Rent freeze - lessons from Scotland, part 2

We recently covered research by Hamptons which showed that private landlords are selling out of Scotland's private rental sector. Now, a new report suggests that the big institutions are also turning their backs north of the border.

The term 'Build to Rent' (BTR) describes that sector of the housing market consisting of private institutions who build, own and operate large scale developments purely for rental. Participants include insurance companies, banks and private equity funds. This is a growing market segment throughout the UK.

These big budget institutions are attracted to BTR due to its modest but predicable yields and view it as a stable long term investment. If this reliability is threatened, they look for more suitable investments elsewhere.

As the housing crisis deepens throughout Scotland, BTR should be part of the solution, but a new report published by the Scottish Property Federation alongside researchers Rennie & Co shows that the country's current system of rent controls will disrupt the supply of new BTR homes.

Rennie & Co conducted a series of in depth interviews to hear the opinions of fourteen institutional investors with a combined £15 billion in BTR investments. It is clear that they now view Scotland as a political risk. Nine described the country as 'unattractive' with four stating that it is 'un-investable' under current conditions.

According to David Melhuish of the Scotland Property Federation "The impact of emergency legislation on the BTR market over the last six months is clear. The lack of long term policy certainty means investors largely view Scotland as a risk, compared with more stable locations in other parts of the UK.

"This situation is a disincentive to investment and as a consequence investors are going to continue to divert capital elsewhere. The rental market in Scotland, and crucially renters, will continue to bear the brunt as new housing supply is constrained and demand for accommodation soars."

If Scotland has lost the trust of the BTR sector, it may take many years to regain it.