Scots ministers seek new wave of rent controls despite concerns

It comes in the wake of a rent freeze and an eviction ban announced by Nicola Sturgeon in September last year, to beat the cost of living crisis.

Industry group the Scottish Property Federation has raised concerns that rent controls and political certainty are likely to limit the supply of new build-to-rent homes.

The rent freeze has since been replaced by a 3% rent cap for private tenancies only in April which is due to remain in place till September 30, 2023.

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It was not extended to those renting from social sector landlords such as councils and housing associations who tend to provide lower cost accommodation taken by the poorest and most vulnerable in the country.

An analysis by estate agents Rightmove shows that the availability of rental stock has already declined substantially since mid 2021.

A 12-month rolling count of new lets in Scotland has dropped from 49,371, two years ago to 39,200 in March.

A federation study revealed that the pipeline of build-to-rent properties in Scotland sits at around 17,000, but 67% were stuck planning while there were 6,000 properties with planning permission where construction is yet to begin on site.

Of 14 major build-to-rent investors interviewed for the federation with a combined £15 billion of property, nine judged Scotland to be unattractive, including four who view the country as uninvestable under current conditions.

The Scottish Association of Landlords (SAL) is among the trade bodies pursuing a judicial review over the measures in the Cost of Living (Tenant Protection) (Scotland) Act 2022 saying that it is "unlawful".

They say that the emergency legislation was introduced without proper consultation and that it breaches the rights of property owners under the European Convention on Human Rights, which the UK is still required to comply with.

SAL has led a coalition of representative bodies with Scottish Land & Estates (SLE) and Propertymark in seeking legal counsel over the legitimacy of the legislation on the basis that it sought to transfer the burden of increasing costs from households to landlords, leaving housing providers "potentially unable to cover their costs and facing significant delays to exit a loss-making tenancy".

Tenants' rights minister Patrick Harvie confirmed a commitment to introducing a national system of rent control in a response to concerns on the effect the current curbs are having.

He said it would be "informed" by views from tenants, landlords and investors through an advisory group.

"We intend to introduce a rent control system which is compatible with encouraging investment and we will continue to engage with stakeholders from across the sector on our long-term commitment to develop an effective system of rent controls for Scotland," he stated.

The SAL has warned that where rent controls have been tried in places such as Dublin and Berlin it has led to "reduced supply and increased costs for tenants".

A study in Ireland suggested that rent pressure zones (RPZs), introduced in 2016 to limit rent price increases, have resulted in significant "rent rigidities" and an inefficient two-tier system where the proper maintenance of rental properties was no longer economically viable.

It prompted many smaller landlords to exit the market and to be replaced by institutional landlords with new stock at higher rents.

The report, commissioned by the Institute of Professional Auctioneers and Valuers and the Irish Property Owners Association, concluded that the Irish rental market was not functioning in an effective manner, and that RPZs were undermining the market and not achieving what they are intended to achieve.

John Blackwood, SAL chief executive said: "The Scottish Government must heed these evidence-based lessons before forming its own proposals.”

He said that the group has been engaging with the Scottish Government around proposals and would "continue to hold discussions in a constructive manner to find effective solutions which will encourage investment by landlords and keep costs low for tenants".

He added: “Everyone in the housing sector in Scotland wants to see well-thought out policy, effectively implemented and with clear goals in mind. This has not always been the case in the past when short-term decisions by ministers have exacerbated housing shortages and seen rents rise faster.”

Rents for some of the nation's most vulnerable are soaring by up to 8% while those in the private sector were to be capped at 3%.

The increases approved by over 100 housing associations in Scotland are at an average of 5.34% and range between 0% and 8% as arrears hit a record high of £160m.

Housing regulators forecast that rent arrears within the over 550,000 socially rented properties in Scotland will peak in 2022/23 having hit £169.6m at the end of March, 2022, which amounts to 6.3% of the amounts due.

Mr Harvie said in January when concerns were raised about rent increases that voluntary agreements reached with social landlords would keep rents "well below what they are in the private market and limit rises next year".

The rising rents led to concerns amongst housing campaigners that eviction cases would also increase as tenants struggle to pay.

The typical rent rise in homes controlled by local authorities is 3.8%.

When the then First Minister announced plans for an eviction ban and an immediate rent freeze for social housing and private tenants eight months ago, she branded the cost of living crisis a "humanitarian emergency".

Launching the support for tenants under the Programme for Government Nicola Sturgeon said it "will aim to give people security about the roof over their heads...".

A Scottish Government spokesperson said: "Scotland has led the UK in delivering affordable housing, with more than 118,000 homes delivered since 2007. We are committed to our target of 110,000 affordable homes by 2032, of which at least 70% will be available for social rent – and we are making £3.5 billion available in this Parliamentary term to support their delivery.”

"We believe that a well-regulated private rented sector is good for landlords and tenants and can be attractive to investors. We will continue to engage with a wide range if stakeholders as we develop our proposals for long term rent control.

“Our temporary emergency legislation was introduced to protect tenants in response to exceptional economic circumstances. That included increased protection for tenants facing eviction and the introduction of a temporary rent cap. 

“While the judicial review is ongoing it would not be appropriate to comment further.”