Bartek Staniszewski is a researcher at Bright Blue.
Last September, Nicola Sturgeon set out to tackle Scotland’s cost-of-living crisis by targeting housing costs. To do that, she announced a rent freeze on all private rental properties. Initially, rent increases were banned outright. In March of this year, the policy became a bit more lenient when increases were capped at three per cent a year. And, just over a year after Sturgeon’s initial announcement, at the start of November, Edinburgh City Council has announced a “housing emergency,” citing spiralling private rental costs, a severe shortage of affordable housing and record levels of homelessness.
Since the announcement of rental controls in Scotland, Edinburgh has seen a 30 per cent rise in homelessness, with over 3,300 households without an adequate home. It reverses the long-term trend of falling levels of homelessness in Edinburgh. Indeed, Edinburgh’s homelessness problem is now one of the worst of anywhere in the UK: 1.4 per cent of households in Edinburgh are now homeless, as compared to less than 0.4 per cent nationally.
This should not come as a surprise to any economist, given that rental controls restrict housing supply, particularly the supply of properties to let. When rental controls are introduced, landlords who are unable to raise rents enough to cover their expenses quit the rental market. In under a year, the number of new lets in Scotland dropped by over 25 per cent. The ones that have remained on the market have become increasingly unaffordable. Rent inflation in Edinburgh is currently at almost 14 per cent.
The rest of Scotland is not faring much better; in the country as a whole, rents have increased by 12.7 per cent in the last year. To make up for their inability to raise rents in the middle of contracts, landlords have been looking to sidestep the legislation by ending contracts early and writing new ones with much-increased rent levels. Propertymark notes that “landlords in Scotland are increasing rents between tenancies to cover their costs and anticipated costs due to a fear of ongoing rent control legislation.”
Edinburgh is not an isolated instance here. San Francisco introduced rent controls in 1994 and, since then, the number of rental properties available there has decreased by five per cent, despite the city’s population having grown by 12 per cent. An even more drastic example can be found in Finland. The Scandinavian nation introduced rent controls in the late 1960s. Over the following two decades, the number of rental properties in the country fell by over 11 per cent. Realising their mistake, the Finnish began abolishing rent controls in 1993. The effect was immediate; in the 1990s, the number of rental properties in Finland jumped by 45 per cent.
And it is not the case that a falling number of rental properties results in more new homeowners. Some landlords quit the rental market and, instead of selling, simply leave the home empty. In mid-1970s New York 300,000 homes stood empty following the city passing rent control legislation in 1969. Unless Scotland reconsiders their rent control madness, a similar fate awaits them.
Even left-leaning politicians used to realise this. In 2010, the Treasury under Alistair Darling reviewed the effects of rent controls in pre-1988 Britain and wrote that their impact was few new properties entering the rental market, decreasing quality of housing stock and the decay of urban neighbourhoods.
Despite all this, rent controls keep being mooted. Besides Nicola Sturgeon’s policy, Sadiq Khan has endorsed them. Keir Starmer has been wise to reject them. Nonetheless, this raises the question – why do rent controls keep happening, despite the overwhelming evidence regarding their ineffectiveness?
First, there is significant discord between economists and the average voter regarding them. Polling consistently shows high levels of support for rent controls; a 2022 poll found that 72 per cent of people in the UK support them, while only seven per cent oppose them. Politicians are tempted to push for rent controls in their struggle to win votes in the short term, even if they know that, in the longer term, the policy will inevitably lead to disaster.
It is much easier to legislate that rents must be cheap than to address the causes of unaffordable rents: limited housing supply, restrictive planning laws, high land prices or investors treating housing as a speculative investment. Especially increasing the housing supply would face stern resistance from a large and vocal minority of NIMBYs, but all of the above require vast sums of political will that somebody like Nicola Sturgeon did not have.
Nicola Sturgeon was faced with a choice between the easy option that will produce short-term gains and the difficult option that will be better in the long term. She chose the former, with catastrophic consequences. Politicians cannot afford to indulge their whims and fancies pursuing a political strategy of carpe diem. In their hands, they have the lives of millions who voted for them and who will inherit the political landscape they forged, and they must do better than pursue vapid, self-gratifying short-term solutions designed to win votes at the cost of livelihoods.