Mark Chalmers

It’s a tough business, property development, and building housing in Scotland is toughest of all. The Scottish Government imposed rent controls on privately-rented flats and houses in 2022, and almost overnight the pipeline of new Build-To-Rent (BTR) developments in Scotland dried up.

Caps on rent were introduced by the Scottish Parliament in response to the post-Covid “Cost of Living Crisis”, so let’s start with a few propositions which most folk will hopefully accept. It’s reasonable to ensure that rents are affordable, and don’t rise exorbitantly during a tenancy. We don’t have enough decent rental housing, so we should encourage the construction of more. We should accept that developers and landlords make a modest profit; otherwise why would they bother?

Rent controls are regressive: not because they constrain rental increases to around 5% per year, but because their consequence is that development work has come to a standstill in the middle of the “Housing Crisis”. The controls were put in place by politicians, and although they’re pitched as a way to improve fairness, they're actually the re-assertion of a Marxist dogma: pitching the proletariat against the rentier class or “rent extractors”.

I wonder if the Scottish Government consulted on rent controls beforehand with tenants, landlords, developers, financiers and housing associations – or just their political wonks and SPAD’s (special advisors)? I also wonder whether they studied the interplay of housing at social rent, mid-market rent, open market rent, shared tenure and owner-occupiers. It seems obvious that demand and capital flows between them – observe how Springfield Group, Scotland’s largest listed house builder, has recently pivoted towards affordable housing.

We’re told that a consultation on how powers within the Housing (Scotland) Bill could be used to exempt certain types of properties, such as the Build-to-Rent sector, from rent control is currently underway – but that’s a bit post-facto.  The damage has already been done.

The experience in Scotland, closely studied by agents such as Retties and Savills is that rent controls increase the cost of new leases and at the same time reduce the rental stock by driving landlords out of the market. According to the Office for National Statistics, Scottish rents increased by 10% year-on-year in April 2024, compared to 8.9% growth in England. According to Savills, after the government introduced the rent freeze in 2022, BTR transactions in Scotland fell by £224 million to around £60 million in 2023, then virtually none in 2024.

But I thought we wanted to keep rents reasonable, and to increase housing construction?

Build-To-Rent was the last in a carousel of investment cases for inner city sites in Scotland’s larger cities. Over the past 10 or 15 years, private developers have stuck to four options: Grade A offices; purpose-built student accommodation (PBSA); hospitality, in other words hotels and short let apartments; and Build-To-Rent (BTR) flats. Each of those has been knocked on the head, by a combination of the Covid-19 pandemic; working-from-home, the university funding and recruitment crisis; and now rent controls.

Although it will stick in the craw of political agitators, Build-To-Rent demonstrates that property developers serve a social good. It’s staringly plain that councils and housing associations can’t provide enough properties at social and mid-market rents, so you need private developers to build more capacity for open market rental as well.

There are other, arguably better, ways to make renting affordable than applying rent controls. Increasing the supply of Build-To-Rent property means that scarcity decreases, and that should eventually mean cheaper rents. In order to get BTR developers building, you could use the carrot of investment allowances and tax relief, and you could also use the stick of a land tax on idle sites which have been zoned, optioned, purchased or approved for housing, but not built out.

If you simultaneously increase the supply of private housing for sale as well, you’ll achieve a second-order effect as some people move from rented to owner-occupied property, which frees up capacity. Another possibility is setting up a government-backed property investment bank which buy-and-hold developers could use for finance, which harvests part of the profit then ploughs it back into funding new developments.

In parallel, we're told that Edinburgh’s war against AirBnB landlords is superficially about freeing up flats for long-term rent rather than short-term holiday lets – but I suspect it’s driven by trying to appease owner-occupiers who are unhappy about a steady stream of tourists, especially around Festival time. AirBnB’s are bad neighbours, just like student HMO’s, and the council has caved in to NIMBY-power, just as national government does when motorways, railways, wind farms and power lines are proposed.

These are separate issues to fairness, and we probably shouldn't confuse them. There are two sides to the supply side/ demand side coin, and if there’s an affordability issue with housing rents, perhaps we need to look at raising the living wage so that folk earn enough to afford a roof over their head?

To improve the balance between renters and owner-occupiers, the government could act on property valuation, which hasn't been reviewed for at least 30 years, perhaps adding extra council tax bands at the top for the largest properties. It could look again at Schedule A Income Tax, which was scrapped in the 1960’s – that taxed homeowners for imputed rent, in other words the money they saved from not having to pay a rental premium over the cost of their mortgages.

You could also hypothecate property taxes, then plough them back into the construction of new housing. One of many reasons that people hated Thatcher and her “Right to Buy” scheme was that council houses were sold well below open market value – then the receipts went into council coffers, rather than being used to build new social housing. In fact, you can make a case that today’s ‘Housing Crisis” is partly due to the dead hand of Thatcher's policies.

Another factor reducing housing supply is the continuation of VAT on refurbishment work, which encourages local authorities to demolish 1960’s and 70’s blocks, rather than renovating them. Aberdeen is an exception, but Glasgow, Dundee, Lanarkshire and many more authorities are still merrily demolishing flats. Yet another problem is National Planning Framework 4 (NPF4), which has a profound impact on newbuild housing: NPF4 Policy 16(f) states that only applications on land already allocated for housing will be supported, except in very limited circumstances.

In truth, Scotland’s housing stock needs all the help it can get – wherever the investment comes from – and rent controls aren’t helping. Given everything that the Westminster and Holyrood governments are doing to discourage housebuilding, it’s no wonder we’re in a crisis.

In the face of all that evidence, I reckon that Politics is the problem. I’ve believed for a long time that lots of things, including how we deal with the balance between private and public in housing, health and education, plus the funadamental of how Scotland is governed, should be supra-political, in other words lifted above party politics. The issues with rent controls and Build-to-Rent development emphasise how under-equipped our politicians are to deal with the things that we voted them in to deal with.

It also underlines how that slippery and elusive concept called “fairness” or “social equity” has been hijacked by political activists. In Scotland, and the UK generally, property development and a belief in the system which underpins it, private enterprise, is thought by many to be suspect if not downright toxic.

I had personal experience of that during a stint of consultancy, during which I worked in the third sector and was seconded into the public sector. I encountered lots of people who wanted nothing to do with the business world. With the exception of one person – an idiot savant who was convinced he’d become a millionaire before he was 40 years old, by investing in penny shares – the rest were more interested in overthrowing Capitalism and reversing economic growth.

That would be fine – if we didn't need to build houses, schools, hospitals, railways and so forth.

Another example springs to mind. In the late 1990’s, I bought a couple of CD’s from bands on the Scottish indie record label, Chemikal Underground. I joined their mailing list, and occasionally received newsletters – until one day in the late 1990’s I received a flyer from them which said something like this: “Are you still interested in receiving updates from us? We realise that people change, and nowadays you might be more interested in the stock market than rock’n’roll.”

That stuck in my mind, because it offered such a strange antithesis. For one, your musical allegiances may have changed, so now you’re buying albums by the Jurassic 5 rather than the Delgados (that was me). But why couldn't someone be interested in capitalist business and rock music as well? The irony lost on the people who ran Chemikal Underground was that they ran the record label as a business, not as a co-op or community interest company, so they were in fact little Capitalists themselves. They were living proof of the system they claimed to despise.

Meantime, a Scottish Parliament committee decision in May 2025 to extend rent control powers to include Purpose-Built Student Accommodation (PBSA) is likely to torpedo even more investment in Scottish housing. You couldn't make this stuff up.