Could this be investment incentive Scotland needs?

As the Housing Scotland Bill continues its sedate progression through the Scottish parliament one area which has just been brought forward for consultation is whether certain parts of the private rented sector should be eligible for exemptions from the Bill’s proposed rent cap.

Paul McLennan, Scottish Minister for Housing, states that the Scottish government “is striking a balance between tenants and landlords” on rent controls with the aim of “focusing on local circumstances and seeking to stabilise rents for tenants in areas where they are rising too steeply, while an appropriate balance is in place to protect the property rights of landlords.”

The consultation – which ends on 18th July – considers that landlords could be allowed to increase rents above the rent cap where there have been improvements to their property or where rents have consistently been charged at a level below market rates.

In addition, there is a proposal that build-to-rent (BTR) developers could be exempt from rent controls as they are typically long-term investors and provide a steady supply of homes over a prolonged period.

However, this favourable treatment of BTR could produce a two-tier market with legitimate criticism from non-BTR landlords and investors.

But it is not just the policy that matters but the implementation. If every property is exempt that has had some upgrading or had below market rent increases, then the administration of this proposal would be enormously costly and largely unworkable.

A simpler solution – and one that has actually worked for years – is less intervention and more of a light touch from government. For decades rents have risen largely in line with inflation across almost all of Scotland. There have been pockets of higher rents (the City of Edinburgh and parts of Glasgow) which have outpaced inflation, but it is only to be expected that in places where demand is greater than supply then prices will rise. This does not mean that you enforce caps on rents but must ensure that there is a steady supply of homes to meet growing demand.

The answer is for greater encouragement for private housebuilding and providing financial incentives for landlords and property investors to grow the private rented sector (PRS). The Irish Government – which is facing a similar housing emergency to Scotland- is considering a radical approach to encouraging growth in the PRS.

Taoiseach Micheal Martin said that “We need to pivot more strongly to getting more private sector investment into the market” which will “entail politically very difficult decisions”.

A report by the Organisation for Economic Co-operation and Development (OECD) recently suggested landlords in Ireland should be able to “reset” rents between tenancies – whenever they get in a new tenant to a property – to stop the exodus of investors from the market and boost the supply of rental property. The OECD said: “Continued population growth, including inward migration, will raise demand for rental accommodation in big cities, increasing the need to maintain incentives to have an adequate supply of private rentals.”

It is clear that Scotland faces comparable issues to Ireland and could benefit from policies similar to the Irish Government where investment in the PRS is encouraged, rent controls are removed or modified, and growth is encouraged as quickly as possible. This is the way forward rather than further consultations.