More PRS investment the way to go, not rent caps - David Alexander

In his latest column for The Scotsman, David Alexander explains why he believes politicians have got it wrong with rent caps, and highlights how best to address a housing crisis.

There is always the temptation for politicians to intervene in situations where they think they can make a difference. Of course, if there was an obvious simple solution to a problem somebody with more knowledge and understanding of the problems would already have implemented it.

Thus, we had the introduction of the Cost of Living (Tenant protection) (Scotland) Act 2022 nearly 18 months ago, which sought to cap rents for a limited period to ease the pressures of the cost-of-living crisis. What we find now from the latest Scottish Government statistics is that, in the last year alone, average rents have increased in properties of all sizes, ranging from the lowest rise of 11.7 per cent for one-bedroom homes to the highest figure of 14.3 per cent for two-bedroom properties. Every type of property (from one to four bedroom, to a single room in a property) has had a double digit increase in rents since the Cost of Living legislation was introduced in October 2022, exceeding the annual average increases in rents over the previous 12 years by a factor of at least three.

There were plenty of warnings from all involved in the housing sector that this would happen, but these went unheeded. An unwillingness to believe that market forces are what dictates prices rather than government has led to enormous rent price rises which could have been avoided with greater understanding, negotiation and discussion with the sector and a plan that understood the principles of supply and demand.

With the Cost of Living Act legislation ending on 31 March 2024, a new consultation document seeks to extend controls on the level of rent increases that can be levied in the coming year. The consultation ends this Monday and proposes rents be set by the lowest of three comparators: open market rent; a landlord’s proposed new rent; and a “reasonable” increase devised from a new taper system using comparison with a percentage of market rent.

This tapering proposal would set rent increases between 6 per cent and a maximum of 15 per cent which, ironically, would be higher than historic annual price rises. But, more importantly, this scheme would be unwieldy, overly complex and prohibitively expensive to monitor and implement. We already have a system involving the first-tier housing tribunal which rules on whether a rent increase is fair. This seems like adding further layers of bureaucracy with no gain for landlords or tenants.

Unfortunately, this consultation paper seems like a further attempt to impose controls on the sector. A far simpler solution would be to let the market return to normal, not impose external controls on rent levels, and the result will be lower rent increases than we have seen in the last 18 months. To stabilise rental prices in the long term then the government must encourage greater investment and growth in the private rented sector (PRS) while simultaneously funding a substantial growth in the supply of social housing.

The greater the investment in the PRS the more stability will be created in the housing market. Increasing volumes in both the PRS and social housing markets will stabilise rents over time as demand meets supply and equilibrium is achieved. Only by adopting these measures will we start to address the current housing crisis. Anything else is simply not going to work.