The only way to cut rents is to increase availability
◆ Policy-makers need to understand that the laws of supply and demand govern the property market, writes David Alexander
Most people who develop policies believe that they will be beneficial to certain parts of society. That is surely right and proper and is the function of politicians, policymakers, and advisers, who must believe they are acting in the best interests of the majority of people.
But surely these same policy-makers must, when confronted with data proving their ideas aren’t producing the intended outcome, respond accordingly and change their minds, and consequently, their policies. This does not seem to be the case when it comes to understanding how the private rented sector works.
Our analysis this week of rent rises shows that since January 2015 to February 2024 average rents in Scotland have risen by less than 1 per cent per year when inflation is deducted from the figure. Average house prices paid over the same period rose by an almost identical percentage, indicating rent rises are simply keeping pace with the wider housing market.
Most reasonable people would say that this is not a sign of an out-of-control market which needs to be restricted but rather one which is functioning efficiently.
Looking in more detail you find that a considerable increase in the rate of price inflation has occurred since the costof-living legislation was introduced in October 2022 aimed at countering private rent rises. In the period between January 2015 to October 2022 rents in Scotland rose by 22.3 per cent. However, from October 2022 to February 2024 rents have risen by 14.4 per cent so the greatest rate of increase in prices occurred in the last 17 months.
The sensible conclusion would be that interfering in the private rented sector has produced higher costs for tenants and that further intervention is likely to exacerbate this position in the future.
Yet we have the slightly bizarre view from some politicians that these figures prove the need to intervene more rather than understand that existing policies have actually been the cause of recent rent rises. The reality is that artificially trying to control free markets results in the unintended consequences of higher costs for those the policy was expected to help.
What is required is a concerted effort to increase the availability of private and social rented properties which will, in turn, result in lower rents over the long term. The current trajectory of restricting available homes in the private rented sector without a counterbalance of more properties in the social sector can only produce a greater housing emergency across the whole of Scotland.
The property market exemplifies the basic principles of supply and demand which means that the only solution to reducing rents, and prices, is to increase availability. Anything which produces a different outcome can only make things worse and I fear this is a lesson which will only be understood when more people in the housing market are impacted by an acute shortage of available homes.
Waiting for this to happen is surely the wrong approach and anticipating and acting upon an increase in demand is the only way to ensure that tens of thousands of tenants across Scotland will be able to access a suitable home in the future. All the rest is simply tinkering at the edges and hoping for a successful outcome.
David Alexander is CEO of DJ Alexander Scotland Ltd