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Over 20 schemes in jeopardy as Scotland bans uncontrolled rent increases.

Published in React News by Alexander Peace – 28.03.24

 

Housing bill will put into law rent caps both during and between tenancies

The newly released Scottish housing bill will include rent caps both during and between tenancies and put the development of thousands of homes at risk.

Despite an outcry from developers, landlords and even tenant representative groups, the coalition SNP/Green government is putting into law temporary policies that have led to a complete halt in the development of new rental properties north of the border.

According to data from Scarlett Land and Development, there are 21 schemes and 6,628 apartments in or with planning in Glasgow, Aberdeen and Edinburgh yet to start because of the rent caps policy, and now their future hangs in the balance.

The effect of rent control on development

 Since the government introduced temporary rent control measures in October 2022 there has been a complete halt on new build-to-rent development.

Will Scarlett of Scarlett Land and Development, says: “Glasgow has just 878 operational BTR homes, while Edinburgh has just 524. Once construction pipeline is built out – 1,390 on-site in Glasgow and 1,506 on-site in Edinburgh – there will be no new supply because the consented 3,347 in Glasgow and 1,767 in Edinburgh will not be built out.

“This is simply catastrophic for new housing supply in Scotland, for both those renting and those investing”.

The problem has become so acute the total number of consented schemes is actually declining, as some are being converted to purpose-built student accommodation.

”We estimate that there is currently between £2.5bn and £3bn of investment now at risk that could deliver quality new homes for rent in Scotland,” says SPF director David Melhuish.

“Should the legislation be approved by the Scottish parliament unamended, we risk repeating the damaging effects of the emergency rent freeze legislation passed in 2022 when investment for Scottish rental housing was frozen, deterred or diverted to projects outside of Scotland.”

A detailed map of all BTR schemes in Scotland can be accessed here.

Why the controls?

Rent caps were enacted in Scotland in October 2022 under the emergency Cost of Living (Tenant Protection) Act, which froze rental increases at 0%, though this was later relaxed to 3%.

The current rules expire at the end of March 2024 and cannot be extended. As such, the government has created two new policies to control rents though its new Scottish housing bill.

The first is a tapering of the current rent adjudication programme – run through Rent Service Scotland – which makes it easier for tenants to challenge landlords whom they deem to have increased rent by above similar market rates. This will continue until the housing bill passes through parliament.

The second is a full rent control policy.

Essentially, it will demand that local authorities assess rent levels and whether it is necessary to restrict rent increases. If yes, ministers would then draft secondary legislation to introduce rent controls in an area.

Patrick Harvie MSP is the architect of the government’s rent cap.

Critically, and despite extensive industry consultation advising against it, the controls will also apply between tenancies, when the unit is vacant, to stop rents staircasing.

Supporting documentation for the bill says: “Where a rent control area is introduced, there would be a restriction on the amount by which rents under private residential tenancies under the 2016 Act can be increased in that area.

“This restriction would apply to increases in rent that take place both during a tenancy and at the start of any new tenancy of the same property. Landlords would be able to set the rent level for the first tenancy of a property at open market level where that property is considered as being ‘new to market’ (i.e. not having been previously let.”

The importance of 2026

 The controls are the brainchild of Green Party MSP Patrick Harvie, who is minister for tenants’ rights.

“It’s a package of reform that I believe will work for tenants, but which will also support those good, responsible landlords who want to provide secure, high- quality homes at a fair cost,” he wrote in the Glasgow Times.

“Across Europe, well-regulated renting goes hand in hand with more investment.”

For the moment the bill is passing through Holyrood, though under the current coalition and voting patterns it is likely to be passed.

Rents will then need to be assessed by local authorities, before passed back to the government. As such, new regulations are not expected to come into force until 2026 and investors “will remain uncertain of what the future rent control system will look like”, says Melhuish.

The long timeframe also raises the spectre of the bill being enacted under a new government, with current predictions putting Labour and the SNP neck and neck.

Should the SNP win the bill is unlikely to be torn up, but even Scottish Labour has previously been favourable to rent controls. However, it remains to be seen how this could work alongside a Labour government in Whitehall that has distanced itself from rent control.

Either way, by then the damage will have been done.

Scarlett says: “Assuming the rent control saga ends in (say) 2026, that will be nearly four years since it was first enacted; then at least another two years to build out assets with planning; a total of six years of no supply (maybe a huge opportunity).”

Melhuish adds: “Every effort must be made to address the supply crisis in Scotland by building more homes of all tenures.

“There is no solution to the housing crisis that does not involve greatly increasing the supply of new homes across for sale and rent.”

 

Published in React News by Alexander Peace – 28.03.24