Rent controls risk £5bn of house spending, say industry

It also comes ahead of a debate led by Labour in Holyrood on Wednesday pressing for the Scottish Government to recognise a national housing emergency following four local authorities - Glasgow, Edinburgh, Argyll & Bute and Fife - declaring such a crisis in their areas.

The Housing (Scotland) Bill published in March will require local councils to carry out assessments on the condition of the private rental sector and make recommendations to ministers about imposing rent controls. It could also mean that rent rises may be capped during and between tenancies and make it harder for landlords to evict tenants.

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Campaign groups representing tenants have welcomed the legislation which also includes measures to combat homelessness, however, representatives in the property sector fear it could lead to fewer homes to rent as investors pull out of the market.

Official figures from the Scottish Government published last month showed that private rents increased by more than 13% on average in the year up to September despite a 3% rent freeze applied to existing tenancies. 

Four councils in Scotland have declared housing emergencies.  Photo PA.

David Melhuish, director of the Scottish Property Federation, welcomed Mr Swinney's and Ms Forbes commitment to focus on the economy and urged them to turn their vision into "actions" on the ground.

"The new emphasis on the economy from John Swinney and Kate Forbes is most welcome but we need to see this vision translated into actions," he told The Herald.

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"Our industry experts estimate that the Housing Bill as drafted risks the loss of over £4.5bn in GVA [Gross Value Added] for the Scottish economy over the next 10 years, including 17,000 jobs many of which would be for the hard pressed construction sector.

"This investment is real but frankly frozen due to the specific proposals on rent controls in the Bill which must be improved. This is an economic opportunity for Scotland as well as a housing necessity. It must not be lost."

Mr Melhuish said that organisations he represents in the federation - including pension businesses wanting to invest in the booming 'build to rent' market - were required by their own regulator to assess the risks faced before deciding where to invest.

He said Glasgow and Edinburgh should be attractive cities for investors in the market but the state of uncertainty around Scotland's 'political and regulatory regime' put Scotland generally in a category of higher risk than other parts of the UK.

"The build to rent market started in the UK about ten years ago. There are about 100,000 units in built in the UK during the last the years, but only around 2000 in Scotland - and that is pretty much entirely down to uncertainty with the political and regulatory regime. Cities like Glasgow and Edinburgh in theory should be doing very well with this form of investment," he said.

"Recent evidence from places like Scotland, Dublin, Berlin and New York is not positive, there forms of rent control have had unintended consequences.

"There is no solution to the housing crisis which doesn't begin with building more homes, supplying more homes."

He said with investors seeing Scotland has higher risk, property developers in Scotland were instead deciding to focus on lower risk projects such as building more student accommodation rather than more 'build to rent homes'.

He pointed out one Edinburgh based company Beltway had created some 138 housing developments across the UK but of these just two are in Scotland.

"If we have a housing bill which says that local authorities will make an assessment and ministers will impose a rent control area, where that rent control area could have 0% - it could be a specific building or a street or a whole local authority area, and could be in place for five years, then from the investors point of view they face seven or eight years of risk that they are going to struggle to deal with," he added.

"There are some investors who see rent controls and don't want to invest, but the majority are saying 'we just aren't sure what the rules are with this bill and so we cannot invest. The money can't sit still and that is the risk to Scotland."

The housing bill was introduced by Scottish Greens tenants' rights minister Patrick Harvie, pictured below, and following Mr Harvie's exit from government amid the collapse of the Bute House Agreement between his party and the SNP, is now the responsibility of SNP housing minister Paul McLennan.

Ahead of the Holyrood debate on the housing emergency Mr Harvie, one of the Scottish Greens co-leaders, said a national system of rent controls in the private sector is "crucial to tackling" the crisis and called on the Scottish Government not retreat from its commitment.

“One of the biggest drivers of the housing emergency is the eye-watering private sector rents that far too many people are being forced to pay," he said.

“The market is broken, and needs fundamental change. That’s why, when the Scottish Greens were in government, we used emergency legislation to introduce a ground-breaking rent cap and protections that went far beyond anything that has happened in any other part of the UK. This protected thousands of households and families.

 “Now we need to make permanent changes. What we really need is a national system of rent controls and protections that will allow tenants to feel more security and make a house a home. These are at the heart of the Housing Bill that I introduced and which is making its way through parliament."

He added: “These policies must not be scaled back or watered down. It is vital that we use every power we have to support households and families on the frontline of the emergency.

“I hope that all parties will back our call today, to make sure that an effective system of rent control becomes a reality. Together, we can send a loud and clear message that our parliament supports tenants and that we will stand up to those who are trying to entrench a broken status quo.”

Housing Minister Paul McLennan said: “A fairer, well-managed private rented sector is in the interest of both tenants and responsible landlords.

“Our Housing Bill includes a package of important reforms to the rented sector that aim to improve affordability and strengthen tenants’ rights.

“We will continue to work with stakeholders across tenants, landlords and investors as we develop a system of rent control that works for Scotland.”