Lesson for government on ‘a classic populist policy’
SNP’s imposition of rent control legislation failed to help Scotland’s tenants as was intended, writes David J Alexander
Everyone involved in the private rented sector (PRS) in Scotland knows that the decision to impose rent controls in September 2022 was a major error which resulted in considerably higher rents being charged. The Scottish government were warned that this would happen given the clear evidence from around the world which shows that where rent controls are introduced the tenant suffers.
A new report has been published which proves that rent controls in Scotland were a disaster. The report, called ‘Solving the Housing Crisis: A Plan to Make Homes More Affordable in Every Postcode’, is by the Prosper UK Housing Commission and calls for rent controls not to be made law in England and shows “clear evidence” that the emergency legislation introduced by the Scottish government in September 2022 resulted in an immediate freeze on new housing supply with £700 million of Build to Rent (BTR) investment put on hold and £2.5 billion of housing investment placed at risk.
A survey at the time of 14 institutional investors with £15bn of assets showed that none rated Scotland as attractive for residential investment and four rated it as not worth investing in after the rent control legislation.
The Commission report cites rent controls as “a classic populist policy” that sounds like it will benefit tenants but ends up resulting in higher rents for tenants. Advertised rents in Scotland increased by 12per cent across Scotland in the 4th quarter of 2022 with Edinburgh and Glasgow increasing by 15per cent and 14per cent respectively compared with a ten-year average of 5 to 6per cent annually.
Indeed, the Scottish government’s own business and regulatory impact assessment subsequently recognised that their actions on rent controls made Scotland a less attractive place for property investment. It states: “Those who work with investment stakeholders have indicated that the intention to introduce rent controls has impacted on the attractiveness of Scotland as a place to invest in new homes for private rent and for mid-market rent (the latter being intended to increase the supply of affordable homes in Scotland).”
The commission, which brought together the views of investors, planners, housebuilders, economists, land agents, and housing associations, calls for a statutory exclusion on rent controls, a ten-year agreement on rent indexation, and amendments to the Renters Rights Act. It states that only by providing such guarantees will investment be confident enough to return to the marketplace and address current housing needs.
What is of particular value in this report is that it is the product of a widespread consultation among those who work in housing and understand the current issues facing all tenures. These are people who know that if you start to try to control the market externally by imposing price restrictions you create other problems such as loss of investment, falling supply, and rising rents.
I would hope that this report strikes a chord with the Scottish government who currently have active rent control legislation in place. They need to understand that if that legislation is used to limit rent rises in certain areas of Scotland there will be a consequent impact upon investment and supply in the future. The more risk involved in property investment the less likely Scotland will be seen as an attractive and viable place to do business. The sooner this lesson is learned the quicker we will begin to address Scotland’s housing emergency.
David J Alexander is CEO of DJ Alexander Scotland Ltd
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