Fix the supply of housing and stable rents will follow - David Alexander

1st Feb 2024
David J Alexander

I always believe that people generally do things with the best intentions. That policies and ideas arise from a desire to produce positive outcomes with the intention of helping people. Nobody sensible would actually propose a policy which ended up making things worse rather than better.

Yet the realist in me understands that for every action there is a reaction and failing to understand and forecast the possible implications of your decisions can often lead to poorer outcomes. You may think something you do will improve things but reality kicks in and produces the opposite result.

Thus, we have the Cost of Living (Tenant Protection) Scotland Act in 2022 which sought to help tenants at a financially difficult time by introducing rent capping: a system that has never worked anywhere in the world. Everywhere that it has been tried – Ireland, Germany, Sweden, San Francisco – it has produced a worse result for tenants through higher rents, a shortage of supply, and poorer housing.

We know from recent media coverage that the Scottish Government produced their own report on the likely outcomes of a rent freeze and the conclusion it came to is that rents would rise, and tenants would be worse off. The report looked at the outcomes of rent controls in other countries and found that none of these had succeeded and that it wouldn’t work in Scotland either.

What we have seen since October 2022 is that while the intention may have been to control rents and help tenants financially, the reality is that this policy has resulted in higher rents. It is our old friend unintended consequences.

Rob Norton, a former economics editor of Fortune magazine, said that: “The law of unintended consequences is that actions of people – and especially of government – always have effects that are unanticipated or unintended. Economists and other social scientists have heeded its power for centuries; for just as long, politicians and popular opinion have largely ignored it.”

We can see this in the latest official data from the Office for National Statistics which shows the annual rate of rent rises in Scotland has increased by 50 per cent, rising from 4.2 per cent in October 2022 to 6.3 per cent at the end of December 2023.

This is a rate of increase far in excess of historic trends. As recently as September 2016 the annual rate of rent rises in Scotland was -0.1 per cent and by January 2021 it was only 1.0 per cent. Despite these recent rises Scotland still has the lowest historic level of rent increases of any part of the UK. Between January 2015 and December 2023 England has seen a 24.1 per cent rise; the UK rose 23.9 per cent; Wales was up 19.2 per cent; and Scotland has increased by 17.3 per cent.

The fact is that any external restriction on price will have an impact on the market. Over the last few years demand has far outstripped supply and in social housing this has been going on for decades across successive governments. The private rented sector (PRS) filled this gap in social housing.

This has worked well for 20 years but, with recent discouragement for landlords and investors to enter or remain in the PRS in Scotland, it is clear that any reduction in the size of this sector will produce greater demand and rising rents.

When demand is high, and supply is low prices will rise. This is as true of housing as it is of food, utilities, manufacturing and all products and services. It is a fact of life that applies to everything. The only way to stabilise rent prices is to increase supply to meet demand and to work with the sector to find the quickest and most effective means of delivering the best outcome for landlords and tenants.

If there was greater encouragement by government for the private rented sector to expand, and a major investment in social housing then we would see rents stabilise and the market return to some semblance of normality. Seeking a solution which works for landlords, investors, and tenants is the only way to resolve our current housing emergency.

*as seen in The Scotsman