‘Scottish Housing Emergency’: A Cautionary Tale?

Simon Jackson, managing director of SDL Surveying, looks at the causes and implications of the recently declared housing emergency in Scotland.

Related topics:  Housing,  Property,  Scotland
Simon Jackson | SDL Surveying
30th May 2024
Simon Jackson SDL Surveying
"Faced with increasing mortgage payments and the prospect of being told how much you can charge in rent, it does leave a question mark over whether a landlord would look to invest - which of course piles even more pressure on social housing"
- Simon Jackson - SDL Surveying

The Scottish Government’s recent declaration of a housing emergency wasn’t hugely surprising, given the Scottish Labour Party had initially attempted to declare one late last year.

While they might have been successful this time around, in reality, declaring an ‘emergency’ does not change any of the material facts of the crisis. Optimistically, it is hoped its formal acknowledgement will lead to more funding and a focus on finding better solutions.

Much like the UK’s housing shortage, the reasons for Scotland’s emergency are complex. While Scottish National Party (SNP) Ministers have cited UK Government budget cuts and austerity, others have pointed the finger at the rent cap introduced in 2022. In truth, it's probably a mixture of all of the above, but the signs certainly seem to show that the rent cap has made matters worse - for tenants and landlords.

Former First Minister, Nicola Sturgeon, initially banned most evictions and froze rents in September 2022, later capping them at 3% in 2023. Since their end on 1st April 2024, we have heard landlords speaking quite openly about how they have been forced to increase rents by up to 12%. Under the existing legislation, this is the maximum a landlord can increase rents by, and even then, it can be challenged.

Meanwhile, Scottish landlords accounted for a record 12% of all sellers in Scotland in 2023, up from 10% in 2022, according to Hamptons, with landlord purchases falling to a record low.

The concept of a rent cap continues to divide opinion north of the border. While some blame it for contributing to the housing crisis, there are still plans afoot to introduce further rent controls in Scotland. Last month, Humza Yousaf’s former SNP-Green Government published new plans to bring in longer-term market controls, which would give local authorities the power to create rent caps as low as 0% for up to five years.

Faced with increasing mortgage payments and the prospect of being told how much you can charge in rent, it does leave a question mark over whether a landlord would look to invest - which of course piles even more pressure on social housing.

What's happening in England?

Meanwhile, there is talk that England’s Labour Party is also considering rent caps. A report from Stephen Cowan, commissioned by Lisa Nandy as Shadow Housing Secretary, suggests rent hikes should be capped for people struggling to afford soaring rates and limited to either consumer price inflation or local wage growth—whichever is lower.

While Labour has reportedly distanced itself from the report, Labour’s London Mayor, Sadiq Khan, has been vocal in his support for rent caps. He has spoken about his plans to build 6,000 affordable rental homes in the capital, with rent caps imposed on the new properties as opposed to capping rents for existing private landlords.

An increase in social and affordable housing is desperately needed. The latest figures show the average UK rent increased by 9% in the 12 months to February, up from 8.5% in January, according to the Office for National Statistics (ONS). This is the highest annual percentage change since the UK data series began in January 2015.

The average monthly rent in the UK is now £1,238, which is £102 higher than 12 months ago. It’s amazing this is still sustainable, the market is dictating rent at the moment, however, with multiple renters for each property that comes to market.

We also still await the abolition of Section 21 no-fault evictions, which can prevent landlords from throwing tenants out only to re-rent a month later at a higher price. While an increase in social and affordable housing is the obvious solution, it is perhaps time we accept the unfortunate truth that those houses are perhaps not coming—or at least not at the pace we need anytime soon - and we might need to look in other directions.

While a blunt rent cap, such as the one introduced in Scotland is not the answer, there could be a case made for a smaller, more focused, and carefully managed cap, combined with tax incentives for landlords. However, it’s a challenging decision for the Government, as the situation in the rental market is already volatile, and while we need to lower rents we can also not afford to discourage more landlords.

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