Rent controls policy has unintended consequences

The Housing Scotland bill has been debated at Holyrood just as the latest annual statistics on levels of private rents have been published. These figures show that rates of increase have risen substantially since the Scottish government introduced rent controls in September 2022.

In the 12 years from 2010 to 2022 average rents for a one bedroomed flat rose by £138, which was a 31.2 per cent increase over the period. In the two years since rent controls were introduced rents for the same size of property have risen by £130, which represents an increase of 22.4 per cent.

This means that the annual rate of increase in the twelve years to 2022 was 2.6 per cent, which matched the annual level of inflation for that period.

There is a similar story for two and three-bedroom properties which increased by 32.8 per cent and 34.4 per cent respectively over the 12-year period but have increased by 27.1 per cent and 25.4 per cent over the last two years at a time when inflation was 10.9 per cent for the two years.

In addition, the figures show us that for the entire 14-year period 11 out of the 18 areas making up all of Scotland had percentage rent rises for two-bedroom flat (the most common form of rental in the PS) below the cumulative rate of inflation of 50 per cent. In a further four areas the increases were between 0.4 per cent and 13.5 per cent above inflation over 14 years. It is only Lothian and Greater Glasgow which are substantially above inflation by 54.4 per cent and 31.8 per cent respectively.

Therefore, it is clear that even after rent controls were introduced for most parts of Scotland prices were only increasing by the rate of inflation. It is only the hotspots of Edinburgh and Glasgow which have seen the largest increases.

But what is also clear is that for the 12 years to 2022 average rent rises were in line with or below the level of inflation. This tells us that rather than helping tenants by limiting rent rises this policy has actually resulted in rents rising faster and steeper than before the September 2022 legislation.

What that legislation did was put the brakes on property investment in the private rented sector (PRS), it led to some landlords leaving the market, and consequently has increased demand to unprecedented levels which remain to this day.

By interfering in the market and by imposing controls the law of unintended consequences has resulted in tenants being charged more, with increases rising at a faster rate, and with a market that is overheating with little sign of this being resolved.

The logic of this is that we need to scrap plans for rent controls and rent caps, work with the PRS to grow the sector as a sustainable and valued element of the housing offering in Scotland, and let the market find its own level again.

What is clear is that intervention has done more to harm tenants’ pockets than anything else that could have happened.

It is only by learning this lesson and reacting sensibly to it that the current levels of demand in the PRS will be resolved. Failure to do this will simply cause further rises in the future.