"The only long-term solution to lower rents is for more rental properties to come to market and for more social housing to be built."
As rents continue to climb, the Scottish Government has taken the controversial step of enforcing a rent freeze.
Under the Cost of Living (Tenant Protection) Bill, private and social tenants have seen any rent increase capped at zero until at least 21st March 2023. The emergency legislation also imposes a temporary ban on evictions - unless in exceptional circumstances.
Understandably, the move has not gone down well in some corners, with the Scottish Association of Landlords considering mounting a legal challenge against the measures, which it says risks acerbating the housing crisis further.
Indeed, there is a fine line to walk when it comes to balancing the needs of tenants and landlords. While First Minister Nicola Sturgeon’s legislation shields renters; imposing such a blunt tool also risks forcing landlords into a corner at a time when some are already looking to sell in response to growing regulatory and tax pressures.
Although it can be easy for Governments to cast landlords as the villains of the housing market, it is worth remembering that like homeowners, they too face rising mortgage costs and whether they want to increase rents or not, they will need to show lenders they can meet the interest cover ratio, which many are already raising.
Under the legislation there are some circumstances in which landlords can apply to the Scottish Government to increase rents – such as an increase in mortgage interest payments and other property costs. In such a scenario however, the landlord would only be able to increase the rent by the lower of: 50% of the increase in these prescribed costs in the preceding six months, or, 3% of the existing rent level.
The Scottish Government also has the power to increase its own cap from zero, if it believes the economic outlook has improved - something which currently looks unlikely.
So, would the UK Government ever consider a similar measure? I would be inclined to say not, but if the current Government has shown us anything, it is that it is not afraid to go against the grain, so it’s anyone’s guess.
Recent reports suggested Prime Minister Liz Truss was no longer looking to ban Section 21 evictions, but apparently there has been a u-turn on that u-turn and they will now be banned. If Section 21 evictions were allowed, it could have been that the Government might have looked to counterbalance such a move with one which favours renters – such as a rent freeze.
With the average rent in the UK now at £1,051 per month, there is a growing lobby that suggests the Government should intervene to try and lower costs for renters, especially those who are most vulnerable.
Rental growth has accelerated substantially over the last 12 months from an annual rate of less than 2% in July 2021 to 12.3% today, while rental growth is out-pacing earnings growth in all regions and countries of the UK, according to Zoopla.
Annually, rental growth is ranging from 7.6% in the North East to 18% in London. If a similar rent cap were to be introduced in the rest of the UK, introducing some form of regional variant could perhaps offer a fairer system.
I am not convinced however that the Scottish way of doing things will prove beneficial in the long-run. The only long-term solution to lower rents is for more rental properties to come to market and for more social housing to be built.
Like the rest of the UK, Scotland also faces a chronic shortage of rental properties and there are already rumours the latest legislation has deterred some institutional investors in the Build to Rent market from following through on their plans.
While Scotland’s new measures may offer a temporary sticking plaster to the problem renters face, it will be just that: a superficial measure that once removed will not have healed the problem and perhaps made it even worse.
The implementation of such measures by the UK Government is arguably the last thing an already pressurised rental market needs. Escalating rents for tenants however are also becoming unsustainable and the Government only has so many levers it can pull.
Some form of Government-funded temporary relief package for the most vulnerable renters – alongside a staggered rent cap might prove more beneficial, while more long-term housing solutions are considered.
Let’s hope that if or when similar measures are introduced in the UK, the powers that be consult and listen to those in the industry before making any hasty decisions.
