COMMENT: If used wisely, rent controls do have their place

An economist once said the two things most capable of destroying the fabric of a city were a bomb and rent controls.

An economist once said the two things most capable of destroying the fabric of a city were a bomb and rent controls.

While the prospect of either of Scotland’s two largest cities being wiped out is too horrible to contemplate, rent controls in Edinburgh and Glasgow are now a very real prospect.

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A major sea-change is expected to take place this coming December when the Scottish Government will replace the current short-assured tenancy with the “new model tenancy” (NMT).

This involves a number of changes to legislation, designed largely to give greater protection and flexibility to tenants. Local authorities will also be able to apply to the government for permission to identify “rental pressure zones” (RPZs) and make them subject to rent controls.

Despite being a free-market libertarian, I actually do not have a problem with the principle of rent controls on the basis that, operated wisely, they could help facilitate stability within the market.

In theory it should not be a problem for landlords, because to a large extent self-regulation within the sector is already controlling rents – even within rental hotspots such as Bruntsfield in Edinburgh or Hillhead in Glasgow. For a landlord, the attitude and diligence shown by a tenant comes a close second to the actual level of rental income.

Therefore, he or she will value a tenant who respects the property and who has a good payment record in more than just monetary terms; in other words, to retain such a valued customer, the landlord will invariably restrict any rent increase to the rate of inflation and in some cases not increase it at all.

Equally, however, landlords do need to be in a position to charge the market rent – ie the largest sum that can be secured from a list of tenant-applicants; should councillors ever interfere in this part of the letting process, landlords would sell up en masse with an acute shortage of private rented accommodation the inevitable result.

The initial response by Edinburgh and Glasgow councils to the “opportunities” – as they would no doubt see it – offered by NMT has been to declare an intention to make both their entire cities RPZs.

I can only assume the reason for this policy is to keep administrative costs to a minimum because the task of separating districts considered rental hot spots is likely to be extremely difficult, even if using post codes as a benchmark; for example housing in EH3 ranges from West End town houses to Tollcross tenements.

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Therefore, declaring both cities to be RPZs by implication puts Niddrie on a par with Newington and Drumchapel with Dowanhill so it is essential that landlords can still charge each new tenant the market rent related to the location of a property.

If implementing RPZs local and national, politicians must remain alert to the law of unintended consequences.

Under the current short-assured system, new tenants have the guarantee of a lease for at least six months. NMT is supposed to help tenants by giving them the option to vacate a property whenever they wish (after a month’s notice) while the landlord can only end a tenancy by moving into the property or refurbishing or selling it.

But the rules regarding the latter are rather vague and I can see a number of loopholes emerging, meaning some renters might find they actually have less security of tenure than under the current system.

Politicians should learn from the experience of Land and Buildings Transaction Tax (LBTT – the replacement for stamp duty in Scotland), which was meant to reduce costs for buyers at the lower end of the market while being fiscally-neutral for the government, on the basis that “the rich” would happily pay the extra tax applied to purchases of top-end properties.

We now know how that has panned out. Yes, rent controls do have a place but let’s have more joined-up thinking about how such a policy will work for everyone than has been the case with LBTT.

David Alexander is MD of DJ Alexander