SPF warns of negative impact of rent controls on fledgling build-to-rent sector

13 May 2014

Policy area: Residential Investment/Management

The Scottish Property Federation (SPF) has sounded a note of caution over the proposed rent caps that will be debated as part of the Scottish Housing Bill on Wednesday 14 May. The SPF is concerned that the notion of ‘rent controls’ and inflexible tenure regimes could make major institutional investors who are looking to invest in the private rented sector nervous, and threaten interest in large scale build-to-rent sector.

Following Ed Miliband’s recent speech, two amendments on the Housing Scotland Bill now underway at Holyrood have been tabled, which will introduce three year tenancies and a cap on rental increases immediately. The property industry has voiced its concerns over the impact of these proposals since they were revealed, fearing a repeat of the destructive effect the Seventies rent controls had on private rental sector investment and noting that the work of the Scottish stakeholder group on Tenancy Reform is yet to be published. 

The SPF has long argued how large-scale, professionally managed, institutionally backed rental schemes can offer longer term tenancies and controlled rent rises in order to remain competitive.  The Private Rented Sector (PRS) can make a significant difference to the supply of new homes provided in Scotland.   It is vital that reforms to the tenancy regime and other regulation do not undermine potential investment in the sector.   The multiplier effect of new investment would bring enormous economic benefits and should, be actively encouraged and incentivised.

David Melhuish, Director of the Scottish Property Federation, commented: “We have been advocating investment in Scotland’s PRS for a long time now, and support for growth in the sector has grown strong. We are now at a tipping point for the sector to take off, but even the thought of what could be perceived as ‘rent controls’ is likely to damage investor confidence. Investors need to be sure that they will receive sufficient returns on their capital, and the prospect of rent controls jeopardises this significantly. 

“We would recommend that more detail is provided before passing these amendments and that time is taken to consider the perspectives of potential investors. Statistical evidence shows that there may be some upward pressure on rents in hotspots such as Aberdeen and central Edinburgh. However, this is not representative of the bigger picture across Scotland, which shows that rents are rising broadly in line with or below inflation”.