‘IT could mark the end of the private rental sector as we know it.”
“This is not a solution, it will only cause more hardship.”
“This is just going to make [the housing crisis] worse.”
Almost as soon as First Minister Nicola Sturgeon announced rents across Scotland would be frozen for seven months – alongside an eviction ban over winter – the pronouncements of doom began.
However, Ken Gibb (below), a professor in housing economics at Glasgow University, said it would be “foolish” to claim that the rent freeze will lead to an exodus of landlords so soon after the policy was announced.
In fact, solid systems of rent controls – of which the rent freeze may herald the beginning – are found in Europe, and could offer a way forward for Scotland.
Here, the Sunday National takes a look at rent freezes, rent controls, and what Scotland could learn from abroad.
How far reaching is the rent freeze?
THE freeze, which the First Minister said would be effective from September 6, is due to expire on March 31, 2023.
According to Scottish Government housing statistics published in May, but only covering up to March 2020, private tenants occupy 15% of Scotland’s 2.6 million homes, while the social rented sector accounts for 23%.
Those renting in the social sector were not due to have rents increased until April, meaning the rent freeze does not immediately affect them.
Furthermore, Scottish law does not allow a landlord to put rent up within one year of a previous increase, meaning the current freeze also does not affect anyone who had their rent raised in the past six months.
The result is that the impact of the rent freeze is limited in both scope and time, which will temper the effects it has on the wider market.
However, there are calls for the freeze to be extended, which will have a more severe and constricting impact on the supply side of the market. The longer the freeze, the more dramatic the effect.
Scottish Labour have called for a nine-month rent freeze with the option to extend to two years. MSP Mercedes Villalba told the Sunday National it should last until a rent control system could be brought in, which may take even longer.
Longer rent freezes would impact on Scotland’s social rented sector, potentially driving down much-needed supply and affecting their planned budgets. However, Villalba argues: “A lot of the annual increases aren’t for in-year spending, it’s about the long-term strategy, and I think they recognise that in extraordinary times, urgent action needs to be taken.”
Is a more “hostile” environment for landlords necessarily a bad thing?
“The private rental sector has been tacitly allowed to grow overly rapidly in the last twenty years,” Gibb says. “It’s more than double its size at the turn of the millennium.”
Glen Bramley, a professor of urban studies at Heriot-Watt University, describes the climate around buy-to-lets as having been an “indulgent regime” for landlords.
There is no argument that with rent controls over a longer period time there will be a trade off with supply, in both the private and social rented sector. But after such a “friendly” period for landlords, the balance may need to be tipped in favour of tenants.
However, a rent freeze is not a good long-term solution.
At the outbreak of the Second World War, Bramley says, the advent of “long-term, rigid, nominal, non-inflation-adjusted rent controls” meant that some people were paying the same rent in the 1960s as they had done thirty years earlier. This led to the slow but certain collapse of the rental sector. Instead, both Bramley and Gibb point to Germany as a good “compromise”.
What can Scotland learn from abroad?
CRITICS, such as the Scottish Tory chief whip Stephen Kerr (below), have pointed overseas in an attempt to tell a cautionary tale about rent controls.
Kerr tweeted in the wake of the announcement of a rent freeze: “Nicola Sturgeon must be aware that if she makes it more difficult to rent out property, the reaction of landlords will be to sell – meaning fewer properties for rent.
“Ireland and Berlin learned this lesson to their cost. It’s a shame ScotGov did not learn.”
Asked if he thought the comparisons to Ireland and Berlin – where media reports have branded rent controls a failure – stood up to scrutiny, Gibb said that they did not.
“And to be fair,” the professor went on, “the German federal form of rent control is a pretty robust system.”
Bramley also pointed to the German system as an example of what can be achieved.
He said: “If you look internationally, there are countries which have managed to combine having a large and thriving private rented sector with a measure of rent control and generally good standards of housing. Germany is the notable example of that, but Switzerland and other countries as well.”
Under Germany’s federal system, landlords and new tenants agree a rental contract based on current market prices, which is indexed to inflation for future increases.
Doesn’t Scotland already have rent controls?
YES, but they “certainly haven’t worked at all”, Gibb says.
In 2016, the Scottish Government gave local authorities the power to create “rent pressure zones”, which would see price rises capped in a certain area if a set of conditions were met. However, six years on, the power has not been used even once.
Gibb said: “The data requirements are so onerous, both to prove that there’s an affordability problem and then to work out the geography of where you’re going to have a rent pressure zone.”
In order to move towards a more robust national system – one that actually works – more data is “absolutely fundamental”, the Glasgow professor says. “We know so little about the private rental sector it’s just incredible.”
Gibb said the “blunt instrument” of a rent freeze could be “tremendously useful [if] used as a kind of experiment and evidenced, reflected on, and evaluated”.
The Scottish Government has proposed using the landlord registration system as a way of collecting data on exactly how much rent landlords are collecting all across the country.
Gibb said such a system would be “absolutely brilliant”, especially if the records were made public. “We’d have the kind of data that you only get in Scandinavia,” he says. “It would be very impressive.”
With such information, a rent control system like in Germany could be brought in in Scotland, with up-to-date market prices for rentals in any one area easily found and referenced in tenancy negotiations.
Such controls could help Scotland’s housing crisis by striking the right balance between tenants’ rights and landlords’ incentives, between rigid rent freezes and a predatory unregulated market.
