A shift in policy

Housing Minister Paul McLennan surprised many with his amendment to the Scottish Housing Bill on 31 October. He proposed introducing rent increase limits in areas where controls are deemed necessary, capped at inflation plus 1%, up to a maximum of 6%. Given the earlier policy of 0% rent rises for up to five years, this will be welcome news for many private landlords for whom letting out their properties was becoming unviable. It is certainly a shift in the right direction, aiming to protect tenants from unaffordable rent hikes. However, much remains to be done to ensure that this legislation realistically reflects the future needs of the Private Rented Sector (PRS) for both property investors and tenants.

If the Bill passes, rent caps will apply to both ongoing and new tenancies. Landlords and investors must be able to establish a fair market rent value for properties between tenancies. Without this, rent controls risk negatively impacting the quality and availability of housing supply by discouraging investment in rental properties. Since rent controls were introduced in September 2022, there has been a lack of clear policy direction, further complicating the investment landscape. Certainty of income over a guaranteed period is crucial to restoring investment confidence, keeping landlords in the market, and providing a steady supply of good quality homes at fair rents.

Encouraging investment

The PRS has an important role to play in resolving the current housing emergency facing Scotland. Yet political intervention in the marketplace is stifling the sector's potential. Investment has been put on hold, uncertainty has prevailed, and demand has grown exponentially, causing rents to rise. The solution lies in providing further support for the sector and creating an environment that attracts more housebuilding. This should include substantially more social houses as part of the overall property mix.

Exempting Build-to-Rent (BTR) and the Scottish Government’s initiative, Mid-Market Rent (MMR), from these controls might have encouraged investment in new housing supply. However, the current approach risks limiting housing supply and discouraging new investment in these sectors, which could otherwise contribute to solving the housing crisis.

Data and research

Recent data demonstrates the impact of the current low supply levels, with further growth in new-let rental prices. Though below recent peaks, Citylets data indicates annual growth in new-let rents in Q2 2024 was 11.7%, similar to Q1 2024 but below the peak of 13.7% in Q3 2023. Rightmove data also shows a decrease from its peak of 14.5% in Q3 2023 to 7.9% in Q2 2024. Despite these decreases, real-terms increases in new-let rents remain high due to lower CPI inflation in Q2 2024.

The role of local councils

Scottish council leaders have raised concerns about the additional costs of monitoring rents under the Housing Bill. Edinburgh City Council, for example, estimates it would cost over £5.5m to assess private sector rents, a cost they can ill afford in today’s cash-strapped economy.

Conclusion

Given these challenges, it is crucial for landlords to seek expert advice to navigate the uncertainties posed by the Housing Bill. The evolving legislative landscape underscores the importance of proactive planning and informed decision-making in the PRS market.

Further information

Contact Charles McCosh