Scottish Government

CHAPTER ONE INTRODUCTION

Study objectives

1.1 The Scottish Government commissioned Tribal Consulting to provide up to date information and analysis on tenants in the private rented sector. The study forms part of a wider suite of research that the Scottish Government is undertaking on the private rented sector. Separate studies are being undertaken to explore landlords' experiences of the sector and to explore the capacity of the sector.

1.2 This study sought to develop a better insight of the views, understanding and experiences of private sector tenants. The study was designed to:

• Review existing evidence on the private rented sector ( PRS) to contribute to the baseline evidence and to inform the survey of tenants
• Develop a profile of private rented sector tenants including demographic, social, dwelling and housing benefit information
• Examine:
  • Types of tenancies
  • Ease of access to the sector, reasons for choosing the sector, and housing aspirations
  • Awareness and understanding of rights and responsibilities - particularly in relation to rent payments, maintaining the property and respecting their local community
  • Awareness of sources of advocacy and advice
  • Experiences, views and satisfaction with tenancy security and any experiences of repossessions and/or evictions
  • Experiences, views and satisfaction with the physical quality, repairs and management standards of their property
  • Experiences of how rent deposits work, including perceptions that deposits have been unreasonably withheld
  • Views on the affordability of rents
• Develop an understanding of tenants' housing pathways (current housing and future aspirations)

Study approach

1.3 The study made use of existing data, supplemented with primary data collection. The main data sources used therefore were:

• Research literature
• Secondary data
• A survey of private rented tenants

Literature review

1.4 The literature review drew together research and analysis of the private rented sector, drawing on information already held by the Scottish Government and database searches (internet searches and through IDOX).

1.5 The focus of the literature review was on the tenants and properties in the private rented sector in Scotland. However, evidence from other parts of the UK was also included where relevant to wider policy and practice, or where it addressed aspects of the PRS for which little or no information is available in Scotland. It is appreciated that there are different statutory and policy environments for the PRS in Scotland and England. However, there are also areas of commonality: for example key trends such as the growth of buy to let and increasing demand from European Union migrants. Further, some policy initiatives impacting on the sector have been introduced by the UK government, such as the recent introduction of the Local Housing Allowance.

Secondary sources

1.6 The Scottish Government already collects and collates a wealth of information on the living circumstances of households in Scotland. These data provide some information on the key characteristics of private rented sector tenants and their experiences of the housing system. The main sources used were the Scottish Household Survey, the Scottish House Condition Survey and homelessness information (drawn from the local authority HL1 returns) as well as data from the Department for Work and Pensions on housing benefit.

Tenant survey

1.7 The tenant survey was the main component of the baseline study.

1.8 The sampling frame was developed using data from the 2001 Census. This enabled the identification of output areas with a relatively high incidence (>30%) of private rented properties. These were used to define sample-points from which interviewers were required to achieve 10 interviews.

1.9 The only quota set on the sample was that at least 25% of interviews were to be conducted in rural areas. Specific demographic quotas were not set, as it was agreed that a natural cross-section should fall out across the duration of the survey, but would not be achievable from individual sample points. To ensure this assumption was correct the survey was 'paused' at the midway stage to check the profile of the achieved sample in terms of geography, sex, age, working status, migrant status, and students.

1.10 The survey therefore provides detailed information on the views and experiences of tenants across Scotland. The survey approach and sample structure were designed to obtain a broad cross section of PRS tenants cost effectively: the survey was undertaken in areas with a relatively large PRS, student halls of residence were included, but MOD and croft housing were excluded. It was appreciated that the resulting sample was robust in reflecting the PRS in terms of its coverage of all key tenant subgroups, but could not be statistically representative.

1.11 The fieldwork was undertaken in May and June 2008; with a target of 1,000 interviews (1,030 interviews were completed). Tenants were interviewed face-to-face in their own homes. Interviews were undertaken across Scotland in 23 rural and urban mainland local authority areas. The number of interviews undertaken in each local authority area is given in the table below.

Table 1.1: Number of respondents, by local authority area

Source: 2008 Tenant Survey, Table: Classification Local Authority

1.12 Chapter two provides a more detailed socio-economic profile of the tenants who participated in the survey.

The policy environment

1.13 A number of recent policy initiatives have been influencing change in the private rented sector. This section considers the policy environment for the PRS, covering both the UK-wide and Scotland-level context, as well as changes in the policy environment that have been influencing change in the sector.

1.14 Promoting a strategic focus The promotion of a more strategic focus on the whole housing system by the Scottish Government has resulted in an enhanced strategic role for local government in considering the role of the private rented sector in meeting housing need and demand.

1.15 Driving improvement of housing quality In Scotland housing quality measures have been introduced through the adoption of the Scottish Housing Quality Standard affecting the social rented stock, and measures contained in the Housing (Scotland) Act 2006 to improve the standard of private sector housing. In England, the Housing Health and Safety Rating System ( HHSRS), which has replaced the fitness standard, takes a risk-based approach to ensuring housing quality.

1.16 The Mandatory Licensing of Houses in Multiple Occupation ( HMOs).HMO Licensing is being introduced across the UK, following the lead of Scotland, where mandatory licensing was introduced in 2000. In Scotland all properties containing three or more unrelated people must be licensed ¹.

1.17 Raising housing management standards A number of measures have been introduced in Scotland, including the mandatory registration of private landlords and national and local landlord accreditation schemes. England and Wales have introduced tenancy deposit protection schemes.

1.18 Development of measures designed to enable PRS housing to be used to rehouse homeless households, including rent deposit guarantee schemes, which help low income and homeless households access the private rented sector. Views have been sought on how the PRS might be used as an alternative to social rented housing for some homeless households ². In England links are being made into wider housing options services, such as participation in Choice Based Lettings schemes.

1.19 The Local Housing Allowance ( LHA) The LHA replaced housing benefit for all new private sector tenants in April 2008. The LHA is a more market-orientated system designed to enable tenants to exercise greater choice in the PRS. The amount of LHA paid is related to local market conditions, rather than the rental value of a specific property ³. There is also a presumption in favour of funds being paid directly to claimants rather than to their landlords.

1.20 Expansion of higher education in recent years has led to growth in student numbers and, as a consequence, to a growth in a key market sector for the PRS, particularly in cities and towns.

1.21 Scottish Government policy towards the private rented sector has recognised the difficulties in achieving the balance between regulating the sector without adversely impacting on supply. The Government's vision is of " a modern, vibrant private rented sector, able to meet local housing need through the provision of good quality accommodation" ⁴. The most significant aspects of recent policy changes have been:

• Landlord registration, which requires all private landlords to register with the local authority(s) in which they let property
• The Repairing Standard, to establish higher statutory repairs and maintenance standards across the sector
• The Private Rented Housing Panel, to enforce the Repairing Standard and to facilitate mediation and resolve disputes on repairs between landlords and tenants
• The Right to Adapt for disabled tenants in the private rented sector
• Landlord Accreditation Scotland, the national landlord accreditation scheme which, while voluntary, aims to promote best practice and thereby raise property and management standards
• A provision to enable Scottish Ministers to establish formal arrangements for tenancy deposit protection, should this be appropriate

1.22 The recent Scottish Government document Firm Foundations: The Future of Housing in Scotland: A Discussion Document⁵ invited comments on a number of policy themes being considered by the current government ⁶. Firm Foundations acknowledges the vital role that the PRS plays within the housing market and in meeting housing need, and proposes a review of the sector to explore these issues further. The main planks of policy are:

• Ensuring tenants (particularly 'vulnerable' tenants) benefit from improved management and property standards
• Encouraging the sector to play a greater role in meeting local housing need through understanding local markets better and using the sector as a delivery partner at a national and local level
• Utilising the flexibility of the sector to assist in delivering local housing solutions
• More comprehensive inclusion of the PRS in strategic planning and Local Housing Strategies by local authorities
• Where appropriate, increased utilisation of the sector to provide housing options for homeless households, to reduce the pressure on the social rented sector

1.23 At local government level in Scotland current strategic policy drivers for the private rented sector are:

• Development of the strategic housing role through Local Housing Strategies and the interaction between private renting and other tenures, including more pro-active engagement with private landlords (landlord forums, newsletters, guides, and so on)
• Implementation of landlord registration and the provision of advice and guidance on private renting, including the Repairing Standard requirements of the Housing (Scotland) Act 2006
• Licensing of HMOs particularly around student 'hotspots' and associated concerns with regard to the unchecked growth of the PRS and HMOs leading to neighbourhood management issues
• Development of rent deposit/guarantee schemes, accreditation and housing options and advice services
• Implementation of strategic management and leasing arrangements to provide temporary accommodation for homeless households
• Continuing to enable investment in the sector through improvement and repairs funding

Recent trends in the PRS

1.24 Private renting has increased in recent years, and evidence suggests it may continue to do so. In both Scotland and England the sector has been growing in terms of absolute numbers and as a proportion of total stock. However, further growth in the short to medium term will depend on the economic and financial climate impacting on the housing market.

1.25 This expansion is generally welcomed by those who consider the PRS to be too small for the needs of a dynamic modern economy which requires workers to move swiftly in response to changing labour market conditions (Houston et al, 2002 and Kemp, 2000).

1.26 The expansion in supply has been driven by a number of factors (Houston et al, 2002 and British Property Federation, 2005):

• The increasing demand from a number of different groups including students, migrant workers and those unable to afford owner-occupation
• Restricted supply in other sectors, due to insufficient supply of new build properties with house building rates unable to meet demand for owner-occupation and diminishing social rented sector provision

1.27 In recent years the general economic environment has been favourable to the supply side of the private rented sector. The main factors in this have been:

• A healthy economy with low unemployment (including encouraging in-migration which supports demand for the sector)
• A buoyant housing market with steady house price growth supporting capital yields
• Low interest rates allowing landlords to access relatively cheap finance
• A responsive financial market with new products to allow investment in the sector

Figure 1.1 % households in the PRS

1.28 In Scotland the size of PRS has changed over the last 30 years (see Fig 1.1). The marked decline in the PRS throughout the 1970s reflects both the increase in owner occupation and the development of social rented housing to replace poor quality housing stock (typically inner-city slums). Continued decline during the 1980s reflects the increasing accessibility of owner occupation. However, the increasing number of households in the PRS over the 1990s suggests a reversal of this trend, resulting from both supply and demand factors. The Housing (Scotland) Act 1988, deregulated the sector and introduced the short assured tenancy which made providing PRS accommodation a more attractive option. While demand increased for PRS properties from increasing numbers of young people moving into/staying longer in the PRS as students and as young professionals, and from people unable to secure housing in the declining social rented housing. Currently around 8% (233,000) ⁷ of Scottish households live in the PRS. PRS levels are somewhat higher in England (at 12%, 2.6 million households ⁸), where the social rented sector is smaller and where home ownership levels are higher than in Scotland.

1.29 While the financial climate may have been conducive to investment in the sector, there have been changes to Housing Benefit, particularly the introduction of Local Housing Allowance based on Broad Rental Market Areas ( BRMAs) and payment of benefit to tenants, which may be discouraging landlords from investing in the PRS, and from the lower end of the market in particular. There is some concern that were landlords to withdraw from the private rented sector - or reposition their stock towards the upper (non-benefit) end of the market - this would adversely impact on homelessness; initially by increased levels of evictions, and then because fewer properties would be available for rent at the lower end of the market.

1.30 The increase in stock numbers and investment in the PRS over the last ten years has occurred over a period when public sector intervention (for example, HMO licensing and landlord registration) has been increasing. This is notable, as it could be argued that regulation disproportionately impacts on landlords with small portfolios; yet growth in the number of these landlords has been evident.

1.31 The growth of the Buy to Let ( BTL) sector suggests that a growing number of people regard housing as an "investment good". The resultant impact on house prices (from an increased number of purchasers, and critically of purchasers that have access to finance) leads to concerns about declining affordability of home ownership for first time buyers. There is also evidence of buy-to-leave, whereby "landlords" leave the property empty until they decide to sell. However, the National Housing Planning and Advice Unit ( NHPAU) in England recently published research ⁹ that stated: " BTL has made a small contribution to house price inflation in recent years…". The overall conclusion was that other factors were more important in driving house price inflation: rising incomes, low and stable interest rates, rising demand from increasing numbers of households together with limited supply. However the study was not able to consider the localised impact of BTL in any detail, and concluded that perhaps the effect on the local market and house prices may be more pronounced in some areas.

1.32 The NHPAU report also pointed out that the typical BTL investor appeared to be affluent and middle-aged with the average gross annual income of a single BTL mortgage applicant being around £50,000. Their average age was 42 years. Motivations for investment in property are quoted as being falling stock markets and the closure of final salary pension schemes.

1.33 The surge in BTL has also not been solely confined to traditional PRS areas and sectors (students, young professionals). In areas of overall low housing demand (such as market renewal areas in England), there is often excess supply in the PRS, and the availability of cheaper accommodation may attract vulnerable, low-income and difficult tenants (Houston et al, 2002). The high level of PRS provision in these areas is a symptom of decline as much as a cause, as owners rent out their properties when they are unable to sell. Low demand properties are also attractive to speculative landlords - with the potential for significant capital growth. These areas are often associated with a higher incidence of poor quality housing and poor management practices in the PRS ( ODPM, 2006).

1.34 There is evidence that even where the level of PRS stock has not significantly increased, the provider framework has changed. Buy to Let has provided a foundation for an overall growth in the number of landlords throughout the UK with smaller property portfolios. In parallel with this study the Scottish Government is undertaking a survey of landlords across Scotland which will shed more light on the profile of landlords and the current nature of their operations. It is important that the findings of the landlord study are reviewed in tandem with the findings from this study.

1.35 Chapter two begins to outline our findings with a profile of tenants living in the private rented sector.