Rent Controls 1st Oct 2015
There are approximately 330,000 rental properties, housing about 670,000 tenants in Scotland, and the Scottish Government is proposing to introduce rent controls to protect these tenants from rent hikes by rogue landlords in the Private Tenancies Bill. In the recent Consultation on a New Tenancy for the Private Rented Sector (PRS), 70% of respondents stated that they did not support the introduction of rent controls.
Whilst unsurprisingly supported by tenants and pro-tenant groups, what are the problems with rent controls, and what can we learn from other countries’ experiences?
Firstly, rent controls will likely lead to less investment in rental properties by buy to let landlords and by bigger institutional investors, with a resulting further shortage of PRS housing stock at a time when there is a chronic lack of housing.
In terms of market efficiency, most economists agree that rent controls have the potential to have a negative impact on the efficiency of the market. If a tenant lives in a property with a capped rent, they are less likely to move; even if they are living in a property that does not suit their family size / geography etc. There are also issues for tenants wanting to move into more privileged rent cap areas if they are unable to meet current market values.
Rents are not rising at the same pace as they have been in recent times, and some areas are experiencing a drop in rents – this is a classic example of free market economics in action, and is a perfect example of why rent caps are unnecessary. The recent Citylets analysis confirms that rents have risen less than inflation
Another issue is that rent controls lead to reduced maintenance and dilapidation of housing stock. Landlords will quite simply pay less attention to smaller maintenance issues to offset the lost rent. It may also be that some landlords try to pass on maintenance responsibility to tenants.
We can look to other countries for the evidence – New York’s rent controls in the 1970’s led to poor maintenance, building dilapidation and abandonment. And in 1989, Mr Thach, the Foreign Minister of Vietnam stated of his country, “The Americans couldn’t destroy Hanoi, but we have destroyed our city by very low rents. We realised it was stupid and that we must change policy."
In Scotland, the housing market is desperate, with demand for rental housing vastly outstripping supply. This gap will only get bigger if the Government presses ahead with its proposals. Investors should be being encouraged into the market, not scared off by such measures. Existing landlords will be affected, with a knock on effect throughout the whole industry.
PRS 4 Scotland is an alliance of people and businesses who want to see a strong, modernised and sustainable Private Rented Sector (PRS) in Scotland serving tenants and enhancing supply by contributing to the nation’s housing stock. It includes agents, landlords, and investors. Established in response to the Scottish Government’s consultation into a new tenancy regime for the Private Rented Sector its ultimate goal is to unite all sections of the industry, including housing associations, institutions and tenants behind a unique, evidenced-based Scottish framework around the key issues of supply and tenure that will invigorate Scotland’s PRS as an example of best practice for others to follow. For more information on PRS 4 Scotland, and what you can do now to object to rent controls, please visit www.prs.scot