Are rent controls anti-tenant and anti-landlord?

If the Scottish Government really wants tenants to benefit from a competitive and balanced residential letting sector, rent controls are not the answer. And if controls are ever implemented, the market will start to shrink at a time when it really should be expanding to meet existing and future demand.

Not for nothing has the umbrella organisation, PRS4 Scotland, representing the private rented sector, described any such legislation as ‘anti-tenant as well as anti-landlord’.

But why, you may ask, would capping rental costs possibly be described as ‘anti-tenant’?

One needs only to delve into recent history for the answer. Back in 1988 the government of the day introduced ‘short assured tenancies’. Although rents were not subject to control, landlords were prevented by law from taking possession of their property without long and costly legal wrangling. This deterred investment and meant private rentals were restricted to either the ‘fag end’ or a small ‘high end’ of the housing market.

The legislation changed all that by making private rented housing a viable investment; money poured into the sector, competition increased…..and general standards of accommodation rose as a result.

Until recently, when mortgages were plentiful, those people who rented did so as a matter of choice – usually because they were at a transient point in their lives. However while mortgages are, in theory, still plentiful, the large deposits being demanded by lenders is making owner-occupation unaffordable for growing numbers of young people, and for them renting has become more or less a necessity – either as a long term option or until such time as they can raise the deposit on a home of their own.

If reasonably affordable accommodation is to be found for these people then clearly Scotland will need more houses available for rent. But how can this be realised when the fear of rent controls will chase away those who otherwise would have been prepared to invest in the sector?

According to statistics, just over 80 per cent of private rented housing in Scotland is owned by private individuals and family trusts. They, for the most part, provide an admirable service, but the situation could be improved further by financial institutions getting more closely involved in funding homes for rent. Huge economies of scale would follow, with the benefits filtering down to tenants and increased ‘competition’ helping to ‘regulate’ rental levels.

But would an institution be likely to invest in Scotland’s lettings market if government officials are given the power to interfere in the setting of rental rates?

While it is true that earlier government consultation has come out against the control of rents in principle, there does appear to be a get-out clause in that “specific measures may be justified to protect tenants from excessive rent increases” in what are described as “rental hot-spots”.

While it cannot be denied that high-priced hot-spots, such as Edinburgh’s New Town or the Park Circus area of Glasgow, do exist, these are relatively small. It would be incorrect to describe each city in its entirety as a ‘hot-spot’.

Should this become law, just how will the boundaries of hot-spots be measured – who will decide if one street is part of a hot-spot while another is not?

It seems like a difficult exercise for civil servants as well as being a costly exercise for the Scottish taxpayer and one which won’t have the desired effect.

n David Alexander is managing  director of the Edinburgh- and Glasgow-based letting and estate agency, DJ Alexander.