Housing market must be fair to buyers and renters - David Alexander

15th Feb 2024
David J Alexander

In his latest article for The Scotsman, David Alexander highlights how important it is to maintain balance in the property market.

It is clear that housing is going to be a key issue in this year’s general election. Michael Gove’s numerous media appearances last weekend highlighted the view that housing – both renting and buying – has risen to the top of the agenda for many voters and the party which offers the best, and quickest, solution to the current problems is likely to win votes.

Gove identified tenants and first-time buyers as key targets in the Government’s strategy. Both groups have experienced far greater difficulties in recent years than previous generations and he is right to say that more needs to be done to ensure tenants feel more secure and that homes are easier to buy for first-time buyers.

For renters, the Government is already some way toward having the Renters Reform Bill in place before an autumn election. This bill replicates many of the reforms which already exist in Scotland, and which have made tenants feel substantially more secure in their homes.

Although some landlords and property investors believe that this bill is intrusive and something of a tenants’ charter, it mostly replicates the Private Residential Tenancy Scotland Act which was implemented in December 2017 which gave more protection for tenants.

There were many who predicted this would be a disaster for landlords but instead it has created a more stable and secure environment where tenants feel protected, which encourages them to stay longer in their tenancies than previously. For landlords and property investors an endless churn of tenants is simply bad business whereas the happier a tenant is the more likely they are to stay for longer. Most in the private rented sector in Scotland believe the bill has been a success.

Therefore, the Westminster bill should be welcomed as long as landlords and investors feel they have been appropriately consulted and had their input listened to it is an inevitable progression of rights within the private rented sector.

For first-time buyers (FTBs) the issue is complex. England already has a much more favourable stamp duty regime with FTBs only paying tax on properties costing more than £425,000 compared to £175,000 in Scotland.

There has been talk of reducing the level of deposit required to 1 per cent, developing special 99 per cent mortgages for FTBs and perhaps even relaxing some of the affordability criteria. While these ideas may seem laudable and would undoubtedly give an immediate boost to the market in the short term the concern is that they are artificially assisting the current generation of voters but ultimately punishing the next because these proposals will push prices up, making homes less affordable in the future. The risk is that this is both inflationary and destabilising the market and simply raising prices for the next generation.

Easing mortgage affordability and FTB-specific mortgage products are trickier since they can lead to future debt issues among buyers. Mortgages rates are already falling and are likely to fall further in the coming year so it would be more sensible to let the market decide.

Intervening in the market always risks our old friend unintended consequences happening and it is better to leave market forces to determine house prices and mortgage rates.

Adjusting stamp duty overall could be a more sensible approach and would benefit the entire market as it did during the pandemic when similar measures were introduced. Even without an election such a move should be introduced in Scotland to level the playing field with our English counterparts to make buying property more attractive to Scottish buyers and to ensure our housing market is fairer.

We want a housing market that is stable, secure and provides sufficient homes for people in the rental and homeowning sectors. Too much interference and you end up causing all sorts of problems, but incremental encouragement and financial incentivising can be a way of directing the market toward growth. 

What is needed is a system that quickly meets the needs of renters and first-time buyers through a mixture of legislation, house building, reduced homebuying taxes, and encouragement for investors to engage with the market and help it grow. Next month’s budget will give a strong indication of which way the Government is moving and how important housing will be in the forthcoming election.