How generation rent became generation spent

Buy to let turned into buy to wreck but rents just keep going up

Photo by Ethan Wilkinson on Unsplash

If you are a young family, or just someone on an average income, you could be forgiven for thinking that there’s a conspiracy to make you homeless. House prices have trebled since 2000. Home ownership is a dream. Now you find that average monthly rents have risen to just under £1,100 per month in Scotland - a rise of over 10% in a year. In cities like Edinburgh it’s half as much again. That’s if you can pass the inquisition by the letting agents. And since rents are supposed to be capped at 3% you could be forgiven for getting a little angry.

Council housing? Forget it. A quarter of a million people are on the social housing waiting list in Scotland and it’s only really available for benefit claimants.  16 years ago the SNP government promised to deliver affordable homes to rent.  It somehow got diverted. Indeed the SNP’s main contribution to the social housing sector has been blowing up tower blocks like Red Roads in Glasgow.

Underpinning both house price and rent inflation is a chronic housing shortage. It sometimes looks as if the only building allowed in Scottish cities is for students. The mainstream political parties are all equally culpable for the housing shortage. Building houses is one of the few things governments can actually do.  They proved that in the 50s and 60s when both Labour and Tory governments blitzed the slums and built hundreds of thousands of houses annually.

Labour and the SNP blame Margaret Thatcher’s policy of council house sales. But that was 40 years ago and it is time this tired excuse was laid to rest. However, her financialisation of the economy, continued under both Labour and the Tories, has undoubtedly played a part. Governments are too afraid of a housing crash and a banking meltdown to do anything seriously to undermine inflated house prices.  The Bank of England kept interest rates absurdly low for a decade and a half to underpin house prices.

House building has also been blocked by Nimbyism and restrictive planning laws.  Then there is immigration.  Migrants benefit the economy but only if they have somewhere to live.  Britain is importing the equivalent of a city the size of Edinburgh every year but less than half that number of homes are being built.

The result is that 15 years on from the Great Recession, the housing market remains broken at every level. House prices have been a scandal for two decades but the crisis in the rental market is relatively recent. Long term letting used to be a viable alternative to inflated house prices. Not any more. Even short term lets are disappearing thanks to clumsy attempts by the SNP government and Scottish local authorities to squeeze Airbnb out of city centres by imposing tight regulation.  

The proliferation of those key security boxes in doorways had undoubtedly become a social menace. However, local authorities like Edinburgh thought they could capitalise by charging short term letters £600 a time for new licences.  Unfortunately, the onerous regulations and new charges have hit many family-run Bed and Breakfast establishments. The result is that many are refusing to register. According to the Association of Self Caterers, 61 per cent of bed and breakfasts and small holiday let businesses are preparing to shut their doors at the end of September. From Orkney to Edinburgh, B & Bs are closing their doors to the dismay of the Scottish tourist industry.

There are distinct echoes here of the Deposit Return Scheme -  the Scottish government’s ill starred scheme for recycling bottles and cans. The DRS too was boycotted by thousands of small businesses who said they risked being bankrupted by new charges and regulations. It had to be abandoned. Now cities like Edinburgh are talking about further delaying the start of the Airbnb crackdown.   But the wellbeing economy minister, Neil Gray, doggedly insists that it will continue.

The short term letting story is a particularly unfortunate one.  Airbnb started out as more like couch-surfing -  a socially progressive way to allow householders to make a little cash from letting spare space to travellers.  It somehow turned into a corporate behemoth that has turned residential blocks into unregulated hotels, driven up rents and squeezed long term tenants out of the market in city centres. Something had to be done.

But won’t the departure of Airbnb not release more flats for long term renters? Unfortunately, that’s not how it works. On top of tight new regulations, a  3% cap has been placed on rent increases in the long term private sector.   This was supposed to help keep the rents down but as with with rent controls elsewhere in Europe like Berlin, it hasn’t. Landlords can still increase them at changeover and most tenancies are relatively short lived. That’s one reason why rent increases remain in double digits. The other is the dearth of new rental properties coming on the market.

With interest rates at 6 percent,  and the ending of tax relief on buy to let mortgages, it just isn’t economic for many landlords to offer long term lets. It costs a lot now to run a rented flat or house. On top of a raft of new regulations, there are letting agent fees, refurnishing,  repair and maintenance costs and the cost of borrowing. There is also uncertainty and the hassle factor of constant rule changes. The Scottish government is now considering making the 3% cap apply to properties themselves not just tenancies - so that rents cannot be increased after tenants move on. The result is that many buy to let property owners are voting with their feet and selling up. With fewer flats on the market, rents increase.

Cracking down on landlords is popular -  Airbnb and buy to let have few friends  -  so rent controls are likely to continue. Yet landlords are not all bad and the truth is that Labour Chancellors like Gordon Brown supported the building of a private rented sector 20 years ago. He wanted to emulate countries like Germany where renting is seen as a viable alternative to owning.  The result is that there are now around 2 million small landlords in Britain. Nearly 200,000 people in Scotland own a single rented flat - usually forming part of their pension. But if they can’t rent at a profit they’ll just stop.  Social housing had to be exempted from the 3% rent cap because it would make it uneconomic for housing associations to break even so why did they expect private landlords to be any different? Driving “socially useless” landlords out of business may be celebrated by the Scottish Green Party but it actually makes the rental shortage that much worse.

It’s no use railing against capitalism. That might win plaudits on social media but Twitter doesn’t build houses.  Unfortunately, neither does the government as we have seen. If you want socialist policies you have to introduce socialism: mass house-building by the state.  That is not going to happen. Which brings us to the ideological contradiction at the heart of the matter. 

There is a popular aversion to the market and profit is a dirty word, certainly amongst millennials.  Given the behaviour of delinquent banks and fossil fuel companies in the recent past, this is perfectly understandable. Political parties like the SNP, Labour and the Greens respond to this distaste for capitalism and fuel it to attract younger voters.  However, they still rely on the capitalist market to build homes. They know that mass council house building would increase taxes massively at a time when taxes are already at a seventy year high. And don’t expect cash-strapped local authorities to pay for it.

Labour’s Shadow Chancellor, Rachel Reeves has just promised voters that Labour will not increase taxes on earned or unearned income. The SNP leader Humza Yousaf, still plans to increase taxes in Scotland but as the 2024 election looms, he appears to be cooling on the idea. Anyway, he plans to spend any tax increases on increasing the Scottish Child Payment, not council houses.

Soviet-style command economies are not coming back any time soon. We live in a consumer society fuelled by market capitalism.  Young people who claim to be anti-capitalist still rely on the market to supply their iPhones, music, skinny lattes and electric bikes.  The number one complaint of the “priced out” generation is that they can’t afford to buy their own house like their parents did. They are still in that sense Thatcher’s children: they aspire to join what she called the property owning democracy.

Thatcher also said that “you can’t buck the market” by which she meant that if businesses don’t make a profit they go bust.  The so called “wellbeing” economy is still a capitalist one, like it or not.  This means that while the property market is broken only the market, paradoxically, can make it work again - properly regulated of course by the state. At any rate there is little point in passing punitive laws and promoting policies that prevent landlords getting a return on their investment - as local authorities and the Scottish Government are discovering. No one can force landlords to stay in business

The Scottish government now has no alternative but to try to mobilise private capital to build houses at scale. The Green Party champions of rent controls seem to believe that corporates are more responsible. But they’ll still only invest if it’s profitable for them, just like pensioners renting out flats. Indeed, property developments are often financed by pension funds. So we are all implicated in the capitalist rat race. Maybe we should just be honest about it and stop introducing fantasy policies to make some people feel good but don’t make living any more affordable.