Build-to-rent experts have warned that Scotland’s rent caps will “continue to deter much-needed investment”, after the Scottish government confirmed a 12-month extension.
The “emergency provisions” for a rent cap in the private rented sector will now last beyond March 2023 into 2024.
The government has yet to disclose rent cap rates. However, David Melhuish, director of the Scottish Property Federation, said the extension of the emergency powers on rental increases for sitting private sector tenants would “continue to deter much-needed investment”.
He said: “It is difficult to see how this can continue to be viewed as emergency legislation when the cap on some of those who are least able to pay in the social sector has, in effect, been removed.
“Further, we are disappointed that the Scottish government continues to ignore the serious damage that this legislation is doing to the long-term supply of residential properties in Scotland. The uncertainty that the policy is creating has clearly increased the risk associated by investors with Scottish BTR projects.”
The Scottish government initially implemented The Cost of Living (Tenant Protection) (Scotland) Act 2022 on 28 October 2022 in response to the impact of the costs crisis on those living in the private and social rented sectors and student accommodation in Scotland.
The intended effect of the temporary Act was to protect tenants by stabilising their housing costs through the introduction of a temporary, variable rent cap, reduce impacts on the health and wellbeing of tenants caused by being evicted and/or being made homeless by giving them more time to find alternative accommodation, and seek to avoid tenants being evicted during the cost of living crisis (unless an exemption applies), through a moratorium on evictions.
The Act has now been extended for another 12 months.
Richard Stonehouse, head of residential capital markets at Avison Young, said the extension “suggests to investors that the government will, whenever it chooses, step in to intervene in market forces.”
He added: “Clearly, rent caps are anathema for the private markets and historically only act as a brake on investment into a market. This is even more important currently due to the structural undersupply and urgent needs for homes.
“The cost of housing delivery, particularly due to supply chain pressures caused by the war in Ukraine and China’s Covid policy aligned to the additional costs created by additional (in many cases needed) legislation, is higher than ever.
“Rent caps simply make housing delivery, particularly in lower-value areas where housing is most required less viable. The effect is inevitably going to be a drop in supply further fuelling underlying rental inflation.
“With the prospect of government intervention whenever it wishes, developers cannot forecast whether they can make a reasonable profit and investors are unable to predict their incomes.”
Melhuish added: “Scotland needs evidence-based policy and ambition from its leaders to increase housing of all tenures. Only then can we hope to make a mark on the country’s housing crisis.”
Stonehouse said: “As a rule, I can rarely see any benefit in rent freezes, even less so when government demonstrates the inclination to interfere regularly. The concern over affordability, particularly in a cost of living crisis, is a very real one and sensible policies can be put in place to mitigate this risk whilst still promoting the very thing that will have the long-term effect of reducing rental inflation – supply, but the market requires medium-term clarity too.”
Andrew Screen, head of residential capital markets at BNP Paribas Real Estate, said: “Rental caps or restrictions are a disincentive to investment as they can result in uncertainty of future rental income to investors and misalignment to market, thereby reducing residential rental property investment and housing supply. The solution to reducing upward pressure on residential rental costs, is to increase supply and build more homes of all types.”
Gillian McLees, UKAA Scottish Hub chair and director of BTR at Rettie & Co, said: “With exact details of the extension with respect to private housing providers not yet released, this uncertainty is not conducive to the future success and delivery of the desperately needed homes across Scotland. I am disappointed that what started as emergency legislation to help the most in need across Scotland during unprecedented global circumstances has become a way of exacerbating the current housing crisis caused by chronic undersupply. It is important that the build-to-rent industry, as a quality, professionally-managed homes provider in Scotland, is part of the conversation around this issue and we intend to continue to collaborate with the Scottish government and investors into Scotland to find a solution.”
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