What happened when Argentina scrapped rent controls should make SNP think again

We see this in practice in relation to dynamic markets such as property sales and purchases. Everyone knows that, in a lively sellers’ market where there is competition for properties, prices will be driven upwards. In a buyers’ market, prices will fall as offers are made below the asking price.

If this is true when properties are bought and sold, it is equally true when they are offered for rent. The more prospective tenants interested in renting a property, the more the cost will rise. And where there is a surfeit of properties to let, then the prospective tenants are the ones in the driving seat and can negotiate the monthly rent downwards.

And that takes us to the Housing Bill being proposed by the SNP government, which is being debated in Holyrood this week. Its central concept is the introduction of rent controls, designed to protect tenants from large rent increases at a time when there are pressures on the cost of living. Whilst this is a worthy objective, I fear that the solution the SNP are proposing is likely to prove counterproductive, and the evidence to date would support that view.

READ MORE: SNP is out of touch with reality on new rent caps

A radical libertarian

International studies show that rent controls, while superficially attractive, can have the effect of reducing the supply of properties, and therefore, counter-intuitively, driving rents upwards. The best case in point might well be that of Argentina, which for years had one of the strictest rent control regimes in the world. It was intended to keep homes affordable, but instead landlords withdrew properties from the market, meaning rents soared upwards.

The election of the libertarian President Javier Milei in December 2023 meant there was a radical shift in approach. One of his first moves was to abolish rent controls, in line with a radical approach to economic liberalism. The result was a significant expansion in rentals, with the supply increasing, according to the Wall Street Journal, by over 170 per cent.

READ MORE: SNP warned rent control plans fail to 'live up to scale' of housing crisis as changes tabled

The consequence of this is that rent levels have actually reduced, with some being 40 per cent below where they were previously. Tenants have benefitted from the scrapping of rent controls in a way that their proponents could never have envisaged.

We don’t need to look to Argentina to see the impacts of restrictions on rent prices here. During Covid, the then tenants rights minister in the Scottish Government, Scottish Greens co-leader Patrick Harvie, introduced firstly a rent freeze, and then a rent cap, meaning that rents could no longer be raised to market levels.

The consequence of this was entirely predictable, with private landlords selling up and exiting the market. This led directly to a mismatch between supply and demand, leading inevitably to rent levels soaring upwards. At one point rent increases in Scotland were higher than in any other parts of the United Kingdom, including London.

READ MORE: How SNP’s betrayal of renters will see buy-to-let investors outbid first-time buyers

£3 billion of investor flight

There was an even more serious consequence, in that investors in the build-to-rent sector were driven out of Scotland with the fear that they would not in future be able to raise rents to market levels. The industry calculates that in excess of £3 billion-worth of investment in build-to-rent properties has been lost to other parts of the UK over the past five years.

This really matters. It means that affordable rental properties have not been created, and that the economic benefits of this significant investment in construction have been entirely lost.

Against this backdrop, it seems astonishing that the SNP government is progressing with its legislation to give local authorities the power to introduce rent controls in designated areas. Already, though, there has been significant backtracking from Scottish ministers, perhaps realising the potential damage that will be done both to investment and to tenants themselves.

Purpose-built student accommodation will be exempted from the Bill, recognising that it would be impossible to attract investment in student flats unless that were the case. And now the SNP have gone even further, proposing that both the build-to-rent and mid-market rent sectors will join purpose-built student accommodation in being exempted. It is a belated recognition of the damage that will be done to investment should rent controls be introduced.

Whilst these U-turns are welcome, the private rental sector remains, as it stands, under the threat of rent controls being introduced. And the consequence of this is likely to be yet more landlords exiting, once again causing a mismatch between supply and demand, and potentially driving rents up yet further.

Ministers must see sense

Scotland’s tenants are still living with the legacy of foolish decisions taken at the time when the Greens had a say in government in Scotland. It might have been hoped that, with the SNP having ditched the anti-growth Greens, they would have started to see sense when it came to promoting growth in the economy and dealing with the housing crisis.

The changes already announced to the Housing Bill, exempting build-to-rent and mid-market rent properties are positive, but they simply do not go far enough. A successful economy depends upon a vibrant private rented sector, and that will simply be damaged should the plans for rent controls proceed.

Even at the final hour, I hope that SNP ministers will see sense, learn the lessons from countries like Argentina, and ditch rent controls. In the long run, Scotland’s tenants would be glad that they did.

Murdo Fraser is a Scottish Conservative MSP for Mid-Scotland and Fife