What's really happened to rents in Scotland?

Last week, Estate Agent LSL Property Services used the release of their Buy-to-Let index to claim that the ban on letting fees in Scotland has caused a ‘rent hike’. This didn’t sound quite right to us at Shelter, so we decided to go away and take a closer look.

Tell me more.

When we looked more closely at LSL’s index- we found that their own figures did not stack up against this claim of a ‘rent hike’.

  • LSL have reported a 2.3% average annual increase in Scottish rents, measured over a 21 month period. This is the basis for their ‘rent hike’ claim.
  • Interestingly – while this figure cannot easily be compared – the current 12 month inflation rate in Scotland (2.7%) is not substantially higher than LSL’s figures for England and Wales (2.0%), given the margin of error involved.
  • Furthermore, when these figures are regionalised, LSL’s index shows an annual rent increase of 3.0% for North West England. Letting agents are still able to charge fees to renters in England.
  • While the LSL index does show an increase in Scottish rent inflation, this increase started in summer 2013- later that one would expect if it was driven solely by the ban on fees.
  • Equally, the same index shows that rent inflation is now slowing down in Scotland- making causality even harder to pin point.

By their own figures, LSL’s claims are tenuous at best.

How do we find out what is happening to rents?

Regardless of what the figures say, it is always unwise to use a single rent inflation source to make sweeping claims about causality.

Last month, we looked at the broad range of rent inflation figures that are currently in use. Each figure belongs to a different measure or index- and each of these indexes is drawn from a different data source. In this case, LSL’s share of the property market. This means that there will undoubtedly be parts of the market that one single index cannot capture.

It is also risky to draw broad conclusions directly from a movement in rents. A variety of competing factors can impact rent levels. These factors need to be isolated before we can begin to understand what has actually caused an increase or decrease in rents.

Sounds difficult- what can we do?

Last autumn, Shelter commissioned independent research to help us asses the impact of Scotland’s ban on letting fees. We commissioned this research precisely because of the uncertainly outlined above.

The research sought to isolate the various factors that impact rent levels- so that we could understand what effect the ban was having on renters and landlords.

The research was conducted by two research agencies: Rettie & Co. and BDR Continental. They found that:

  • Landlords in Scotland were no more likely to have increased rents since 2012 than landlords elsewhere in the UK.
  • Less than one in five of the letting agency managers interviewed as part of the research said they had increased their fees to landlords.
  • Many landlords opted to absorb any increase in their letting agency fees as opposed to passing it on in full.

However, while this research was extremely rigorous- it still did not reveal all the answers. One part of the research showed an unexpected 1-2% rise in Scottish rents, although it could not conclude to what extent the ban had – or had not – contributed to this rise. Other sections of the research suggested wider economic factors were clearly a larger contributing factor.

Ultimately, it is extremely difficult to disentangle what factors drive changes in rent levels.

What do we know?

We know that housing costs are high. This is especially true for private renters. The government’s own figures show that the average renting household currently spends 40% of their weekly income on housing costs.

When starting a tenancy, renters are faced with huge upfront costs. Unpredictable letting fees are piled on top of deposits and rent in advance. This cost burden can be crippling- and can make it even harder for families to find a private rented home. Something that was acknowledged by the Chartered Institute for Housing and Resolution Foundation- who called for a ban on letting fees at the weekend.

That is why Shelter – and the majority of renters – continue to support a ban on letting fees.