Scots rental market in turmoil as housing shortfall widens

But property insiders say existing rent controls, which currently cap rent rises at 3% following a temporary freeze to help tenants through the cost-of-living crisis, are causing landlords to quit the industry and investors to walk away from build-to-rent projects they say would help tackle the current shortage.

The latest report by Citylets measured the average property rent in Scotland at £1,081 per month in the second quarter, having surpassed £1,000 per month for the first time in the opening three months. It said the findings underline the shortcomings of current rent control measures as average rents increased in double digit percentage terms for a third quarter in succession, following the introduction of the Cost of Living (Tenant Protection) (Scotland) Act 2022.

READ MORE: Scott Wright: Major action needed to solve rent crisis

Both sides of the debate recognise the pressure arising from the increasing numbers of people being forced to move into the rented market.

Rising interest rates, which currently stand at 5.25% having been as low as 0.1% in December 2021, mean many people are unable to afford to buy their own home, and student numbers continue to rise in the major cities, while efforts to build new stock fail to keep pace with demand.

In the social housing sector alone, it is estimated that there are currently 243,000 on waiting lists for homes in Scotland, while figures compiled by Rettie found listings for the year to June were 20% down compared with the 12 months to June 2021.

Aditi Jehangir, secretary of tenants’ union Living Rent, said: “The private rented sector has doubled in size since 2000 however in the same time period house prices have trebled and the amount of new social housing available has decreased with an annual deficit of 24,000. This has had the effect of trapping more and more people in the private rented sector, allowing landlords to hike up rents which in turn further denies people any hope of saving for a deposit.

“Since the introduction of Right to Buy in the 1980s, social housing stock has been decimated, going from 51% of Scotland’s housing to 23%. Our government’s negligence to the importance of social housing has made us reliant on the private rented sector to the detriment of tenants’ access to affordable housing.

“If landlords are spooked by the idea of rents being affordable for tenants, this government needs to commit to building far more social housing to house the 243,000 people on social housing waiting lists.”

READ MORE: Genteel world of tourism in uproar as new rules bite hard

While Living Rent noted that the emergency rent control measures introduced as the cost-of-living crisis emerged last October had been a “huge relief for tenants in housing”, it said current policy was flawed.

“We need rent controls to bring down rents, but we also need any future policy on rent controls to be tied to the property not the tenancy,” Ms Jehangir said.

“The current policy ignores the fact that people move and as a result tenants in joint tenancies that have seen their contracts ended due to one flatmate moving out or people who have just wanted to relocate have not been protected.”

But the rent controls are strongly opposed by the property industry, as concern grows that they are leading potential investors in build-to-rent developments to allocate capital to projects outside Scotland.

Get Living, a BTR developer, recently paused plans for a £200m residential project in Glasgow city centre, citing the risk to investor returns from rent control measures.

John Boyle, director of research and strategy at property firm Rettie, said:

“Scotland has been a tougher sell because of the political situation, particularly around independence but it has become a much tougher sell since the introduction of the rent controls and the emergency legislation.

“There is built-to-rent happening in Scotland, but… we are under-performing. Edinburgh and Glasgow should be in the top three cities in the UK for residential investments [but] they are way, way down in about the 17 and 18 positions in terms of delivery of units. That new supply hasn’t really come in to replace the supply that has gone and to bolster the sector.”

READ MORE: Nevis Range ski resort hails impact of new hotel

A report recently carried out by Rettie for the British Property Federation canvassed the views of 14 institutional funds on the Scottish Government’s rent freeze and none found Scotland to be an “attractive place for investment”.

Mr Boyle said: “If you are an institutional investor you have got to be able to underwrite successfully. Even if you know the rent control is going to be 3%, 5%, 6%, you can underwrite on that basis and then you can work out whether or not you can go ahead with that scheme or whether you can make them scheme viable.

"The problem we have in Scotland at the moment is that the rent freeze comes in, then it is 3% cap, and then we don’t know what it is going to be going forward. So, the funds can’t underwrite – they don’t know what their revenue or rent roll from the scheme is going to be with any reliability over the next five, 10, 15 years.”

Some say the supply of housing is being constrained because landlords are exiting the industry, with rent caps limiting their ability to offset the cost increases they are facing.

Glasgow-based Homes for Good, which helps tenants access quality housing while protecting landlords’ investments, is currently receiving 300 enquiries for each property it is listing.

Founder Susan Aktemel criticised the current Scottish Government approach to policy in the private rental market, declaring that it was driven by “ideological rhetoric with no basis on evidence, consultation with the industry or impact assessment of actions”.

Ms Aktemel told The Herald: “HFG welcomes measures to ensure rents do not become completely unaffordable for most of the renting population (as is happening in London) but it cannot be done in a way that alienates or distorts the market to the extent it destroys it.

“People's homes and lives are at stake. My plea to government is to take industry views and sector academics and professionals' evidence and opinion into account when setting policy.”

Mr Boyle said the long-term solution to the current problems lies in building more social and affordable housing, encouraging investors into the sector, and helping it easier for people to get on to the housing ladder. “There is a mixed policy response that is going to be required here,” he said.

Stephanie Millar, policy manager of Citizens Advice Scotland, said: “The Citizens Advice network is providing more advice than ever, with increases particularly being seen in relation to advice on utilities, food insecurity, crisis support and non-priority debt.

“We give out thousands of pieces of advice in relation to housing every year. Advice on finding and securing private rented sector accommodation has been increasing over the last few years which indicates that people are finding it difficult to find a home in this sector which suits their needs. The network receives a high number of queries about rents, above pre-pandemic levels.

“There is a need for a rent control policy for the private rented sector in Scotland and we support the development of this, however, there is more to be done to research and model a system that works for Scotland’s housing market before any policy can be finalised.”

A Scottish Government spokesperson said: “We remain committed to delivering on our target of 110,000 affordable homes by 2032, of which at least 70% will be available for social rent. From 23 March 2022 to end March 2023 we have delivered 11,570 homes towards the target, of which more than 9,000 have been for social rent.

“Our emergency legislation has led the way within the UK at a time when rents have been rising across the UK. It applies to most existing tenants and places a cap on in-tenancy rent increases, stabilising rents to help tenants to stay in their homes.

“Since 1 April 2023, private landlords with a tenancy subject to the cap have been able to increase a tenant’s rent in-tenancy by up to 3% or can apply to Rent Service Scotland for approval of an increase of up to 6% in specific circumstances. Anywhere else in the UK, private tenants have faced a double whammy of uncapped rent rises both during and between tenancies.

“As we set out to Parliament at the time, as temporary emergency legislation it was only possible to apply this to in-tenancy increases, but we remain committed to introducing long-term rent controls, delivering on the Bute House Agreement. Evidence from many countries shows that a well-regulated private rented sector is good both for tenants and for responsible landlords, and can be attractive to investors.”