Rented sector reform: Housing (Scotland) Bill: business and regulatory impact assessment

Scottish Firms Impact Test

As set out in the section on Consultation with Business, there has been extensive engagement with a range of business stakeholders, not only on the initial proposals set out in A New Deal for Tenants, but also on the detailed proposals now contained in this Bill as part of policy development and the BRIA process, working with key stakeholder representative groups and obtaining feedback from individual businesses (see the analysis of landlord and tenant engagement questionnaire^[141] and Annex A).

For the PRS, businesses who responded directly as part of our BRIA engagement about potential impacts included a variety of landlords and letting agents, ranging from individuals who were the landlord of just one property, to large landlord businesses with portfolios of 3,200+ properties. Just under half of respondents had portfolios of 20 properties or fewer. The majority of local authority areas in Scotland were represented in terms of where the let properties were located. The information received, which has helped inform the design of the measures, therefore covers a variety of different types of business – from self-employed and micro-businesses to those which are much larger – as well as locations across Scotland.

The majority of landlords operating in the Scottish PRS are Scottish firms or individuals. Accordingly, the costs and benefits for private landlords set out in detail above for each measure represent the expected impacts of those measures on Scottish firms. As discussed, the measures have been designed to ensure they do not impose unmanageable costs on private landlords.

Because of the location-specific nature of housing, and the fact that all landlords, regardless of origin, will be subject to the same legal and regulatory framework, the proposed measures will not directly impact on the competitiveness of Scottish private landlords with respect to non-Scottish firms.

Similarly to the PRS, the costs and benefits for social landlords set out in detail above for each measure reflect the expected impact of those measures on Scottish organisations which operate as Scottish social landlords. This is particularly the case as organisations are not free to offer social tenancies in Scotland – they need to be registered with the Scottish Housing Regulator and comply with the relevant social sector regulatory framework. As is the case for measures applying to the PRS, these measures have been designed to ensure that they do not impose unmanageable costs on social landlords.

In addition to the requirement to be registered with the Scottish Housing Regulator, social landlords in Scotland must be not-for-profit bodies. The issue of their competitiveness with non-Scottish firms therefore does not arise.

Impact on Small Businesses

Measures proposed in the PRS apply on a per-property basis, meaning their direct impact is automatically scaled to the size of the landlord’s business.

There are some indirect impacts which might be more challenging for smaller landlords. For example, larger landlords might have portfolios spread across a wider geography, and so a smaller share of their portfolio may be subject to rent controls. Any adverse impacts from rent controls on smaller landlords should be mitigated by the flexibility built into the rent control framework. It should also be noted that differential impacts of rent controls on smaller as compared to larger landlords are a function of the risk diversification opportunities inherent in larger portfolios,^[142] and not the direct result of how the rent controls are designed.

Another example of potentially higher indirect costs for smaller private landlords is familiarisation costs with the new measures. Larger landlords can spread these fixed costs over their portfolio, reducing the per-property cost. However, this is again a function of the inherent advantages of larger portfolio size, in this case stemming from economies of scale, and not the direct result of the design of the measures. The Scottish Government will minimise any negative impacts on smaller businesses by providing clear information. Smaller landlords can also make use of letting agents, who can pool the fixed cost of familiarising themselves with these and other regulatory and legal requirements across multiple clients.

Measures proposed in the social rented sector are generally aimed at ensuring that best practice is embedded across the sector. Scottish Government guidance will be provided for all social landlords, where appropriate, to help them understand their obligations. Thus, for both smaller as well as larger landlords, there should not be significant compliance costs.