United Kingdom

Scottish government plans permanent rent controls

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An interior view of the Scottish Parliament Building

The property industry’s worst nightmares could be coming true in Scotland, where politicians are planning to bring in permanent rent controls.

Scotland’s 2023-24 Programme for Government includes the introduction of a Housing Bill to deliver a “New Deal for Tenants”. This would give the government the power to impose long-term rent controls as well as creating new rights for renters.

This would follow on from the temporary rent caps introduced in the Cost of Living (Tenant Protection) (Scotland) Act 2022, which will end on 31 March 2024. Scotland’s Tenants’ Rights Minister Patrick Harvie has also pledged to bring in transitionary measures to prevent landlords from raising rents all at once when the rent cap runs out.

So far, First Minister Humza Yousaf has not set out much detail on his plans for the rental market, although there are more concrete proposals to build affordable homes and give councils the power to tax second homes more heavily.

How could new rent controls work?

The starting point for the new law is likely to be Scotland’s current system of rent controls. At the moment, landlords’ in-tenancy rent increases are subject to a regularly-revised cap (currently 3%, although that could change after this month’s extension), and they can apply to Rent Service Scotland for larger increases (up to the current cap of 6%) to partially cover their increased costs.

But such a move would risk reducing the supply of rented homes. A recent YouGov poll for the National Residential Landlords Association suggests that more than 20% of landlords would sell properties or convert them to short-term lets if rent increases were capped within tenancies, as they are currently. The rent cap has also been blamed for reducing build-to-rent construction, threatening the supply of new homes.

The current policy of capping within-tenancy rent increases has also, ironically, led to higher rents. Landlords have made up for rent controls within tenancies by setting higher prices for new tenants: Zoopla’s rental market report for September found that new rents in Scotland are rising faster than anywhere else in the UK, reaching a blistering 12.7% year on year. If this continues, politicians could be tempted to impose rent controls on new tenancies as well – pushing even more landlords out of the sector, according to the YouGov poll.

But this may not be sustainable for landlords. The higher new rents rise above existing rents, the more likely tenants are to stay put, giving landlords fewer opportunities to secure higher rents for their properties – and also reducing letting agents’ fee income from arranging new tenancies. Unless the Scottish government handles the issue extremely carefully, they risk doing severe damage to landlords, agents and tenants alike.

Other national headlines

Bid to delay short-term let licensing scheme in Scotland denied – Short Term Rentalz

Welsh property markets sitting empty thanks to second homeowners – PropertyWire

Demand in Welsh housing market falls to lowest levels since 2008 – survey – Business Live

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