SNP government’s rent caps u-turn is encouraging

David J Alexander is an expert on the Scottish housing marketDavid J Alexander is an expert on the Scottish housing market
David J Alexander is an expert on the Scottish housing market
Surprise amendment to Scottish Housing Bill should boost investment in sector

Scottish Housing Minister Paul McLennan surprised many people last week with his announced amendment to the Scottish Housing Bill. He proposed introducing rent caps into areas where rent controls are deemed to apply (and identifying these areas is one of many difficulties in this legislation) but capped at inflation +1 per cent up to a maximum of 6 per cent.

This is a shift in the right direction given the earlier policy was for 0 per cent rent rises for up to five years. It is as if the Scottish Government has suddenly acknowledged that the enormous reduction in investment into the private rented sector (PRS) in recent years may have been due to their policies! So, while this is a welcome move there is still much to be done to ensure that this legislation realistically reflects the future needs of the PRS for both property investors and tenants.

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A major blockage remains as landlords and investors must be able to establish a fair market value for properties between tenancies. This is the main way to guarantee appropriate investment in rented homes is continued to ensure landlords remain within the market.

Certainty of income over a guaranteed period is essential if investment is to return to the Scottish market. Since the introduction of rent controls in September 2022 there has been a complete lack of policy direction or the expected outcomes other than a headline in the press. It is worth noting that in the 12 years from 2010 to 2022 the average annual rent increase for a one-bedroom flat in Scotland was 3.9 per cent, while for a two-bedroom it was 4.3 per cent. It is only since the Scottish Government introduced rent caps that prices have soared. If, as everyone hopes, the intention is to resolve the current housing emergency facing Scotland, the best way to attract greater investment, and more growth in the private rented sector, is to leave it to the market to determine. Political intervention in the marketplace generally does not work and, as we can see in Scotland, has actually made the situation worse.

Investment has been put on hold, uncertainty has prevailed, at the same time that demand has grown exponentially, and rents have risen as a result. The best way to resolve the housing emergency in the shortest possible time would be to encourage investment in the PRS, create an environment which attracts more housebuilding, and build substantially more social houses as part of the overall property mix. The concern with this recent amendment is that it is subject to more consultation in the spring of 2025, with the forecast implementation beyond the date of the next Scottish election in 2026. This means that for those people struggling to find a home in the PRS or in social housing at the moment there will be further delays while these details are discussed. More housebuilding, greater encouragement for the PRS, and a welcoming environment for property investors and landlords would resolve the current housing emergency in a short number of years. An acknowledgement the PRS is an integral part of the Scottish housing mix would also be an important element in resetting the relationship of the government with the sector.

David J Alexander is CEO of DJ Alexander Scotland Ltd​

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