Landlords don't solve homelessness

The Herald is once again running stories presenting a loss of private sector landlords as in some way a bad outcome for those who are homeless. This is another in the series of 'privileged people think they should make money for nothing who seem to think they're the victims'.

Before we begin, there is one underpinning piece of information that is necessary to put what follows into context – the UK has consistently got the highest rents in Europe (though the Netherlands is chasing us). And since 1989 the average rate of annual inflation in Britain was 2.5 per cent and the average annual inflation in rental costs was 3.8 per cent.

Landlords have fixed assets which are basically guaranteed to rise in value (houses are never permitted to fall in value in the UK as a matter of public policy). There is high demand for rental homes in many parts of Scotland (as the article makes clear) and so there is little likelihood of under occupancy.

Which means the only investment that needs to be made is to pay the deposit on a mortgage and then charge at least the cost of the mortgage payments and they get a free asset that pays for itself with no input of labour and next to no additional investment required. And this isn't difficult since the average rental cost is £1,283 compared to £1,154 for the average mortgage payment.

This does not produce good outcomes, however. The UK's regulation of landlords is very light touch compared to most European countries and the outcome of this is that 700,000 homes in Scotland that are currently occupied are assessed as not fit for habitation. These are largely private sector rental accommodation.

Landlords do not increase the housing stock and they do not make investment if investment is meant to mean 'creating something that wasn't there before'. They are purely speculative and their business model is predatory, not productive. There is no productive outcome from a landlord business.

In addition to this, the role of landlords in driving up the cost of housing for absolutely everyone is under-discussed. The 'buy to let' boom of the 1990s and 2000s created the housing market we now have. Every financial planner in the country told everyone with any money to buy property and rent it precisely because it was the definition of money for nothing.

This pushed up the price of housing for everyone and is one of the biggest drivers for the increasing wealth inequality of the UK. Landlords have a direct economic interest in pushing up housing costs and, along with property developers who have the same interest, create a pincer movement on the population.

On one side are property developers who are land-banking developable land precisely to ration and therefore artificially inflate the value of the new build market. On the other are landlords buying up and therefore inflating the costs of the remaining housing stock.

There is a very, very specific reason why most classical economists viewed 'rent seeking' with contempt (Adam Smith wanted them taxed aggressively). It was seen as not a feature of capitalism but a feature of feudalism. Rather than creating value through economic activity it was viewed as extracting value through monopoly ownership.

None of this is to suggest that private landlords cannot be a valuable part of a successful housing system. Germany famously has Europe's least dysfunctional housing system in which about half of those in homes are rent and more of those rent private than public.

But that is in a context of a strict web of regulation which makes Scotland's modest rent cap seem insignificant. It is a clear message that if you want a constructive contribution from private landlords they must be strictly disciplined in a market with sufficient supply.

None of this relates to the crisis in homelessness. That is not and should never be an opportunity for profit. That is a public crisis that should be met with publicly provided housing provision. If people are eventually able to stabilise themselves and survive on their own in Scotland's hostile housing market, then they are ready for the private rental market. Not before.

Landlords appear in our newspapers so regularly not because they have a strong case but because they're wealthy and powerful. They claim some politicians are 'anti-landlord'. This is a democracy; go and do a web search and see how much love there is for landlords among the public. The question is why more politicians don't reflect the settled view of most of the public.

The solution to all of this is to control house price inflation through a property tax, bring the enormous amount of empty property in Scotland back into use, use of planning laws such as use-it-or-lose-it to end land-banking and by building large volumes of public rental housing to replace that which Thatcher sold off. Removing rent caps will not get more homeless people into housing.