Scotland a ‘no-go’ zone for investors under SNP rent controls

The SNP introduced an emergency rent cap in October 2022 under former first minister Nicola Sturgeon - Wattie Cheung

SNP rent controls have made Scotland a “no-go” zone for investors, the property industry has warned, amid fears that Labour may roll out a similar policy in England and Wales.

Investment in build-to-rent properties in Scotland slumped 71pc last year, according to Savills data, and there have been no deals in the sector so far this year.

Melanie Leech, chief executive of the British Property Federation, said: “Scotland is a no go area for the majority of international investors and for a number of UK investors because of the way it was done. The rent controls were introduced overnight with no consultation and that’s the kind of thing that makes investors really nervous.”

The SNP introduced an emergency rent cap in October 2022 under former first minister Nicola Sturgeon. The policy was supposed to be a short-term measure to support tenants through the cost of living crisis.

However, the cap was extended and, while it ended earlier this year, a temporary framework of rent controls is still in place while the SNP finalises the Housing (Scotland) Bill, which aims to make the rent controls fully permanent. The Bill is expected to come into force in 2025.

Ms Leech said investment in the build-to-rent sector, where rental homes are purpose-built and institutionally managed, had “dropped off a cliff” as a result of the changes.

It comes amid speculation that Labour could consider introducing similar controls in England and Wales if the party wins power in the upcoming election.

An independent report commissioned by Labour has recommended capping rent rises. It proposed placing a “double lock” on rent increases so they would not be allowed to rise faster than local wages or inflation, whichever is lower.

Rachel Reeves, the shadow chancellor, has said she is in favour of councils having the power to cap rents.

The measure would mean local authorities could prevent landlords from raising rents above a set proportion every year.

Labour has insisted it is not its policy “nationally”, but did not rule out giving councils the power to introduce the controls.

The value of build-to-rent transactions in Scotland plunged by 71pc between 2022 and 2023, according to Savills, falling from £224m to less than £65m.

Polly Simpson, who acts on behalf of developers to source investment for new housing at Savills, said investors will not even entertain a conversation about Scotland.

Ms Simpson said. “It’s just a no. There is not even a consideration of a pause. It’s: ‘no Scotland until we have got clarity on what long-term rent controls are going to be’.”

So far in 2024, there have been no build-to-rent transactions in Scotland whatsoever, compared to deals worth £555m across the rest of the UK.

Rent freezes have removed the sector’s ability to generate inflation-linked income streams for pension funds, who are often the financial backers of such projects. At the same time, the costs associated with running these buildings, such as energy bills, have surged.

“This means potentially creating a depreciating asset class,” Ms Simpson said.

Work on build-to-rent projects has plunged, with the number of starts on Scottish properties in the 12 months to December just a third of the number two years earlier, according to Savills.

The development of sites collectively worth at least £700m has also stalled because of concerns about the outlook for the sector.

Ms Simpson said: “There are multiple building sites that have planning permission that have not started on site and a lot of them are being replanned for students.”

The SNP’s rent controls are only in place for existing tenancies, which means rates on new lets have soared as Scottish landlords seize the opportunity to raise rents where they can.

As a result, average rents in Scotland, across both new and existing lets, are rising faster than in England or Wales. Scottish rents surged by 10pc year-on-year in April, compared to 8.9pc growth in England, according to the Office for National Statistics.

“The unintended consequences mean rent controls have hurt Scottish tenants more than they have helped them,” Ms Simpson said.

Nothing will change after the general election on July 4 as housing is a devolved issue, which means the SNP will have control until at least the next Scottish Parliament elections in May 2026.

The Labour Party was contacted for comment.

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