SNP-Green Government plans to introduce rent freezes will harm – not help – tenants, industry experts have warned.
Community housing associations have joined letting agents and bodies in expressing fears that the rent controls, which could be forced through the Scottish Parliament next week, will result in a reduction in the number of properties on the market.
Brendan Fowler, the Director of Prospect Community Housing, told the Scottish Conservatives that the imposition of rent controls will “have a significant impact on the provision of new homes” as well as making it harder for rental properties to meet green targets.
Another social landlord, who asked not to be named, told the Party that the move would also reduce confidence in the sector, and further hold up maintenance projects – many of which were already delayed during the pandemic.
The Scottish Federation of Housing Associations have said that it was “positive” that there were no rent controls currently, and warned against the uncertainty of government intervention.
The Scottish Property Federation have said that the policy would do nothing to address the existing problem of housing supply.
Their warnings are lent credence by the impact of rent controls in other countries.
In the Republic of Ireland, where over 50 so-called ‘rent pressure zones’ have been introduced since 2016, there were just 716 properties available on the rental market in August.
In Sweden’s capital, Stockholm, the average waiting time for a rent-controlled property is nine years.
The Scottish Conservatives have demanded that ministers address fears that their proposals will end up harming tenants.
Scottish Conservative Shadow Cabinet Secretary for Social Justice, Housing, and Local Government, Miles Briggs, said: “It seems clear from industry experts that this SNP-Green scheme will only hurt the very tenants it aims to help in the long run.
“With the SNP Government already failing to meet their own housebuilding targets, policies such as this will mean less money for developments and fewer homes to live in – a shortage that could not come at a worse time.
“These serious concerns are backed by the experience of other countries where rent controls have been introduced.
“Yet SNP ministers want to plough ahead with a policy that looks superficially attractive but will, in reality, be damaging to people looking to rent.
“The best way to ensure that both tenants and the sector are getting the best deal is to ensure that housebuilding targets are met and met as soon as possible.
“The Scottish Conservatives would ensure that homebuilding is a priority for Scotland, by building 60,000 new affordable homes. That way we can help to put thousands of Scots on the property ladder. What we don’t need is the chaos and uncertainty of government-imposed rent controls.”
Notes
Prospect Community Housing indicated that their rental income will decrease significantly should this legislation come into effect. Prospect told the Scottish Conservatives that if they were forced into a rent freeze next year, this would reduce their rental income by £172,000 next year compared to the 4% cap that they are already considering. They also noted that if a freeze is imposed it is likely that housing associations will have to reduce or remove their investment. This will also have a significant impact on the provision of new homes. Lenders may be nervous about lending, or lend at a higher margin, as associations will not have the same control over their future rental income. (Correspondence with Scottish Conservatives available on request).
Another housing association indicated that a rent freeze will impact the delivery of net-zero homes. The association which wishes to remain anonymous noted that should rent freezes come into effect, their financial capacity to deliver net zero homes will be impaired as planned maintenance spends will be pushed back. The association was already unable to undertake planned maintenance projects during the pandemic however such projects will be further delayed to accommodate increased running costs with no ability to increase income to help mitigate inflation (Correspondence with Scottish Conservatives available on request).
The Scottish Property Federation said that this policy will do nothing to address the problem of housing supply. Scottish Property Federation director David Melhuish said: ‘If anything, this policy threatens to derail efforts to improve the supply of new, purpose-built homes for rent as investors pause to ask what else the Scottish Government might be prepared to do. Private rental sector providers have endured years of restrictive measures that have led to the sector losing homes for rent, with both renters and providers forced into using a tribunal system that is simply overrun.’ (Scottish Housing News, 7 September 2022, link)
The Scottish Federation of Housing Associations criticised the imposition of rent controls on social housing. Aaron Hill from the SFHA told MSPs: ‘it is interesting and positive that we do not have Government rent controls for the social housing sector in Scotland. In the stats across the United Kingdom, social rents in Scotland are lower than those in Wales and England, which I think is a direct result of there being no Government intervention. Government intervention often drives uncertainty and can have the unintended consequence of a housing association taking the maximum rent rise that it can take under Government policy.’ (The Scottish Parliament, 6 September 2022, link).
Letting agencies have criticised the SNP-Green Government plans to impose rent freezes. David Alexander, from the DJ Alexander lets agency said: ‘This announcement is designed to gain headlines without any real impact on the tenants it purports to be helping.’ He added: ‘This process has been one of short-sighted, ill-considered opportunism with little concern for the lives of the tenants and landlords it affects.’ (The Scottish Sun, 18 September 2022, link).
The development of some build-to-rent properties has been paused. According to the Times, the Scottish Government’s move to announce rent freezes ‘alarmed institutional investors in Scotland’s £3.5 billion build-to-rent (BTR) sector, where industry sources said a number of developments have been “paused” following the announcement by Nicola Sturgeon.’ (The Times, 18 September 2022, link).
Rent controls cause housing shortages. According to the basic theory of supply and demand, rent controls cause housing shortages, as the demand is high, and supply is limited. That reduces the number of low-income people who can live in a city. Furthermore, rent control will tend to raise demand for housing, and therefore rents, in other areas. (Bloomberg, 18 January 2018, link).
The SNP Government met its 50,000 affordable homes target one year later than expected. The target of building 50,000 affordable homes was set to be delivered in March 2021, however, the SNP Government reached its target one year later, after 9,757 affordable homes were delivered in 2021/22. (Insider.co.uk, 15 June 2022, link).
There were only 716 available properties in the Republic of Ireland in August. The Republic of Ireland, a country the SNP Government likes to compare Scotland with, introduced rent pressure zones. As a result, the supply of housing has decreased substantially with only 716 homes being available for rent on 1 August. This comes at a time when the country is experiencing population growth (Sky News, 2 September 2022, link; The Irish Times, 18 May 2022, link)
The average waiting time for a rent-controlled property in Stockholm is nine years. In theory, anyone living in Sweden can join a city's state-run queue for what Swedes call a ‘first-hand’ accommodation contract. However, in Stockholm, the average time one has to wait on this queue is nine years. (BBC, 26 August 2021, link).