Demand for rental properties across most levels in the market has been strong from the start of Q1 2023 and increased through Q2 & Q3. During the summer months, demand for affordable accommodation (£1000pcm - £1500pcm in Edinburgh & £800 - £1,200 in Glasgow), rose to almost unmanageable levels.
The press reported stories of tenants “queuing around the block” to view flats, with agents receiving multiple offers on each property. At Rettie, we witnessed very high volumes of enquiries with many properties renting within 1 or 2 days of appearing on the market, with some being taken offline within a couple of hours. This was one of the factors which led to a surge in rental values.
Zoopla reported that rent inflation in Edinburgh & Glasgow was higher than in any other UK city, rising by c.16% and c.14% respectively between June 2022 and June 2023. The same report concluded that the next highest inflation was in London at 12%.
The Scottish Government’s rent control policies and punitive tax regime for anyone buying an investment property are worsening an already critical shortage of rental accommodation, creating more pressure on our tenant population.
The start of Q4 saw a faster than anticipated drop in demand at the higher levels in the market, which saw the summer prices having to be pulled back as competition between available properties became more favourable for tenants. We expect to see demand increase again after the New Year after the usual slow-down in Nov/Dec. The factors which are driving demand and limiting supply have not disappeared, so we expect 2024 to see more of the same with continued under-supply and rising rent inflation.
Our experience at Rettie is that the supply of new rental accommodation has come almost exclusively from ‘circumstantial landlords’. These are individuals who already own a property and through a change in personal circumstance now require to rent. These landlords are a vital source of rental accommodation, but in no-where near enough numbers to rectify the supply/demand imbalance.
We saw almost no new investors willing to pay the 6% purchase tax on top of Scotland’s already inflated LBTT (Stamp Duty) to help supply the market with long-term buy-to-let properties.
The impact of this extreme shortage of supply can only mean further rent inflation for 2024.
Edinburgh council have recently admitted that the city is now in the grips of a housing a crisis, something Rettie and other industry leaders have been warning about for some time.
It will be interesting to see what response we get from our Housing Minister and our Tenant’s Rights Minister in 2024 to address the critical shortage of rental properties. The big question is whether they are forced, through gritted teeth, to relax some of the burdens they have put on landlord investors, in order to stimulate additional supply and bring rent inflation under control through economic balances, rather than through rent controls.
A quote by Assar Lindbeck, the Swedish economist who chaired the Nobel Prize committee for many years, summarises the difficult predicament our government is facing when he stated that:
“In many cases rent control appears to be the most efficient technique presently known to destroy a city - except for bombing.” History has repeatedly shown us that rent controls serve only to limit supply, which create undue suffering on the tenant population.