Johnstone’s View - Tried before and failed before

In their time in government, the Nationalists have always complained about the amount of money they have to spend.

While in the real world we all had to tighten our belts in order to see our way through the recession, the Scottish Government, had they the power, would have been happy to see our tax bills rocket or, worse still, future generations burdened with even more debt, just to fund their schemes. Interesting then, to see where they chose to target the biggest cuts; the housing budget. The upshot is that we now see the private rented sector taking up the slack where the Scottish Government cuts have caused an extreme shortage of social housing. As this neglect continues however, the rules of supply and demand are distorting the market.

The Scottish Government are consulting on reforming tenancies in the private rented sector. The aim is to simplify the system, resulting in better property management by providing clarity for tenants and landlords, helping both parties fully understand what the tenancy agreement means for them.

For tenants, this may mean greater security, and for landlords it may modernise the grounds for taking possession of their property. On the face of it, the consultation may be a step forward, but a more in-depth appraisal of the proposals has given me some cause for concern.

Buried in the document is a seemingly innocent question about what action, if any, should the Scottish Government take on rent levels in the private rented sector in Scotland. A fair enough question if taken in isolation, but taken in the context of repeated calls for the introduction of rent capping in the Scottish Parliament, we see the direction of travel.

Of course, on the face of it, the introduction of rent caps for the private sector is an attractive proposition, especially in the Mearns where rents can be high. But the fact is that this has been tried before; and it has failed before. Rent caps were first introduced during the First World War in response to soaring rents for munitions workers, and others involved in the war effort, and they were also used during the Second World War in similar circumstances.

The effect was catastrophic. The number of houses to rent in the private sector collapsed dramatically as landlords sold of their stock, and investment in improvements also fell. There is no reason to think this would not happen again, but Reintroducing these controls today could also see a fall in available finance as lenders lose confidence in buy-to- let mortgages, with a consequential fall in new rental properties coming on-stream. This could present a particular challenge in rural areas such as the Mearns where there is a relatively high level of private rented accommodation. There are a number of reasons for this; changes in agricultural practices means that fewer staff are required to work the land, making farm cottages available to rent, and building affordable or social housing is much more expensive in rural areas due to smaller developments losing the economy of scale they enjoy in urban areas and increased transportation costs for material and sometimes construction staff.

Ironically then, rent caps could make the housing crisis worse instead of better at a time when the private sector is picking up the slack from the lack of investment in affordable housing by the Scottish Government.

Although rent controls were abandoned in the UK many years ago, variations of them have continued in many places across Europe. But in these examples, the effect of the rent controls, actually keeps them at, or around market levels. It may be then, that introducing rent controls could either result in the negative impacts I described above, or actually have little or no impact on rent levels if the Scottish Government chooses to follow a European model.

While the Scottish Government’s latest consultation may ultimately bring some clarity, and I do feel that that the private sector tenancy regime is in need of an overhaul, there is a danger that the results are far more negative than positive. The fact is that there is a housing shortage that is making it increasingly difficult for people, often young families, to secure a home that meets their needs. Tinkering with tenancy regimes is not going to make this situation any easier. In that respect, consultations such as this could be viewed as little more than a distraction from the real, and pressing issue that there are not enough homes, and not enough, are being built to meet demand. The bottom line is that the only way to get out of a housing crisis is not to try and legislate it away, it can only be solved by building more houses. At that point, renters have more choice.