For more than two decades, Ian Walker has rented out eight flats he inherited on his father’s death in 2001, in central Edinburgh’s desirable, 18th and 19th century New Town.
The businessman — who is retired and asks not to be identified by his real name — says life as a landlord to students, business people and others has been a “reasonably satisfactory experience”, although the rents have been “not terribly high”.
But Walker, who himself lives in Edinburgh, has started to unwind his portfolio, blaming what he describes as the “very worrying” attitude of the Scottish government towards landlords.
In September 2022, faced with a surge in living costs, the devolved administration imposed a freeze on rents for sitting tenants. When the freeze ended on March 31 this year, it was replaced by a cap on increases for those tenants of 3 per cent a year — or up to 6 per cent in some exceptional circumstances. The cap, well below the UK’s prevailing inflation rate, will remain in place until March next year.
The government is also planning a new housing bill. That will allow ministers to apply the same rental caps during changes of tenancy as currently apply for sitting tenants.
Walker responded by putting two of his properties on the market — where they are likely to be bought by owner-occupiers, not a new landlord.
Research by Hamptons, the estate agent, suggests Walker’s decision reflects a wider trend. Scotland was the only part of Great Britain where property sales by landlords were higher in October than in the same month last year, it found. The rent cap, while popular with many tenants, has been widely blamed for encouraging such sales, reducing the supply of private rentals and putting upward pressure on new rents.
The Scottish government’s stance is “a disaster for everyone”, according to Walker.
“It will result in a hugely reduced supply of rental housing as people take their properties off the market,” he says. “You have an asset and you choose: do you deploy the worth of that asset in a price-controlled area or a non price-controlled area like the stock market? It’s blindingly obvious what will happen.”
Sales by landlords on the rise
Patrick Harvie, the Scottish Green minister in charge of tenants’ rights, insists, however, that the rent cap has struck “an important balance between protection for tenants and the rights of landlords”. He points out that the local housing allowance — the element of the universal credit benefit meant to help tenants with housing costs — has been unchanged since 2020. The failure to raise the allowance means an important element of many poorer tenants’ income has been frozen. The allowance will be raised in April next year.
As evidence of the market’s continued health, Harvie says the Scottish Landlord Register showed a slight increase — of 1.2 per cent — in the number of properties available for rent between August 2022 and September this year.
“Rental market challenges are being felt across the UK, with interest rates, tax and the freeze on local housing allowance increasing pressure on tenants and landlords,” Harvie says.
Yet landlord groups remain convinced that government policies are squeezing landlords disproportionately out of the Scottish market. According to estate agent Hamptons, landlords were the sellers in 12 per cent of Scotland’s property transactions in the year to the end of September, 3 percentage points up on the same period in 2022. Everywhere in England and Wales, the rate was either flat or down on a year before. Only 6 per cent of buyers in Scotland in the period were landlords.
John Blackwood, chief executive of the Scottish Association of Landlords, says that, because landlords have to update their registration only every three years, Harvie’s figures from the Landlord Register may not reflect reality.
Blackwood insists a longer time horizon gives a more accurate picture. Between January 2017 and March 2023, the number of registered Scottish rental properties declined by 6 per cent, to 340,154. The first new, Scotland-only restriction on landlords’ rights — a near-ban on no-fault evictions — came into force in December 2017.
“Evidence from local authorities in Scotland and other market statistics clearly points to landlords selling up and a reduction of properties available to rent across the country,” Blackwood says.
Tony West, an energy consultant from Oxfordshire, responded to the changing atmosphere around Scotland’s housing market in January last year by selling his only Scottish property, a rented flat in Granton, a northern district of Edinburgh.
West, who still owns some properties in England, says he was worried about the effect of growing differences in tax and other policies between Scotland and the rest of the UK on his ability to realise the value of the property, owned jointly with his wife.
“We were very nervous at the time about Scotland going independent and what that might mean from a tax perspective,” he says.
Because there had already been a debate about the possibility of rent controls in Scotland, West also feared he could face rising mortgage charges if interest rates rose at the same time his ability to raise rents was capped. He nevertheless made a point of taking a discount on the sale to ensure he sold to another landlord who would let a longstanding tenant stay in the flat.
Both the rent cap and a general souring of attitudes towards landlords have vindicated his decision, West adds. “The regulations against landlords are just hideous.”
John Boyle, director of research and strategy for Rettie & Co, an Edinburgh-based estate agent, says the cap has been a “very blunt instrument” and has not contained rent increases between tenancies.
Figures from Zoopla, an online property portal, show rents in Scotland in November were 12.8 per cent higher than a year before. Zoopla attributes the rise — the fastest in any UK nation or region and above the 10.1 per cent national average — to landlords’ desire to put up rents for new tenancies to compensate for the Scottish rent cap for sitting tenants.
“Although it may have limited rents within tenancies, it has accelerated rent increases between tenancies,” Boyle says of the rent cap. “It has also led to a reduction in the private rented supply just when demand for that sector is booming. There have been lots of unintended consequences.”
Some Scottish local authorities are facing particularly acute problems as they seek to meet their obligations to house homeless people in a declining number of available properties. The local authority for West Lothian, west of Edinburgh, says the number of private properties available for rent in its area declined by 4.9 per cent in the year to March 2023, to 6,148.
“A similar picture can be seen across the country as a result of systematic weaknesses in the housing system and failure to address this at a national level,” the council says. “The private landlord sector has seen depression as a result of Covid rent controls on evictions and rent increases, and as a result of rising mortgage and maintenance costs.”
Yet the new housing bill, with its widened restrictions on landlords’ freedoms, will take the current policy further, rather than scaling it back.
Rent cap ‘relief’
Aditi Jehangir, secretary of Living Rent, a Scottish tenants’ campaign group, says that, while the rent cap has been a “huge relief” for thousands of tenants, the new measures are necessary.
“As the increases in new market rents demonstrate, we now need rent controls to cap rents between tenancies and bring rents down,” she says.
Harvie points out, meanwhile, that Scotland has “led the UK” in one activity that should reduce upward pressure on rents — the building of new homes. Office for National Statistics figures show Scotland, with around 8 per cent of the UK’s population, had 11 per cent of housing completions in the year to March 2023.
However, Boyle says housebuilding in Scotland could be going still faster if builders — particularly developers of properties for long-term rent — faced fewer risks. Private sector builders accounted for 64.2 per cent of housing completions in Scotland in the first quarter this year, compared with 73.9 per cent in England.
“Build-to-rent has really not taken off in Scotland in the way it has in Manchester and London,” Boyle says.
He fears that the new housing bill will not address the underlying challenges of meeting demand for accommodation in Scotland.
“The demand on the private rented sector has outstripped the supply of the property available and the rent rises have been a consequence of that,” Boyle says.
Walker, meanwhile, will decide what to do with his remaining six flats after the new bill is published. He insists he feels sorry for his tenants and it will be “sad” if he feels forced to sell.
“There was no real need to do that,” Walker says of the potential sale. “It’s just been instigated by the politicians.”
