The Scottish Government

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1. Background to the Review

Introduction to the review

1.1 In recent years, there have been a number of important developments within the private rented sector ( PRS) in Scotland. Mandatory licensing of houses in multiple occupation ( HMOs) aims to improve physical and management standards in accommodation that often houses vulnerable people. Landlord registration ensures that all private landlords are fit and proper people to be letting, thus setting a minimum standard for tenancy management. A minimum physical standard for the sector generally has been set by the establishment of the Repairing Standard (enforced by tenants through the Private Rented Housing Panel), while the Right to Adapt ensures that necessary adaptations to meet the needs of disabled occupants of PRS housing cannot be prevented unreasonably. The sector has also been, or will be, affected by legislation that relates to private housing generally, such as the Tenements (Scotland) Act 2004 and the local authority powers in the Housing (Scotland) Act 2006 to deal with sub-standard houses and to establish a Scheme of Assistance.

1.2 There have been, in addition, non-legislative changes, such as the launch in 2008 of Landlord Accreditation Scotland ( LAS), a national voluntary accreditation scheme for landlords and letting agents. LAS was established by the Scottish Association of Landlords and the Scottish Rural Property and Business Association, with the support of the Scottish Government. It is important that an organisation that aims to promote high standards of property condition, tenancy management and training in the private rented sector is owned by the sector itself. The Scottish Government seeks to work with LAS to raise standards.

1.3 At the same time, the sector has expanded and has come to play an increasingly important part in the Scottish housing market. Historically, the private rented sector housed the vast majority of the Scottish population but the twentieth century saw a systematic decline of the sector. Reasons for this decline are varied, but the most important are thought to include: rent controls reducing returns to landlords; statutory security of tenure discouraging landlords; tax and subsidies favouring owner occupation; real house price inflation throughout most of the post-war years encouraging owner occupation as an investment; and the expansion of the provision of social housing in the years after the war ¹. The creation of short assured and assured tenancies in the Housing (Scotland) Act 1988 deregulated the sector and enabled full market rents to be charged by landlords for the first time in decades. Investment in the sector was further stimulated by new lending policies by banks and building societies and the growth of 'buy-to-let' mortgage products. At the Census in 1991 the sector accounted for 6% of the housing stock. It then declined further to 5% in 1999. Since 1999, when the housing boom and low interest rates encouraged investors into the residential letting market, the sector has grown by 3 percentage points from 5% to 8%.

1.4 The Scottish Government recognised this revival and the increasingly important role the sector is playing in the housing market in 2007 in its discussion document Firm Foundations: The Future of Housing In Scotland. That paper made clear that the Government wants to ensure that we have "the right balance of policies and legislative protection to allow the sector to flourish and play a full role in Scotland's housing market, by providing sufficient safeguards for tenants whilst….avoiding excessive regulation which could put people off remaining as private landlords". The Scottish Government wants to increase the supply of housing across all tenures, because an efficient and responsive housing market, including a thriving private rented sector, is important to Scotland's economic and social development.

1.5 With all of these changes underway, it is an appropriate time to look in more depth at the sector. This review of the private rented sector was launched by Firm Foundations. The primary objective was to ensure that the PRS could deliver the right types of housing in the right places to help meet housing need and reduce the pressure on the social rented sector. In order to meet this objective, it was necessary to take stock of the sector as a whole and understand much more about how the sector is working in practice.

Aims and objectives of the review

1.6 The review has therefore had three main aims:

1.7 Negative perceptions of the PRS have long been an issue for the sector. As the Housing Improvement Task Force ( HITF) put it in its final report in 2003, "Despite its important contribution to meeting housing needs and demand, the private rented sector has suffered, historically, from a negative image and poor reputation" ². Since then, as described above, many changes have occurred in the sector, as it has increasingly modernised, adapted to regulation and come to play an even more important role in the housing market. However, there are still some perceptions that the sector suffers disproportionately from certain problems. These include issues of disrepair and poor conditions, and also bad management by landlords. These problems are often thought to be exacerbated by a lack of tenure security for tenants, with landlords evicting tenants that complain. Where these problems do occur, they are very serious and the regulatory measures described above were introduced to enable action to be taken to ensure minimum standards in the sector. The review examined the extent to which issues like disrepair, affordability, poor management, security of tenure and awareness of rights and responsibilities are problems for the sector, to establish a comprehensive baseline of the sector's circumstances.

1.8 Of course, since the review was launched there have been substantial changes in the economic situation and in the housing market. The credit crunch has led to unprecedented turmoil in the housing market with falling interest rates and house prices, along with reduced access to capital for those wanting to buy a house, whether for owner occupation or to rent. There is a danger that the stability and sustainability of investment in the private rented sector may be affected. It may also make sense to re-assess the role of the private rented sector in the overall housing market, in light of the pressure on social housing stock and difficulties facing would-be home owners. The review therefore considered the effect that the credit crunch may have on the supply of housing in the private rented sector and ways in which that supply could be boosted.

1.9 As noted above, one of the main objectives of the review was to examine the role of the sector in housing low-income families and individuals on benefits, including those presenting as homeless. The Scottish Government consulted in 2008 on proposals to enable local authorities to discharge their duty to unintentionally homeless persons in priority need via a Short Assured Tenancy ( SAT) providing certain conditions were met ³. The review also considered the potential of the sector to make a greater contribution to meeting housing need, and examines good practice and options in working with private landlords to achieve this.

1.10 The HITF recommended that "The Scottish Executive should carry out a review of the operation of the tenancy provisions for the private rented sector set out in the Housing (Scotland) Act 1988 and this should also include a number of specific tenancy management issues identified in our work" (Recommendation 151). The "specific" issues this referred to have been dealt with in the past six years, with the introduction of mandatory registration of landlords, legislation on antisocial private tenants, the production of core standards for landlords (which are now the basis of the national accreditation scheme), and the establishment of the Private Rented Housing Panel. The present review, which has collected evidence from both tenants and landlords, and organisations with an interest in private renting housing, meets the recommendation for a review of the private rented sector tenancy regime.

Analytical work for the review

1.11 A range of analytical work was undertaken by Scottish Government analysts for the review, and additional research and analysis was commissioned from a number of experts in the University and commercial sectors. Along with this Key Findings Report, we have published an additional four volumes of research. These are described below and are referred to throughout this report. Other key pieces of work that provided evidence for the review are also listed (provider of evidence in brackets, with date of conclusion following) and are sourced in this report where relevant.

Review of the Private Rented Sector: Volume 2: Views and Experiences of Tenants in the Private Rented Sector in Scotland

A major survey of private tenants undertaken in April-July 2008 to answer questions on awareness of rights/responsibilities, security of tenure, affordability of rents, tenancy deposits, satisfaction with landlord and property condition ⁴. The report also includes a summary literature review. (External commission, Tribal Consulting, March 2009)

Review of the Private Rented Sector: Volume 3: Views and Experiences of Landlords in the Private Rented Sector in Scotland

A major survey of private landlords, with additional focus groups, undertaken in August-October 2008 to consider a range of questions, including the tenancy regime, tenancy deposits, awareness of rights/responsibilities, attitudes to letting to low-income households ⁵. (External commission, Universities of Sheffield and Oxford, March 2009)

Review of the Private Rented Sector: Volume 4: Bringing Private Sector Empty Houses into Use

A review of initiatives to address the problem of empty houses drawn from case studies across the UK. (External commission, Ann Flint and Hector Currie, March 2009)

Review of the Private Rented Sector: Volume 5: Good Practice Resource Pack for Working with Private Landlords

A review of good practice in local authority engagement with the private rented sector drawn from case studies across the UK, including options for working with private landlords to house homeless households. (External commission, Craigforth, March 2009)

1.12 These volumes are now available on the Scottish Government research publications website: www.scotland.gov.uk/publications

1.13 Other research carried out by Scottish Government analysts and academics:

• A collection of baseline data on the sector. Largely, tenant and property data have been drawn from the Scottish Household Survey and Scottish House Conditions Survey; while landlord data have been taken from the Landlord Registration Database (Scottish Government analysts, evidence drawn from the landlord registration database in June 2008, evidence published in Key Findings Report, March 2009).
• Establishing future projections for the sector - in particular, modelling the number of homeless applicants, broken down by local authority area, who might be housed in the PRS along with an examination of fiscal and other incentives to encourage growth in the sector (Scottish Government analysts, published in Key Findings Report, March 2009).
• An evidence review on EU8 Migrants and the PRS (unpublished, Scottish Government analysts, August 2008).
• Initial scoping work reviewing options to work with landlords to let to homeless households (external commission, unpublished, University of York, May 2008).
• An international review of policy initiatives to boost supply of PRS properties (external commission, unpublished, Heriot-Watt University, June 2008).

Structure of key findings report

1.14 This Key Findings Report draws together the evidence collected over the course of the review process and provides the Scottish Government response to key findings on particular themes. The report is divided into 7 chapters. This first chapter sets out the aims of the review, the range of analytical evidence available and provides a contextual background to the sector in Scotland. The remainder of the report - over six chapters - considers key evidence from the review and interprets its policy implications: Chapter 2 looks at the diverse nature of landlords and the location of the properties they own; Chapter 3 looks at tenants in the private rented sector, their characteristics and experiences; Chapter 4 considers levels of satisfaction with a range of aspects of the PRS, including satisfaction with landlord, property standard, affordability of rent, and the tenancy regime; Chapter 5 examines the professionalism and reputation of the sector; Chapter 6 explores the implications for the sector of housing homeless households and Chapter 7 examines affordability of private renting and sets out implications for the future supply of private rented housing. In each case, a short synopsis of the analytical evidence is provided with references to the published documents and an interpretation of the evidence for policy review and development.

1.15 When referring to documents published as part of the review the document will be abbreviated as follows:

Page 99 of the Tenants Survey will be referred to as ( TS:99)

TS = Views and Experiences of Tenants in the Private Rented Sector in Scotland

LS = Views and Experiences of Landlords in the Private Rented Sector in Scotland

GPRP = Good Practice Resource Pack for Working with Private Landlords

EH = Bringing Private Sector Empty Houses into Use

IR = International Review of Policy Initiatives to Boost Supply of PRS properties

SHS = Scottish Household Survey

SHCS = Scottish House Condition Survey

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