Chamber and committees

Good morning, convener, and thank you. I am happy to be here today to present the draft Cost of Living (Tenant Protection) (Scotland) Act 2022 (Incidental Provision) Regulations 2023.

As we have discussed with the committee previously, you will be aware that the emergency Cost of Living (Tenant Protection) (Scotland) Act 2022, which was passed last year, had three key aims: first, to protect tenants, stabilising their housing costs by freezing rents; secondly, to reduce the impact of eviction and homelessness, through a moratorium on evictions; and thirdly, to reduce unlawful evictions and avoid tenants being evicted from the rented sector by landlords who want to raise rents between tenancies during the operation of the temporary measures.

Last month, the committee considered and voted for regulations to extend some of those provisions beyond 31 March to the end of September this year. I was pleased that the Parliament also voted to approve the regulations, thereby ensuring that important protections for tenants continue, given the challenging and uncertain economic times.

Although it is crucial that some emergency provisions continue for the time being, the emergency 2022 act is, of course, temporary, and it is equally important that we plan for the time when the protections come to an end.

During the passage of the Cost of Living (Tenant Protection) (Scotland) Bill, we acknowledged that termination of the rent cap might lead to a large number of private landlords seeking to increase their rent all at once, which could cause significant and unmanageable rent increases for tenants. In those circumstances, the existing rent adjudication process will need to be temporarily modified, to provide a suitable adjudication mechanism that is fit for purpose.

For that reason, the emergency 2022 act contains a regulation-making power to temporarily reform the existing rent adjudication process, which was brought in by the Private Housing Tenancies (Scotland) Act 2016. The proposed approach would support our transition out of the emergency measures and help to mitigate unintended consequences that might arise from our bringing the temporary rent cap to an end.

Schedule 3 to the emergency 2022 act provides ministers with the power in that regard. The short affirmative instrument that the committee is considering today makes a minor technical amendment to schedule 3, to put it beyond doubt that the powers that are conferred on the Scottish ministers function as intended. It does that by renaming a title and heading, renumbering a section and correcting a reference. That will ensure clarity if and when the Scottish ministers choose to exercise the powers conferred on them in schedule 3. Instruments that are made under that power will be subject to the affirmative procedure and subject to scrutiny and approval by this committee and the Parliament.

The severity of the costs crisis and the urgent need to respond quickly meant that the 2022 act had to be drafted and delivered at pace, to ensure that tenants could be offered additional protection as quickly as possible. The short technical instrument that the committee is considering today clarifies a small part of the drafting, to ensure that the important rent adjudication provisions will work as they are intended to do when the time is right to bring the emergency provisions to an end.

I thank the committee for its scrutiny of the draft regulations. I am happy to answer any questions that you have.

Although it is not technically relevant to the instrument that we are discussing—which is a clarification of the drafting of the legislation on the introduction of rent adjudication measures, as and when the temporary measures come to an end—when we referred to the landlord registration figures, we made it clear that that is only an administrative source of data. It does not provide the rich granularity of data that all stakeholders recognise is necessary. Longer-term reforms need to be made to ensure that there is data collection in the private rented sector at the level that we need it.

Although we have an admittedly limited source of information through the landlord registration scheme, it shows that there has been no decrease, and perhaps a slight, very marginal, increase in the number of registered properties prior to the emergency measures coming into force. Mr Briggs is right that there would be a time lag between landlords seeking to make decisions about their future in the industry and any deregistrations. We acknowledge that that is the case and we have presented the information that we have available to us.

As I said in response to your first question, everybody—landlord organisations, tenant organisations, housing academics and the Government—recognises that there is significant need for additional data and for depth, detail and granularity of data in the private rented sector. That is a long-term piece of work, and the Government will bring further work for the attention of the committee and Parliament to improve the collection of data in the private rented sector. For the time being, we have noted that the information that we have, limited though it is, from the landlord registration scheme does not show a drop-off in the number of properties that are available.

Again, as we debated during the passage of the Cost of Living (Tenant Protection) (Scotland) Bill, we recognise that the two dominant parts of the rented sector—the social rented sector and the private rented sector—operate differently. In particular, the social rented sector has a long tradition, and requirement, for consultation and engagement with tenants in relation to rent setting. We wanted to respect that necessary and valuable engagement and consultation.

We know that rental income does not necessarily provide for profit—social landlords are not profit-making bodies—but it provides for investment in new build, for retrofitting for energy efficiency and net zero, for maintenance and upgrades of properties and for a wide range of services that social landlords provide in the community. The social rented sector plans such investments over a long time. Given that several members echoed concerns from across the sector during the passage of the bill, more people recognised that some short-term protection was necessary but that, if the zero per cent cap continued for an extended period, it would not only reduce rental income in the year of the cap’s operation but have a compound impact on the financial planning of social landlords over a much longer period, and there would be a detrimental impact on tenants because of the reduced investment.

Such factors do not apply to the private rented sector in the same way. That sector tends to be profit making and tends to have a lower level of energy efficiency than the social rented sector, because some properties have not been upgraded in the way that will be required in the future under the new-build heat standard and the heat and buildings regulations on retrofitting. In the absence of some of the factors that apply in the social rented sector, we felt that the legislation was appropriate.

The difference in approach was also necessary because, in the absence of large organisations representing private landlords—we have a diverse and fragmented private rented sector—there was no opportunity to negotiate a voluntary agreement with private landlords that would have achieved the same effect as the agreement that I am pleased to say that we reached with the social rented sector.

The difference in approach is a mixture of a recognition of the different factors and characteristics of the two parts of the rented sector and the differences in opportunity to achieve a voluntary agreement in the nature of how rent is set. All those factors led us to recognise that a different approach had to be taken. However, I emphasise, again, the broad level of parity that we are talking about. As private rented sector rents are significantly higher than social rented sector rents, we believe that there will be, roughly speaking, parity in monetary terms between the rental increase that will be allowable for that most common type of property—two-bedroom properties—in the private rented sector.

Yes. I reinforce the point that we have never suggested that the emergency legislation is a solution to every aspect of affordability in the rental market. We believed that it was necessary in order to prevent some very significant rent increases, of which we were becoming aware, and to protect people in the throes of the extreme cost of living crisis. The longer-term goal of having a broader and deeper understanding of what affordability really means in housing is about acknowledging those wider costs, which include things such as service charges and utilities, as Willie Coffey said.

A genuinely comprehensive understanding of affordability is also about place. It is about issues such as transport costs and energy costs, which we have talked about, and it requires that longer-term work. “Housing to 2040”, as well as our commitment to legislation in the area, will continue to deliver on those aspirations.

We have to continue to engage with the universities around the obligations that they have to look after the students that they choose to attract, whether those are domestic or overseas students.

We took the view that the specific measures in the emergency legislation in relation to the purpose-built student accommodation market were not having a significant effect, because the scope for in-tenancy rent increases was negligible to non-existent. Although the intention to achieve parity of protection was always there, we had to take the view that the specific measures on the rent cap in the purpose-built student accommodation sector were not having that effect, so that has been suspended.

In relation to the wider arguments, we have long acknowledged that there are deeper issues to explore in relation to student accommodation. That is why we have the current review. The members of the steering group for that have been working hard, and the review is nearing completion. We expect the steering group to make its recommendations to ministers, and at the appropriate time we will report to Parliament and give our response.

Mr Hepburn—the minister who is responsible for the higher and further education side—and I will continue to engage with each other across Government and with the education sector around those issues.

Miles Briggs also mentioned homelessness. If we look at the tenures from which homelessness referrals come, there has been an extended period of a number of years in which the private rented sector has been a significantly higher source of homelessness than other tenures. That reduced significantly during the period of the emergency legislation for Covid, but there has been a continual rise and, before the introduction of this emergency legislation, it was exceeding its pre-Covid levels.

That increase has not been seen in other tenures, so we have an issue in relation to eviction from the private rented sector as a source of homelessness. That is another reason why we believe that the measures—particularly those on protection from eviction—remain necessary.

No. We have covered the main arguments that needed to be made.

I appreciate that the full titles of the instruments are a bit of a mouthful. I am pleased to be at the committee to present on the Cost of Living (Tenant Protection) (Scotland) Act 2023 (Early Expiry and Suspension of Provisions) Regulations 2023—sorry, there was a typo in my brief; that was the 2022 act—and the draft Cost of Living (Tenant Protection) (Scotland) Act 2022 (Amendment of Expiry Dates and Rent Cap Modification) Regulations 2023.

The convener and committee members will remember that the emergency act that we introduced last year had three key aims: to protect tenants, stabilising their housing costs by freezing rents; to reduce the impact of eviction and homelessness through a moratorium on evictions; and to avoid tenants being evicted from the rented sector by landlords who wanted to raise rents between tenancies during the temporary measures, reducing the number of unlawful evictions. The act came into force on 28 October. Since then, it has provided additional protection for tenants across the rented sector as we continue to live through these challenging and uncertain economic times.

Last month, we published our first report on the operation of the emergency legislation, which covers the period from when it came into force in October until the end of December. In that report, in line with the act’s requirements, we set out our intended position for the social rented sector rent cap after March 2023. That is the main focus of one of the instruments that is before you.

Scotland has led, and continues to lead, the way across the United Kingdom in the delivery of affordable housing, having delivered more than 115,000 affordable homes since 2007, and we have equally ambitious targets over the next decade. We also lead the way in the UK on our decision to end the right to buy in order to ensure that we retain social rented homes for people who are in the greatest need.

Our commitment to affordable housing is second to none, which is why we have placed so much emphasis on enabling continued investment in the delivery of high-quality social housing. During the passage of the Cost of Living (Tenant Protection) (Scotland) Bill through the Parliament, concerns were raised by members from across the chamber about the impact that a continued zero per cent rent freeze could have on that investment; indeed, some members of the committee who are here today expressed those concerns. However, due to the unprecedented economic circumstances at the time, we felt that it was imperative that all tenants living in the rented sector be afforded the protection that the emergency measures provide.

We agreed to work closely with social sector landlords and, by the time that the bill completed its passage through the Parliament, we had already established a short-life task and finish group to support that work. The group, which comprised a number of key social sector landlord representative groups including the Convention of Scottish Local Authorities, the Scottish Federation of Housing Associations and the Glasgow and West of Scotland Forum of Housing Associations, stressed the fine balance between affordability and investment, and stressed the need to set our social sector rents at levels that would ensure the continuation of essential work such as new build programmes and work towards energy efficiency and carbon neutral targets.

The group reached an agreement that would result in increases of 6.4 per cent in respect of local authority social housing and 6.1 per cent for housing associations as an average across Scotland. It is important to note that the agreement of an average figure is essential to allow some degree of flexibility. The majority of rents will be increased at levels below the agreed 6.4 and 6.1 per cent figures, but there might be some landlords who will, for specific reasons, need to go beyond those levels.

In the light of that agreement, the draft Cost of Living (Tenant Protection) (Scotland) Act 2022 (Amendment of Expiry Dates and Rent Cap Modification) Regulations 2023 and the Cost of Living (Tenant Protection) (Scotland) Act 2022 (Early Expiry and Suspension of Provisions) Regulations 2023 expired the rent cap for the social sector from 26 February, enabling social landlords to set rent levels that they judge, in the light of tenant feedback, to strike a balance on supporting repairs and maintenance, working towards meeting carbon neutral targets and continuing to provide the wide range of support that they offer every day to their tenants in times of such pressure.

The regulations also make changes to the rent cap for the student accommodation sector. As laid out in the first report, feedback from stakeholders demonstrated that the rent cap was having no impact on the student accommodation sector, in contrast to the mainstream private rented sector. That was because the nature of the majority of contractual student tenancy agreements means that rents are set annually, tenancies typically last for the entire academic year and they rarely, if at all, allow for in-tenancy rent increases.

In the light of that feedback, and in recognition that student accommodation tenancies are structured differently from other types of tenancies, we concluded that the rent cap should be suspended from 30 March, which is what the two sets of regulations seek to do. However, I make it clear that, by suspending the student accommodation rent cap instead of expiring it, ministers will continue to monitor the sector, and they have powers to revive the provisions if fresh evidence shows that there would be benefit from doing so to deliver a necessary and proportionate response to the cost of living.

I turn now to the affirmative instrument that the committee is considering today. Soon after we published our first report to the Parliament, we laid the draft Cost of Living (Tenant Protection) (Scotland) Act 2022 (Amendment of Expiry Dates and Rent Cap Modification) Regulations 2023, along with a statement of reasons. In addition to the first report on the 2022 act, which was laid before the Parliament on 12 January, the statement of reasons sets out updated data and economic analysis that shows that the unprecedented economic position has not yet changed fundamentally and that many households in the private rented sector in particular continue to struggle.

Yesterday’s announcement by the Office of Gas and Electricity Markets on energy price caps from April this year will bring no consolation, despite the decreases, as the UK Government measures mean that the average domestic energy bill will still increase from £2,500 to £3,000, at the same time as the £400 energy bill support scheme is ended, which will drive up fuel poverty to more than 50 per cent in the private rented sector. For that reason, the draft Cost of Living (Tenant Protection) (Scotland) Act 2022 (Amendment of Expiry Dates and Rent Cap Modification) Regulations 2023 seek to extend the rent cap measures for the private rented sector for a further six-month period to 30 September, as well as the eviction moratorium provisions across all rented sectors covered by the 2022 act, and the other important provisions in the act.

On the continuation of the private sector rent cap measures, although the focus continues, of course, to be on protecting tenants, we recognise the on-going impacts that the cost crisis might be having on some private landlords. That is why the regulations propose that the rent cap be varied to allow for in-tenancy rent increases of up to 3 per cent.

The voluntary approach to rent setting that is taken by landlords in the social sector is intended to equate to an approximate average rental increase of less than £5 per week across the country. As rents in the private rented sector are generally significantly higher, allowing for a maximum 3 per cent rent increase equates to a similar average rent increase for tenants in a two-bedroom property, which is the most common property size in the private rented sector. We consider that that gives a measure of parity in monetary terms while continuing to protect tenants from unaffordable rent increases. There is also a safeguard for private landlords, who can opt to apply to rent service Scotland for a rent increase of up to 6 per cent if they have an increase in their defined prescribed property costs within a specified period.

On the proposed continuation of the eviction moratorium provisions, tenants in the private and social rented sectors as well as those living in student accommodation will continue to benefit from the additional time to find alternative accommodation that is provided by the six-month pause in the enforcement of eviction action. In addition, they are protected from private landlords seeking to end a tenancy to raise rents above the cap, and there is provision to reduce the number of unlawful evictions by increasing the level of damages payable.

As with the rent cap, the eviction moratorium provisions include a number of safeguards for landlords and recognise that there are some circumstances in which enforcement of an eviction order or decree should be able to proceed—for example, it could be done to protect communities in instances of serious antisocial behaviour. The provisions strike the appropriate balance between the protection of tenants and the rights of landlords.

In summary, we believe that the evidence that the cost crisis is still very much with us shows that it is crucial to continue beyond 30 March some of the protections that were brought in by the 2022 act. As promised during the bill’s passage through the Parliament, we have kept the measures under review and continue to consider their on-going necessity and proportionality. We have used our powers to make changes to the act where the evidence has shown that measures were required, and that is what the two sets of regulations that are before the committee seek to achieve.

Thank you, convener, for giving me the time to introduce the measures. I thank the committee for its scrutiny and look forward to members’ questions.

Absolutely. The commitment to social housing from the Scottish Government remains very strong. There has always been an understanding that the targets for new provision in the current decade are likely to be backloaded to some extent, and the impact of construction costs is affecting that, too. We will continue to commit to work with the social rented sector to understand not just the impact that the legislation might have had and might continue to have, but the wider necessity to provide the high-quality, net zero and sufficient social housing that Scotland needs.