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

Competition Assessment

Due to the different structures and roles of the private and social rented sectors, the competition assessment is focussed on the impact of the proposed measures on the PRS, as per the competition questions set out below.

Will the measures directly or indirectly limit the number or range of suppliers?

The introduction of rent controls where an RCA is designated would limit private landlords’ ability to increase rents. Some stakeholders have raised concerns that this could also lead to a reduction in the overall supply of rented accommodation, which could increase rents across Scotland in the long term.

To mitigate such concerns, as set out above, the proposed rent control framework contains significant flexibilities. Assessments will take place at a local level allowing local conditions to be taken into account when deciding whether to designate an RCA, and if so, at what level to set the rent cap; RCAs will expire after a maximum of five years and a new assessment will have to be undertaken before the area can be redesignated; rent controls will only apply to properties that are classed as being previously let, and not to the initial rent on property let for the first time; and Scottish Ministers will have powers to exempt certain properties from the controls or to modify for certain properties how the restrictions on rent increases apply. International evidence (summarised in Annex B) shows that later-generation rent controls can provide sufficient incentives to invest in new supply and quality of rental housing, and that rent control systems can co-exist with a sizeable PRS.

For the remaining measures which apply to the PRS, each measure has similarly been designed to mitigate adverse impacts on landlords. Again, some stakeholders have expressed concerns that the cumulative impact of these measures alongside rent controls could contribute to restricting the number of landlords. However, as shown in the section on Potential cumulative impacts of rented sector reforms, experience in the Scottish and UK markets over the last two decades, as well as international experience, shows that, as for rent controls, non-price regulation is compatible with a sizeable PRS with a range of landlords.

For these reasons, the Scottish Government’s view is that the proposed package of reforms in the PRS will not materially limit the number or range of private landlords.

Will the measure limit the ability of suppliers to compete?

Some stakeholders have raised concerns about whether rent controls will limit the ability of landlords to provide high-quality properties in areas where rent controls are applied. However, rent controls will only apply to properties that are classed as being previously let, and not to the initial rent on property let for the first time – this will allow for new properties to enter the market at a rent which makes them viable. Furthermore, the Bill includes a power for Scottish Ministers to set out circumstances where the landlord of certain properties may increase the rent above the level of the cap with or without approval. Such modifications will be set out in secondary legislation which will be subject to consultation and approval by Parliament.

With respect to the remaining PRS measures, the package of reforms will set out a clear framework of rights for private tenants, balanced by protections for landlords, which will support existing best practice in the sector. The ability of tenants to apply to the RSS or the Tribunal to enforce these rights, as well as the changes to the measurement of damages following unlawful eviction, will strengthen compliance. This will help ensure that responsible landlords are not undercut by unscrupulous competitors, improving competition. As discussed earlier, there is a variety of evidence that landlords themselves value stronger enforcement. In particular, measures which strengthen compliance help to address market failures arising from limited information tenants have about landlords when choosing which property to rent. This can lead them to choose a property with a lower rent when, had they known what their rental experience would be, they would chosen to rent from a landlord who provides a better service.

For these reasons, the Scottish Government’s view is that the package of PRS reforms will not materially limit landlords’ ability to compete, and may even increase competition by ensuring a level playing field.

Will the measure limit suppliers' incentives to compete vigorously?

No, for the reasons set out in the answers to the first two questions.

Will the measure limit the choices and information available to consumers?

For the reasons set out above, the Scottish Government’s view is that the package of PRS measures will not materially limit the choices available to private tenants. Indeed, by strengthening the rights of private tenants with respect to keep pets and make changes to their property, private tenants can be provided with more choice about their living conditions than they currently have.

Similarly, the package of measures will not limit the information available to tenants. In fact, the implementation of the new measures provides additional opportunities to provide tenants with information on their new and existing rights; for example, through the development of guidance on the new measures and the provision of templates forms for pet requests and making changes to the let property.

The Bill also includes a duty on prospective landlords whose property is in an area where rent controls are applied to include expanded information in property adverts including the rent payable under the previous tenancy, the date of the most recent rent increase, and confirmation that the let property is in a rent control area. It is intended that secondary legislation will be amended to require landlords in RCAs to provide similar information to tenants at the beginning of tenancies, to ensure that tenants in RCAs have the information they need. While rent controls are in force, the tenant will have more information about what their rents will be, in particular they will know that they will not exceed the cap. This will give tenants greater certainty, which will help them with their financial planning.