between 2002 and 2024, the majority of which have been new build or refurbished homes, adding to overall housing supply.  

While MMR tenants do not have the same protections as social housing tenants, having a Private Residential Tenancy (PRT) rather than a Scottish Secure Tenancy (SST), they may benefit from a more professional management service as they are often managed by social landlords or their subsidiaries whose activities will be driven by strong social values. 

Given that MMR plays a vital role in delivering alternative affordable homes and contributing to the AHSP, it is imperative that the Scottish Government does not create unnecessary barriers to new development. 

Defining MMR 

The majority of MMR is delivered and managed by social landlords and their subsidiaries with grant funding from the Scottish Government through the AHSP. However, there are some notable exceptions being delivered through different models such as LAR Housing Trust and Thriving Investments which have been supported by loan funding rather than grants. It is important to ensure that innovative models are not excluded from the definition of MMR, especially given that the Scottish Government is exploring how to maximise the delivery of affordable homes within financial constraints. 

The consultation suggests considering the following criteria to define MMR: 

1. Properties provided at mid-market levels, which have binding restrictions on rent levels 
2. Including those provided by: 
   a. Subsidiaries of registered social landlords 
   b. Local authority arms-length external organisations 
   c. Other organisations in receipt of Scottish Government financial support to deliver MMR
3. These exemptions could be applicable whilst the properties meet the specific criteria. 
   We have some concerns about how providers would be expected to evidence an exemption under these criteria. 

As per point 1 above there is no fixed definition of what is meant by mid-market levels. Scottish Government AHSP guidance states that the starting rent level for most MMR homes should be no more than the relevant Local Housing Allowance (LHA) rate and that future rent levels should be linked to the mid-point of market rent levels for the Broad Rental Market Area (BRMA). However, the current guidance does allow for some flexibility where a strong case can be made by the applicant. 

Linking starting rents to LHA already creates restrictions for the development of MMR, not least because rates are determined by the UK Government and in recent years have been subject to a number of freezes which have not been reflective of the market. 

It is not clear what “binding restrictions on rent levels” means or how this would differ from the application of a rent cap. The Scottish Government as part of the legislative process will need to set out a definition of mid-market levels.

It should be specified that “Scottish Government financial support” could include grant and/or loan funding. 

It is unclear how adherence to the criteria would be monitored while rent caps were in place and therefore how exemptions would cease to apply if the criteria were no longer met. 

Principles for applying further exemptions or flexibilities  

We understand that different groups will be making the case to have other categories of properties exempted from rent control provision, and that some of these cases will be compelling. 

However, our members have expressed concerns that introducing further exemptions for property types and flexibilities for individual properties under certain circumstances will create confusion and be administratively difficult to manage. There is a risk of undermining the whole purpose of rent control measures if too many homes fall under exemptions or flexibilities. 

We have particular concerns about the application, monitoring and enforcement of flexibilities for individual landlords/properties and how this would work in practice. The consultation suggests two approaches which each have their own risks. 

Requiring individual landlords to apply to increase rent above the cap is likely to lead to a large volume of applications and it is not clear what organisation would be responsible for processing these or how this would be resourced. 

The alternative is to allow landlords to increase rents without applying for permission and rely on tenants to challenge the increase if they think it is not within the rules. This assumes that tenants are aware of their rights and have the time, skills and confidence to challenge their landlord. Studies such as the Rent Better project have shown that tenants (particularly those on low incomes) can be reluctant to challenge their landlord because of power imbalances, fear of retaliation and lack of alternative options if their tenancy comes to an end. The current system provides little practical support for tenants seeking to challenge their landlord and protections against unlawful evictions are weak.  

We understand that the Scottish Government must ensure that landlords are able to invest in the maintenance of homes and that the introduction of minimum energy efficiency standards (MEES) in the PRS will require some level of investment to around 48 per cent of properties currently below EPC band C. 

However, MEES proposals are already building in some protections and financial support for landlords including an overall cost cap (proposed to be set at £10,000) and no/low-cost loan options to spread costs over up to eight years. These measures will reduce the need for costs to be passed on to tenants and should be taken into account when considering rent cap flexibilities. 

We propose that when the Scottish Government is considering how to develop exemptions or flexibilities on any ground that it is guided by the following principles:

• Evidence – there should be a clear, evidence-based rationale underpinning the decision to apply any exemption or flexibility. 
• Fairness – the decision should consider whether exempting certain properties or property types would create an advantage or disadvantage for some tenants or landlords. 
• Clarity – there should be clear parameters and definitions for exemptions and flexibilities that can be easily communicated and robustly enforced. 
• Wider impact – decisions should take into account the impact of an exemption or flexibility on the wider housing sector. This includes consideration of the potential impact of reducing the supply or quality of homes available if exemptions or flexibilities are not made.