What is a rent pressure zone (RPZ)?
Following the introduction of the Private Residential Tenancy (PRT) on 1st December 2017, local councils across Scotland will have the powers to apply to the Scottish Government for a RPZ if they feel that rents are rising too quickly in a particular ‘hotspot’ - this could be either a whole council area or specific streets or postcodes. If approved, the RPZ will place a cap on how much rents are allowed to increase each year for existing tenancies, protecting tenants from excessive increases during their tenancy. RPZs will apply only to tenants with a PRT.
Having a RPZ in place does not mean that rents will be fixed entirely. All landlords, regardless of if they are in a RPZ, will have the ability to increase their rent once every 12 months, providing the tenants have been given 3 months’ notice. Landlords within a RPZ will be allowed to increase their rent at least 1% above the Consumer Price Index (CPI).
An application for a RPZ will only be approved in extreme circumstances, where local councils can prove to the government that rent rises in the area are causing unnecessary hardship to tenants. The government will also require proof that rents are rising for all property sizes in the area, for example, in an area made up of a mix of property sizes a PRZ would not be allowed if rent levels were rising only for one and two bedroom flats. RPZs would be in place for a maximum of 5 years, but can be revoked earlier by the government.
Are RPZs likely in Edinburgh?
Edinburgh and the Lothians have seen the highest rent increases in Scotland in recent years, with rents for one and two bedroom properties growing by over 25% in the last 6 years alone. With a large student population, and an increasing number of young professionals and families priced out of buying their own home, Edinburgh is Scotland’s busiest rental market, where demand far outstrips supply, forcing tenants to pay increasingly high rents. Whilst this is good for landlords, for a growing number of tenants renting in the most popular residential areas is becoming unaffordable.
As Edinburgh City Council have already passed a motion to seek a RPZ within the council area, it is likely that we will see RPZs introduced in Edinburgh in the future. For landlords in Edinburgh, this may seem like a negative move, restricting the potential return they will see on their investment, however, it is important to note that RPZs were introduced to protect tenants from large rent increases during a tenancy only; landlords are still free to set the rent at the beginning of a new tenancy.
Will RPZs work in practice?
One downside for tenants living in RPZs could be that landlords and agents in restricted areas are tempted to push the rent when marketing the property, to a higher level that they would have in an unrestricted area, to compensate for the inability to increase the rent as much as they might like during the tenancy. This, combined with rents continuing to increase during the tenancy, even under restrictions, could potentially mean that we see rents increasing to higher levels than we would without PRZs in place.
It is important to consider that PRTs will no longer have a minimum term, so in theory tenants would be free to serve 28 days’ notice at any point if they felt that their rent was too high and they could get a better deal elsewhere, but as Edinburgh suffers from a longstanding shortage of quality lettings stock, alternative accommodation options available to tenants are restricted.
In theory RPZs are a way to protect tenants paying over the odds for, in some cases, substandard accommodation, giving them a greater security in their home. However, in reality, only time will tell if RPZs in Edinburgh are a positive step for tenants, or if they will facilitate even more tenants being priced out of the market.
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