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Scottish rent cap deters funding for rental homes, study finds
Scotland’s cap on private sector rents is putting off investors from building homes, a study has claimed.
Rent controls were introduced by Scotland’s coalition government in September 2022 as an emergency cost of living measure. For six months social and private rents were frozen; from April the social rent freeze was lifted and private landlords are able to raise rents by 3%.
But the report, from the Scottish Property Federation and researchers Rettie & Co, found that the legislation had spooked institutional investors from Scotland’s fledgling build-to-rent market.
Of the 14 investors interviewed with a combined £15bn of build-to-rent assets, nine judged Scotland to be unattractive, including four who view the country as uninvestable under current conditions.
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One of these investors, with current build-to-rent assets in Scotland, said: “We are not planning on doing anything more really. It is really frustrating as our UK model should work well in many parts of Scotland.”
They put this down to the rent freeze legislation, which forced them to pull from a number of sites they were looking to purchase in Scotland.
Another investor with no interests in Scotland said: “We have no commitments to Scotland and the rent freeze only confirms that was the right thing to do. We can deploy capital and get the returns we need in other markets without these sorts of constraints.”
The Scottish government has pledged to introduce a permanent system of rent controls by 2025.
David Melhuish, director of the Scottish Property Federation, said: “The impact of the emergency legislation on the build-to-rent market over the last six months is clear. The lack of long-term policy certainty means investors largely view Scotland as a risk, compared with more stable locations in other parts of the UK.
“This situation is a disincentive to investment and as a consequence investors are going to continue to divert capital elsewhere. The rental market in Scotland, and crucially renters, will continue to bear the brunt as new housing supply is constrained and demand for accommodation soars.”
Dr John Boyle, director of research at Rettie & Co and the main author of the paper, said the build-to-rent sector “has been stymied by what investors consider to be high levels of political risk”.
The recent emergency legislation has “elevated these risks”, he added, and “less supply will come forward as a result, which will have consequences for affordability and availability of properties for rent in Scotland”.
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