SCOTGOV COST OF LIVING PROPOSALS ARE A WELL INTENTIONED MESS
The law of unintended consequences should have everyone thinking far more carefully about temporary rent freezes, eviction bans and longer term changes to Housing Tribunal powers
First Minister Nicola Sturgeon has outlined a series of policy proposals seeking to tackle the cost of living crisis. But while some of the emergency proposals are certainly well intentioned, they will only create significant long term damage to the private rental market. And her emergency package is all built on the false premise of a lack of the necessary powers needed. There is a very real danger of the law of unintended consequences reeking havoc down the road.
“The Scottish Government does not have the power to stop your energy bills soaring, but we can and will take action to make sure that your rent does not rise.”
The problem I have with the First Minister’s explanation is that on two counts it is entirely false. Firstly, it is built on the premise that the Scottish Government “does not have the power to stop your energy bills soaring”, but this is not entirely the case.
As far back as 2017 the SNP had been pledging to establish a public energy company. Had they ever actually done so, that could have provided a useful weapon in the fight against profiteering by energy firms. The 2017 promise to “set up a publicly-owned, not-for-profit company to sell gas and electricity to customers at low prices by 2021”1 sure would have come in handy right about now.
Pity Nicola Sturgeon promised it, entirely ignored the manifesto commitment and cynically used the 2020 pandemic as an excuse to justify having never delivered it. In their 2021 manifesto the SNP tried to weasel out by claiming to have "halted" plans for the energy company during the pandemic.
Another example of SNP policy failure resulting in chickens coming home to roost is Nicola Sturgeon’s nixing the CAMBO oil and gas field development. In the midst of spiralling gas prices as part of the fallout from the Russo-Ukraine war, Western sanctions policies and pandemic era disruptions - Ms Sturgeon set her face against the North Sea industry. She has waged a policy agenda seeking reduced North Sea oil and gas exploration, development and extraction. Seeking to reduce domestic gas extraction by limiting new exploration and development certainly seems misjudged now that the price of gas is leaping ever-upward.
Secondly, it is extremely clear that the First Minister’s chosen policy combinations will not actually help people dependent on rental accommodation long term. The Scottish Government wishes to to end mandatory eviction of tenants if they are in three or more months of arrears, also imposing an outright ban on evictions altogether over the winter. All topped off with a total rent price freeze until March(ish). These policies definitely sound appealing, especially to those on the left, but I would urge everyone to think more carefully.
These policies are likely to - if taken together - reduce long term supply of housing for private rental and create a spate of likely evictions and rent hikes come March 2023. In short, the unintended consequences of policies - undoubtedly well intentioned - by the Scottish government will make life worse for generation rent.
Take for example the Scottish Government’s commitment to alter the mandatory evictions rights of private landlords. If a landlord brought an eviction action on the ground that the tenant was in three months of arrears of rent, the Housing Tribunal did not have any discretion. The Tribunal was compelled to order the tenant to be evicted. That was the status quo ante, prior to pandemic emergency legislation.
But during the pandemic, this was changed, so that the Housing Tribunal could not be compelled in such a situation. In short, the “mandatory” was altered to “discretionary”. If the Housing Tribunal was of the mind that the reason for non-payment of rent was because of the pandemic, it could decide not to evict.
I have written before about the potential consequences of this particular, undoubtedly well meaning, policy change. According to the Scottish Association of Landlords and Scottish Land and Estates
“There is a very real danger that if this goes ahead landlords will lose confidence and simply sell homes at a time when they are in great need.”2
Why would private landlords whose portfolios cover a handful of properties continue to rent rather than sell? The mandatory evictions rule change regarding tenants in three months or more arrears effectively means it becomes theoretically impossible to actually recover your property from a non-paying tenant.
Would you keep these homes for rent? I doubt it, far more likely you offload them. Selling them off, reducing the overall percentage of available homes for rent. Either way, many homes currently available for rent will disappear from the market.
The likelihood that landlords will be exiting the private rental market increases as the Scottish Government yesterday announced a winter ban on any and all evictions plus a rent freeze with an unclear end date
“The programme outlines emergency legislation which will be introduced to put in place a rent freeze until at least 31 March 2023 and a moratorium on evictions, as well as a new tenants’ rights campaign”3
Before anyone starts cheering, ask yourself the question: ‘what are the ways my chosen policy could go wrong?’ Any professional policy maker ought to test their suite of policy choices off against this simple enough test. And if we apply it in this case what could we anticipate?
Fewer private landlords longer term, as smaller portfolio holders sell their small clutches of properties rather than retaining them for rental. All of those older people nearing retirement and who own a handful of single bedroom homes for rent will sell up. These are landlords who typically only have a state pension, no private pension to speak of, and the rent generated by the small property portfolio was planned to fund their retirement. Hard to imagine these landlords will persist with renting rather than selling up altogether.
Furthermore, the larger private landlord businesses will likely impose significant spikes upward in rents charged when the rent freeze inevitably ends (as it ultimately must at some point). These sort of private rental firms will seek to claw back perceived lost income after the March(ish) deadline for the rent freeze expires next year.
And some of this is already beginning to happen. Just listen to John Blackwood, Chief Executive of the Scottish Association of Landlords (SAL). Responding to the rent freeze announcement he explains that landlords are already fleeing the private rental market already
"I have been inundated by landlords saying they will be removing their vacant properties from the rental market, and I don’t blame them.”4
I fully understand the intuitive appeal of rent freezes and eviction bans to many of those on the left, but as policy the potential for damage is massive. Reducing the overall numbers of housing for rental and creating a cliff-edge of sorts on rent come March 2023 is going to hurt not help generation rent.
It is an old joke that many tell where politicians and logic never seem to quite find each other. Regarding the cost of living crisis and this Scottish Government it is most certainly true. Having been caught out failing to deliver a publicly owned energy company, having undermined native oil and gas industry the First Minister is confronted with a pressing realisation of ‘I must do something!’ The only problem is, she has reached for rent freezes and eviction bans as ‘the something’, without thinking things through. ‘I must do something, this is something, therefore I must do it’ is politician-logic personified. Neither logical nor particularly smart, it is actually policy making on the hoof.
McCool, Mary (2021, 24 September), ‘What happened to Scotland's state-run energy company?’, https://www.bbc.co.uk/news/uk-scotland-58677769
Matchett, Conor (2022, 27 June), ‘Landlords claim strengthening of tenant rights could 'decimate' rental market’, The Scotman, https://www.scotsman.com/news/politics/landlords-claim-strengthening-of-tenant-rights-could-decimate-rental-market-3745864
ScotGov (2022, 6 Sept), ‘Rent freeze focus of Programme for Government’, Press Statement, https://www.gov.scot/news/rent-freeze-focus-of-programme-for-government/
It’s a poorly thought out, knee jerk reaction! As you say, she must be seen to be doing something. There are well documented examples of this type of interference in the rental market having exactly the outcome you mention. You would think that after all the failures this administration has experienced, that they would perform more in depth investigation.
Yes, I fear that is exactly the outcome that we are now facing, it feels as though there is nothing that they will not destroy eventually. Very sad.