How rents actually get set

A landlord listing a flat does not consult an economics textbook. They look at what similar properties nearby are listed at, and they pick a number. If their phone rings off the hook, they know they could have charged more. If the flat sits empty for weeks, they know they've priced too high. Next time, they adjust.

This is how every small business in every sector sets prices. A café owner decides what to charge for a coffee. A plumber decides their hourly rate. They feel like they are setting the price — and in a narrow sense they are, because they type the number into the listing. But the number that actually works is not up to them. It is determined by what their competitors charge and how many customers need their product.

A Glasgow landlord could list a two-bed flat at £5,000 a month. They would get no takers, because tenants have other options at £1,200. So they lower the price. They keep lowering it until someone says yes. The price they end up at is not a number they chose — it is the number the market dictated. And the market is determined by one thing: how many homes are available relative to how many people need one.

Greed does not determine rents

Did Austin's rents fall 9.5% in twelve months because its landlords had a change of heart and became less greedy? Did office rents collapse during Covid because commercial landlords became more generous? Obviously not. Rents fell because the balance of supply and demand shifted.

Landlords are predictable profit-maximisers. They charge the highest rent the market will bear — no more, no less. In a well-supplied market, the highest rent the market will bear is low, because tenants have alternatives. In an undersupplied market, the highest rent the market will bear is high, because they do not.

The moral character of landlords has no bearing on the level of rents. What determines rents is how many homes are available relative to the number of people who need them. Increase supply, and landlords must compete for tenants. Restrict supply, and tenants must compete for landlords. That is the entire mechanism.

What happens when a landlord prices above the market rate

The market rate is the highest price at which a willing tenant will take a property. A property listed above the market rate will not let — because tenants have cheaper alternatives that meet their needs just as well. A landlord whose flat is not letting is incentivised to reduce the price to the point where a tenant is willing to pay — the market rate. Some income is better than no income, and the longer the flat sits empty, the more urgent that incentive becomes.

So why are Glasgow rents so high?

If landlords cannot charge more than the market allows, and the market is determined by supply and demand, then the question becomes: why does the Glasgow market allow average rents of £1,275 for a two-bed flat?

The answer is that Glasgow has a severe shortage of homes. The city's vacancy rate is near zero, and properties are being let within around 25 days — very fast by most standards. Whenever a flat becomes available, there is a large unmet demand competing for it — lots of prospective tenants looking for a home. In that environment, the market is tilted heavily in favour of landlords — tenants have few alternatives, competition between them is fierce, and the market rate is pushed upward as a result.

There is no evidence that Glasgow's landlords are greedier or less generous than landlords in cities where rents are lower. What Glasgow has is far fewer homes relative to the number of people who need them. The difference is supply, not character.