If you’re considering investing in property in Scotland, you may want to take note of recent developments. Scotland’s First Minister, Humza Yousaf, has made a commitment to introducing long-term rent controls and new tenant rights under the Scottish Housing Bill, which is set to be enacted in 2024. This move comes as rental prices continue to rise north of the border.

Emergency Rent Caps and Eviction Moratorium

Under the current cost-of-living measures outlined by the Scottish government, emergency rent caps and a moratorium on evictions will remain in place on existing tenancies until 31st March 2024. These measures aim to provide some relief to tenants who may be struggling with rising rental costs and housing insecurity during this time.

Rapid Increase in Rental Prices

According to the latest data analyzed by DJ Alexander, private rental prices in Scotland have continued to rise. In fact, rental prices increased by 5.7% year-on-year as of July 2023. This marks the highest monthly figure since January 2012, when data collection began. This increase is also significant compared to the 3.9% recorded in September 2022, when the Cost of Living (Tenant Protection) Scotland Bill was introduced.

While rental prices in Scotland have historically increased by a lower amount compared to England and Wales since 2015, there has been a rapid rate of increase over the past year. For example, from January 2015 to September 2022, rents in Scotland increased by 8.7%. However, the accumulated rate as of July 2023 stands at 14.1%. This substantial increase within the last ten months compared to the previous eight years suggests a growing trend.

Factors Contributing to Rent Increases

David Alexander, the CEO of DJ Alexander, attributes the rapid rent increases to a combination of legislative changes and a mismatch between demand and supply. The legislative changes introduced in September 2022 restricted mid-tenancy rental price increases to 0% (or up to 3% in certain circumstances) until 31st March 2023. On 1st April 2023, this cap was extended to allow for a 3% increase (or up to 6% in certain circumstances).

Alexander explains, “These increases have been a response to the legislation but also a reaction to unprecedented demand coupled with increasingly limited supply. The result has been rapid rent increases and a lot of tenant frustration at being unable to find accommodation.”

In fact, DJ Alexander reported nearly 40,000 enquiries for viewings in July alone, with nearly 30,000 of these concentrated in Edinburgh. This clearly indicates a significant disparity between the supply of rental properties and the demand from tenants.

Concerns Regarding Rent Control Rules

The announcement of the Scottish government’s intention to extend rent control rules in forthcoming legislation has raised concerns among both landlords and tenants. David Alexander warns that any prolonged extension of this legislation may exacerbate the current property shortages, making it even more difficult for tenants to secure homes.

Drawing on evidence from the implementation of rent controls in Germany, Ireland, Sweden, and San Francisco, Alexander argues that such policies can lead to higher rents in the long term and create enormous housing shortages. For instance, there is currently an 11-year waiting list for private rental sector properties in Stockholm, and illegal subletting has become a major issue.

Instead, Alexander suggests that a more inclusive approach is needed, involving consultations with all stakeholders in the property sector, including developers, landlords, investors, tenants, and social housing providers. He emphasizes the importance of analyzing prior implementations of similar policies that have proven unsuccessful to avoid blindly leading the sector into unproductive measures. Ultimately, the goal should be to increase social housing and properties in the private rented sector, welcome investment, and make Scotland an attractive and thriving place to live and invest.

This recent announcement of emergency rent caps and the proposed introduction of long-term rent controls and tenant rights indicates that the Scottish government is actively addressing the challenges faced by tenants in the current rental market. However, it is important for potential property investors to closely monitor these developments as they may impact the financial dynamics of the rental sector in the future.