A leading academic has warned the Scottish government that its rent control stance risks turning investment away from the country.
Professor Duncan McLennan believes imposing a control system on any sector, where the normal rate of return dips below what’s available in other sectors, means deterring investors.
As part of the Housing (Scotland) Bill, the government has agreed to limit increases to a fixed rent cap of CPI annual rate of inflation +1%, up to a maximum of 6%.
Speaking on the latest Scottish Housing News Podcast, McLennan suggests the government should study evidence in the build-to-rent sector which has been diverted away from Scotland. He points to Germany and US states with systems of rent controls which have worked for long periods because they were introduced in the right circumstances and allowed rents to give investors a reasonable rate of return.
“I think that the Scottish government tried to do this in a way that they didn’t design the instruments very well,” says McLennan.
“We can’t do business as usual and that includes going back to saying ‘we’ll solve this by building massive amounts of council housing and we’ll have rent controls’. This is not 1915 and it’s not 1924.
“I don’t just mean laying the blame for all this at the doors of council planning departments – that’s really disingenuous,” adds McLennan. “The Bank of England has much more responsibility for house price inflation than councils and tax policy does.”
To address housing shortages, he believes a significant expansion in supply is needed, brought about by a “disruption” in how the government thinks about housing policy.
“[We need to] think about how we do a revolution with supply chains including modular housing, land and the price of land. Nobody will talk about the price of land, but it’s much too high in relation to the switch from non- residential to residential use.”
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