Concern that ‘cost of living bill’ adversely impacts rental property sector - Nicola Scott

Scottish Parliamentary legislation designed to support tenants in an increasingly challenging economic environment was passed earlier this month.

The Scottish Government’s Cost of Living (Protection of Tenants) Bill puts a freeze on both public and private rents for existing leases and is backdated to September 6. It also places a moratorium on evictions until next April when the legislation will be reviewed.

The new measures aim to combat the current cost-of-living crisis caused by inflationary pressures which are driving up food and energy expenditure for Scottish households, specifically for those spending a large proportion of their income on rent.

Whilst the aim of the legislation is to safeguard tenants, many landlords have voiced concerns that it will adversely impact the rental property sector. While welcoming the intention behind the new rules, the Scottish Federation of Housing Associations (SFHA) has warned it will have ‘serious, unintended consequences’ and would impact on their members’ ability to invest in new, affordable homes for some of the poorest families in Scotland.

Nicola Scott is a Partner, Davidson Chalmers Stewart

The SFHA is not alone in raising concerns. Many private landlords have also argued that a rent freeze will impact on a multitude of matters, including maintaining existing rental stock, and could curtail investment in the sector, piling more pressure on a rental market that is already experiencing unprecedented supply and demand issues.

Earlier this year, Glasgow reported a dramatic increase in average monthly rents, driven by a shortage of available private rental properties. Research by Citylets showed the average monthly rent in Glasgow had risen by 15 per cent to £974 in Quarter 4 of 2021. The dwindling level of private rental capacity was further highlighted two weeks ago in press reports about a one-bed flat in the city being let for £900 per month garnering more than 500 applications within hours of being posted online.

This followed the University of Glasgow’s warning that applicants should not enrol without having housing secured due to the intense demand for private flats and limitations on student accommodation within the city.

As Citylets reported, the rental property market in Edinburgh also continues to be challenging with average monthly rents rising to over £1200 last year. While Scotland’s capital has benefitted from significant student accommodation investment in recent years, there are concerns about the low availability of private rental properties for non-students. Increasing numbers of Edinburgh’s landlords have sold rental properties as the housing market remains buoyant and to avoid the threat of further regulation and costs resulting from the licensing of short-term lets.

The shortages in rental properties are set to worsen after the effects of last month’s UK Government’s mini-Budget which resulted in a leap in interest rates. This is already preventing many first-time buyers from getting on the property ladder and freeing up rental accommodation. With nearly 40,000 UK homeowners re-mortgaging every month, there is also a very real prospect that some owners will be forced into the rental sector as their new monthly mortgage payments become unaffordable.

While the Scottish Government’s Cost of Living (Protection of Tenants) Bill is welcome in providing tenants with protections over the next six months, further consideration should be given towards the unintended consequences which could follow. This legislation threatens housing association investment and could also drive away buy-to-let investors at a time when Scotland needs to build its private rental capacity.

Wider measures are required to counter the shortage of quality rental properties available on the market. Firstly, the Scottish Government could adopt a flexible approach with any future rise in rent costs pegged in line with the Consumer or Retail Price Indexes. This will help prevent more rental properties from disappearing from the market. Offering landlords support, including incentives and grants, to improve green credentials, would ensure existing rental properties are energy efficient and fit for purpose.

In cities like Glasgow, where private rental capacity is extremely low and demand is soaring, we also need further measures to unlock additional capacity in student accommodation. This is where planning authorities have a role to play in reviewing planning rules to smooth the way for new developments.

Nicola Scott is a Partner, Davidson Chalmers Stewart