Here’s the thing – for quite some time landlords in Scotland could have been forgiven for thinking that they were entirely responsible for the Black Death, war, famine and pestilence as well as for the state of the housing market.

However, of late the rhetoric from Bute House and Holyrood seems to have calmed down quite a bit. Now, don’t get us wrong, the Scottish Government hasn’t fallen head over heels in love with the private rented sector (PRS).

While it has previously accepted that the PRS is a key component of the housing market, it is starting to behave as if this was the case. Are they finally accepting the importance of the PRS?

Landlords and investors have to deal with regulation and legislation and there’s often not a lot they can do about it, but dealing with governments who understand them is much easier than coping with those who choose to merely demonise.

As experienced professionals in the field of buy-to-let property and investment, based in Scotland, we know that it’s been a bit of a hostile environment for a while. This appears to be changing, and we’re going to have a look at why.

Background

To understand what has changed – if anything – we need to look at what went before, specifically the Bute House Agreement and the effect of the coronavirus pandemic on housing legislation in Scotland.

However, those in the business look back a little further, to the introduction of the Private Residential Tenancy (PRT) in 2017. In short, this was designed to offer a form of tenancy which benefitted both tenants and landlords.

Its introduction meant that in Scotland, there were three different types of tenancy, each with distinct features and rights. The PRT beefed up tenants’ rights and made it more difficult for landlords to remove tenants without specific, prescribed, reasons.

It also makes tenancies open-ended allowing tenants to remain providing that they do nothing which would give their landlord reason to request that they leave.

Consequently some landlords didn’t view the PRT as necessarily being in their best interests.

Pandemic and the cost of living crisis

From the start of 2020, the world found itself in the grip of the SARS-cov-19 pandemic. The following two years would be a rollercoaster of lockdowns, short-term regulation and fear.

In August of 2021, the ruling Scottish National Party (SNP) entered into an agreement with the Green party in the Scottish Parliament to give them a working majority. This agreement was known as the Bute House Agreement.

As part of this, Partick Harvie, the co-leader of the Green party assumed responsibility for tenant’s rights in the coalition administration. This would be significant to what followed.

As the pandemic finally wound down, Scotland along with the rest of the UK staggered into a new, and much more expensive world. The reasons for this were manifold, but were not helped by the disastrous budget of Sept. 2022.

The Scottish Government responded with the Cost of Living (Tenant Protection)(Scotland) Act 2022. Landlords, many of whom were as badly hit by the poor economic climate as anyone, could only look on and weep.

In short, the Act limited the grounds for eviction and imposed a 3% maximum increase in rent, unless the landlord could prove there were specific grounds to increase rent beyond that limit. Even then, rent could not increase beyond 6%.

These restrictions finally ended on the 31st of March 2024. Ironically, while some tenants undoubtedly benefited from this legislation, it has been blamed for marked increases in market rents.

The restrictions applied to sitting tenants; as tenancies ended, landlords were free to re-let the property at a rent which more truly reflected market value. Consequently properties coming onto the market were notably more expensive than previously.

This period almost certainly marked the nadir of relationships between the PRS and the Scottish Government, with landlords feeling that they were being forced to shoulder a burden not of their making.

The post-restriction world

Even before the Cost of Living Act ended, politics in Scotland were moving apace. On the 28th March 2023, Nicola Sturgeon stood down as First Minister. The following day, Humza Yousaf was sworn in as First Minister.

Just over a year later, Yousaf announced his intention to terminate the Bute House Agreement, returning the SNP to minority government. On the 30th of April, Yousaf resigned as First Minister, facing a vote of no confidence in his government.

He was replaced by John Swinney as both leader of the SNP and First Minister.

In the aftermath of this political turmoil, tenants and landlords seemed to have become less of an issue for the Scottish Government, although the Housing (Scotland) Bill is currently before parliament.

Bodies representing Scottish Landlords have already made several representations to the parliament, although the Bill is in its early stages and won’t become law for some time yet.

Without diving into the details of the Bill, not all of which is relevant to tenants and landlords, the highlights for the PRS are the proposal to permit Rent Control Zones (RCZ) where such measures are deemed necessary.

On paper, this is a far cry from the blanket restrictions the sector has endured in recent years, however not everyone is happy about the proposals. We will see exactly what is intended as the BIll progresses.

The Scottish Property Federation still has reservations about some of the plans; Propertymark is pleased that the Scottish Government is listening, but still has concerns which it hopes to see addressed during the progress of the Bill.

They also have strong views on changes to the planning system and their importance in unlocking increased building in Scotland.

However, there is no doubt that the Scottish Government is aware of the importance of the PRS in providing housing in Scotland.

Moreover, in subsequent statements regarding the proposed RCZs, the Scottish Government is keen to distance their proposals from earlier, and cruder, forms of rent control.

In his statement to the Parliament in October this year, the Housing Minister, Paul McLennan, acknowledged the importance of the PRS in Scotland:

“However, it is clear that this must be done in a balanced way that provides appropriate protection for the property rights of landlords and in a way that continues to support investment into private rented housing. 

This will make sure that the system of rent control introduced continues to support the supply of rented housing –  recognising that the rented sector is a critical part of Scotland’s overall housing system.

The amendment that will be brought forward by this government at Stage 2 has been developed in a way that recognises the need to strike the balance is a key driver in the approach to its implementation.” (Emphasis is ours)

The truth is that the government needs private investment in the rental market as their financial room for manoeuvre is limited. Necessity alone may force a change of attitude.

Advice from the property pros

There is no doubt that the recent years have been exceedingly tough for the private rented sector, especially in Scotland.

The pandemic itself and the economic turmoil which followed it hit the sector hard. While there is no lack of sympathy for struggling tenants, landlords felt, with justification, that they were being saddled with the burden.

This wasn’t a burden of their making, and while it could be argued that the decisions made by the Scottish Government were intended to deliver the greatest good, those decisions undermined landlords and investors.

It would be difficult to attribute blame to any individual within government for the restrictions placed on the PRS, but it seems clear that there were those who felt that landlords either deserved or could bear the burdens imposed on them.

With the political upsets which followed the resignation of Nicola Sturgeon as First Minister and the collapse of the Bute House Agreement, there appears to be a renewed recognition in public of the importance of the PRS.

In part, we may be seeing a change of approach as the Scottish Government embraces the Build-To-Rent (BTR) sector. Not only does this bring investment, but also jobs and a significant increase in available housing.

No doubt this is also driven by the fact that of Scotland’s 32 local authorities, 13 have declared housing crises. It could be that there is a realisation that the PRS can fulfil a need previously addressed by council housing.

It can be argued that this is overdue and it now behoves the Scottish Government to work much more closely with the PRS to address housing issues within Scotland. Current indications are that this may be happening.

In summary…

Necessity, they say, is the mother of invention, and the dire straits Scotland’s local authorities are in with regards to housing may be having a significant effect on the current Scottish Government’s attitude.

However, the problem with trying to determine whether an attitude has changed is that you are reliant on things happening – or occasionally – not happening.

If the Scottish Government is moving away from a period where landlords and investors were treated, if not seen, as public enemy number one, we will need to await their actions.

Will we see policies which aid the sector, or at the very least, treat it the same way as other parts of the housing market? Might we find the government actually encouraging the sector to provide more, good quality homes?

And will we find the doors and ears of the government open to input from the PRS rather than forcing it to consider responses through the courts? Time will tell.

Circumstances have changed considerably since the dark days only a year or so ago. Providing homes is a priority for the UK government, not just the Scottish Government, and the PRS can be a key enabler in that goal.

A more stable economy and lowering base rates also help, and as we have said before, the market is improving.

The private sector is more than willing to play a full part in helping people find homes – it’s up to governments to enlist that help and to stop treating it like some kind of social blight.

Strong words we know, and if you’ve read this far – thank you! Despite the foregoing litany of doom, the buy-to-let market is seeing improved health, so if you would like to know more, just get in touch and let us help you build a better future.

Written by Chris Wood, MD & Founder of Portolio

Get in touch on 07812 164 842 or email [email protected]