Capping rent increases at 3% could lead to lack of affordable homes, MSPs told

Capping rent increases at 3% will shatter landlord confidence further and lead to a lack of affordable homes, a Holyrood committee has heard.

The Scottish Parliament’s Local Government, Housing and Planning Committee heard from representatives in the private and social housing sectors on Tuesday.

The evidence session came as tenants’ rights minister, Patrick Harvie, last month announced that, subject to parliamentary approval, private landlords will not be able to increase rents above 3%, unless they apply to Rent Service Scotland for a 6% increase.

The emergency legislation was first introduced in November in response to the cost-of-living crisis.

Landlords in both the private and social housing sector had previously been banned from increased rents at all – but the new rules allow a maximum of an 11% rise in the social sector.

But David Melhuish, director of the Scottish Property Federation (SPF), discussed the impacts on future housing developments. He said: “There was a very sudden pause in activity or retreat from activity of new build supply.

“I think initially there was some evidence of landlords looking to sell and move out of the sector.

“We’re now starting to see slightly longer tenures in terms of tenants staying in their homes longer so therefore you need to increase the supply to keep up with availability of let properties.

“The evidence is that there has been a reduction in the availability of properties for letting.”

A survey conducted by Propertymark, an organisation which represents estate agents, found that 85% of letting agent members said landlords had indicted they wanted to sell their properties between November and December, increasing to 89% in the first two months of 2023.

Timothy Douglas, the organisation’s head of policy and campaigns, said: “The legislation continues to have an effect on landlord confidence.

“The majority of agents who reported back to us are still seeing landlords exiting the market.

“Members will welcome the raising of the cap but it is simply not enough. Agents and landlords weren’t increasing rents during the pandemic and they worked really hard to sustain tenancies.

“There is a frustration at the assumption that all landlords are wealthy and every tenant needs support and that simply hasn’t been factored in.

“All it has done is cause uncertainty for landlords and many are selling or looking to sell.”

Following the extension, the Scottish Association of Landlords (SAL), Scottish Land and Estates (SLE) and Propertymark filed a petition at the Court of Session seeking a judicial review of the emergency legislation.

A Scottish Government spokesperson said: “We are in the midst of a cost-of-living crisis, and our emergency legislation has been protecting tenants from significant rent rises and risk of eviction.

“We are committed to monitoring if the measures remain proportionate and necessary and responding accordingly. Safeguards are built in for landlords, and we have announced our intention to allow modest rises in rents from April onwards.

“We have also reached agreements with social landlords to limit rent rises to give tenants greater confidence about their housing costs and the security of a stable home.

“Across Europe it’s clear that better regulation of rented housing, including regulating rents, needn’t be a barrier to investment. Here in Scotland our track record of investing in affordable housing has been underpinned by our partners’ investment, delivering 115,558 affordable homes since 2007, ahead of any other part of the UK.”