Edinburgh City Council is very excited about Rent Controls

Edinburgh City Council is very excited about Rent Controls

18:10 PM, 12th July 2017, About 7 years ago 39

Text Size

Edinburgh City Council is very excited and pleased with itself. It has just approved action with a view to implementing rent controls.

https://www.commonspace.scot/articles/11326/hope-future-cross-party-rent-controls-breakthrough-edinburgh-city-council

It is possible that once this is established in Edinburgh other councils may follow suit and, as we all know, it is quite likely the idea could then catch on down south. At the national level, the reintroduction of rent controls is official Labour Party policy and at the London level, Mayor Sadiq Khan has also called for them. The ‘red Tories’ are quite likely to follow suit.

However, as Kristian Niemitz at the Institute of Economic Affairs has pointed out:

‘Most authors who call for rent controls do not present a detailed policy argument. They merely describe the problem of high rents, and then present rent controls as a self-evident solution. They tend to see the case for rent controls as so obvious that it requires no further explanation, and assume that opponents of rent control are either acting in bad faith, or are just not interested in the problem (see e.g. Dorling 2014) (https://iea.org.uk/wp-content/uploads/2016/09/The-key-to-affordable-housing-PDF.pdf).

There are many reasons why rents controls are not the answer for Edinburgh. There are even more pressing reasons why if these do go ahead in Edinburgh, there is even less reason for them being phased in in other areas of Scotland and the UK:

  1. Over the period 2010 to 2016, average rents in Scotland went up by around 2% each year. This is roughly in line with the CPI over this period. There are no ‘soaring’ rents in the vast majority of Scottish local authority areas with a few exceptions. Figures for 2015-2016 show that rents have stabilised and in many cases gone into reverse (http://www.gov.scot/Publications/2016/11/3295/1).
  2. When businesses – and renting out houses in the PRS IS a business – are hampered by having controls placed on what they can charge, they may just decide that it’s not worth the bother. Landlords in Scotland, like the rest of the UK, have already had the notorious Section 24 imposed on them – whereby they can face a potentially infinite tax rate – so shoving a lid on a boiling saucepan isn’t much of a solution. Many landlords will just sell up – landlords with only one rental property will find this very easy to do and if thousands of these properties are bought by first time buyers, these will be lost to the rental sector. At a time when the nation needs an exponential increase in housing of all tenures, there will be a contraction in the private rented sector (also due to the recent Government ‘war on landlords;’ with the negative environment serving as a disincentive to the expansion of supply).

As Niemitz further states:

‘…the ‘marginal landlord’ will exit the market, and the ‘marginal tenant’ will enter. There will be more people chasing fewer properties.’

With reduced supply in the rental sector, only those with the greatest means and who meet the best rental criteria will be able to access rented housing (landlords won’t have to take on the riskier tenants).  The logical conclusion is that those with the lowest net incomes in society will be pushed downwards and out into the realm of homelessness. The local government bill for temporary accommodation will rise everywhere along with all the social and psychological ills associated with this.

Edinburgh City Council is unfortunately falling into a trap by progressing a policy which has been shown in history to be highly destructive. It will cause much suffering and misery, with the quality and quantity of rental housing deteriorating as a direct result. Only then will the idiots in Town Hall reverse this stupid and ill-conceived measure; after the damage has been done.


Share This Article


Comments

Rod Adams

13:47 PM, 13th July 2017, About 7 years ago

Reply to the comment left by "Dr Rosalind Beck" at "13/07/2017 - 13:36":

Rent increases in a capped zone would be defined by the formula CPI + 1 + n, where 'n' cannot be a negative number and is the only part the local authority can change. So even worst case scenario means that rents would rise ahead of inflation. This would presumably have the 'minimum wage effect' and mean that all rents in the zone would rise by this amount. So its not as bad as it could be, there's worse in the new private tenancies act.

Regards,

Rod.

Dr Rosalind Beck

14:00 PM, 13th July 2017, About 7 years ago

Reply to the comment left by "Rod Adams" at "13/07/2017 - 13:47":

Yes, on a personal level, I'm not worried about it at all. If anything it would encourage and enable me to increase my rents every 12 months by CPI as everyone else would be doing it. I have already increased them by around 10% as a direct result of s24 and will continue to increase my rents incrementally wherever I can (with a few exceptions for some long-term tenants I feel sorry for). I would imagine I would have my rents up by about 15% at least from late 2015 when I started the increases as a direct consequence of s24 and then to have them go up by say 2 or 3% a year would mean that the burden of s24 will be shared between me and my tenants. At the moment, I think the tenants will bear most of the brunt - based on my projections I think I will be getting the same net income in 2020 but paying around £27,000 pa in tax rather than £17,000. So, as much as I have never really liked the term 'tenant tax' I may have to eat my hat, as it looks like my tenants will be footing the bill for the additional £10,000 tax I have to pay (although this doesn't take into account interest rate rises).

Darren Peters

15:40 PM, 13th July 2017, About 7 years ago

I guess most landlords on here want to do a good job or no job. Rent controls take away the ability to re-invest in the property and keep quality high. So good landlords sell up and the stock goes either to landlords with a low quality stock business model, the council who don't have to meet the standards set for the rest of us, or homebuyers. I wonder if councils see rent controls as a way of getting their mits on rental stock on the cheap; collectivization by the back door. Unless they have a law to stack the odds in their favour, homeowners will buy up the stock first.

In summary a shortage of quality rental property and a shortage of experienced landlords.

I wonder if Edinburgh will ban AirBnB to stop the properties taking that direction.

TheMaluka

17:03 PM, 13th July 2017, About 7 years ago

Reply to the comment left by "Dr Rosalind Beck" at "13/07/2017 - 14:00":

Ros, when did anyone let you have something at a discount because they felt sorry for you? Harden your heart and increase all your rents.

Annie Landlord

17:11 PM, 13th July 2017, About 7 years ago

I have family renting in Edinburgh. Just under £1000 a month for a one bed flat. Admittedly in the centre, but in very poor condition and on the top floor. 78 steps and no lift! Their rent was increased by £75 pcm as soon as S24 was introduced. Apparently the SNP has its eye on airbnb and is trying to find ways to control it. The argument is that owners are renting out the whole of their premises on airbnb, thus reducing the supply of accommodation for long term tenants. SNP is also apparently considering stopping landlords offering 10 months only tenancies to students. Such moves would decimate the supply of accommodation that serves the Edinburgh Festival. Trying to buy in Edinburgh city centre is also a nightmare. £250000 for a one bed flat. Property is advertised as "offers over" and often under sealed bid. The Edinburgh housing market is almost as much of a nightmare as London's. How on earth the SNP thinks rent control will help is beyond me. Lower income tenants are already struggling and rent controls will reduce supply even further and push up prices. Why oh why won't governments of all persuasions realise that the only solution is to work with the PRS, not against it.

Rod Adams

18:20 PM, 13th July 2017, About 7 years ago

Reply to the comment left by "Annie Landlord" at "13/07/2017 - 17:11":

The SNP are not considering stopping 10 month tenancy, they've done it already. The new private tenancy has no pre determined duration, no 'no fault' termination by the landlord and 28 day notice from the tenant at any time. Current implementation date is December this year.

Regards,

Rod.

Dr Rosalind Beck

19:18 PM, 13th July 2017, About 7 years ago

Reply to the comment left by "Rod Adams" at "13/07/2017 - 18:20":

It's outrageous. Anyone would think that we don't own the properties we rent out. The pendulum has swung so far in the tenants' interests it's ridiculous. However, although it may be in individual tenants' interests it won't be in the interests of tenants as a whole as landlords will flee the market, landlords who might have rented out a second home they own won't, and obviously expansion will come to a standstill - just at a point when demand is soaring in many (not all) areas.

Annie Landlord

20:54 PM, 13th July 2017, About 7 years ago

Reply to the comment left by "Rod Adams" at "13/07/2017 - 18:20":

Wow didn't know it was already happening. How does the no predetermined duration tenancy work with Lenders who stipulate no longer than 12 months initially? Edinburgh is such an easy place to sell in at the moment I can envisage many landlords throwing in the towel. Given the property values many properties will be bought by wealthier locals and out of towners, leaving those needing reasonable rental homes high and dry. But hey, knocking landlords makes good headlines

Dr Rosalind Beck

21:08 PM, 13th July 2017, About 7 years ago

Reply to the comment left by "Annie Landlord" at "13/07/2017 - 20:54":

In a way, all of us who aren't landlords in Scotland should be thankful we're not the guinea pigs for this one. Presumably it will be such a disaster that it will be halted and reversed there. Having said that, we thought when the Universal Credit practice runs led to terrible problems with arrears, including for Housing Associations, that that would be halted...

Annie Landlord

21:18 PM, 13th July 2017, About 7 years ago

Reply to the comment left by "Dr Rosalind Beck" at "13/07/2017 - 21:08":

Oh no, that would entail governments admitting they screwed up. Far easier to blame evictions, homelessness and the global economic situation on private landlords. No matter how often I remind people that the SRS evicts more people than the PRS, and that the delay in accessing UC leads directly to evictions, Joe Public prefers to believe that its all the fault of greedy landlords.

Leave Comments

In order to post comments you will need to Sign In or Sign Up for a FREE Membership

or

Don't have an account? Sign Up

Landlord Tax Planning Book Now