Rented sector reform: Housing (Scotland) Bill: business and regulatory impact assessment
Business and Regulatory Impact Assessment (BRIA) for the Rented Sector Reform provisions in the Housing (Scotland) Bill
Rent Control
Background, Objective and Rationale
Under the 2016 Act, a landlord can only increase rent for an existing tenant once in any 12-month period (with a minimum 3-month notice period) and there are no restrictions on the ability of a landlord to increase the rent between tenancies. Any tenant who receives a rent-increase notice has the right to refer the increase to a Rent Officer for a determination. In determining the rent on referral by a tenant, the rent officer must take account of the open market rent for a similar property in the local area (noting that this process is currently subject to temporary amendment during the transition out of the measures in the 2022 Act, as set out below).
The 2016 Act allows local authorities to make an application to Scottish Ministers requesting that all or part of the authority’s area be designated as a rent pressure zone (“RPZ”). Scottish Ministers can, where the evidence in the application demonstrates that the criteria laid out in the 2016 Act are met, designate all or part of a local authority area as an RPZ. In an RPZ, in-tenancy rent increases are limited in accordance with a formula specified in the Act, which is based on the level of CPI inflation plus a further allowance of at least one percentage point, although landlords are free to reset rents between tenancies.
A request by a local authority for all or part of its area to be designated as an RPZ is discretionary and to date no local authority has made an application.
Under the 2022 Act an emergency rent cap was applied to increases for sitting tenants. This cap, set first at 0% and subsequently at 3%,[34] applied to rent increase notices served between 6 September 2022 and 31 March 2024. Since 1 April 2024, as part of the transition away from the emergency legislation, the rent adjudication mechanism under the 2016 Act has been temporarily modified until 31 March 2025, so as to smooth the transition out of the rent cap and protect tenants from steep rent increases which could be experienced if there is a sudden move to open market rent from rent levels that have been supressed. If the market rent is 6% or less above the current rent, the landlord can increase the rent in line with market rent; if the gap is more than 6%, the rent can be increased in line with a formula up to a maximum level of 12% of the existing rent.[35]
As illustrated in Figure 4, when the level of household income is controlled for, on average private tenants spend a significantly higher proportion of their income on housing costs than do households in other tenures. Furthermore, Figure 6 shows that since 2010 private rents in Scotland have grown by more than inflation on average, and in particular have grown significantly faster than inflation in the Greater Glasgow and Lothian BRMAs. In 2021, the Scottish Government committed in the New Deal for Tenants Draft Strategy Consultation to introduce a national system of rent controls, with an appropriate mechanism to allow local authorities to introduce local measures.
Rent control policies are aimed at making rents more affordable and ensuring tenants are less likely to be ‘priced out’ of housing due to rent increases. The introduction of a national system of rent controls in the private sector through the measures included in the Bill will contribute towards achieving the Scottish Government’s overarching objective of improved outcomes for tenants. Rent control can help stabilise rents in areas where market rents have been increasing particularly steeply, whilst still ensuring there can be a balanced approach that provides appropriate protection for the property rights of landlords.
In choosing an appropriate rent control framework, it is important to draw on the international experience of rent controls. A review of this evidence is included in Annex B and some of the main lessons are summarised below.
There are a variety of rent control systems in place internationally. The main characteristics vary across systems and include rules relating to:
- the initial rent,
- rent increases,
- exceptions which either exempt or provide for differential application, and
- the degree of coverage across the private rented sector.
The literature shows that the impact of a rent control system is likely to be highly context dependent, influenced not only by the specific features of the design of each system, but also by local factors such as the overall regulatory context, cultural attitudes toward renting, the prominence of the PRS and the nature of the welfare system.
The main beneficiaries of rent controls are typically sitting tenants, who potentially benefit from lower and more stable rents than would otherwise have been the case. The literature also suggests that there are potential benefits for landlords in the form of longer tenancies and tenants being more incentivised to maintain their properties (leading to lower void and redecoration costs). However, possible unintended consequences have been identified, such as
- reduced incentives to invest in new supply,
- reduced incentives to invest in property maintenance,
- reduced labour mobility (particularly if rent controls operate differentially with respect to geography and/or type of tenancy covered), and
- spill-over impacts on neighbouring markets, or non-controlled segments of the market.
The balance of opinion (at least in the mainstream economic literature) is that early first-generation rent controls (defined as a long-term freeze on the nominal level of rents) could have significant adverse impacts on incentives to invest in new supply and the condition of existing property. Subsequent second- and third-generation rent controls have sought to mitigate unintended consequences of the early systems in a variety of ways, e.g. by capping rent increases rather than rent levels, and in ways that can be more responsive to market conditions; exempting certain types of property; providing allowances for property maintenance, etc. These features are intended to achieve an appropriate trade-off between the competing goals of stabilising rents and minimising any unintended consequences.
A key lesson from the literature is that, because the impacts of a rent control system on different groups depends on how the rent control system as a whole operates in its particular regulatory, financial and economic context, it is generally not possible to say that a given rent control system will work in all international contexts. Similarly, it is not possible to say that any particular element of a rent control system is beneficial in all contexts. Generally, each element will have costs and benefits for tenants and landlords, and choosing the optimal trade-off needs to consider how these costs and benefits vary in the light of other elements of the framework and the wider context.
As an example of such interactions, consider the issue of whether a rent cap applies between tenancies. For a given level of the rent cap, disapplying controls between tenancies might provide greater incentives to invest. However, this could lead to an emergence of a two-tier market between tenants who move and those who stay. Apart from the potential unfairness, this could also reduce labour mobility, with the size of this impact depending on the level of the rent cap and length of time rent controls are in force. Difficulties may also arise with respect to the ending of joint tenancies since, if a new lease comes into existence for remaining tenants when one joint tenant leaves, the remaining tenants may experience an above-cap increase although they have not moved.[36] Furthermore, as landlords may have an incentive to re-let the property so as to be exempted from the rent cap, existing tenants need to have strong security of tenure in order to fully benefit from the rent cap.
It may also be the case that a rent control system which applies both within and between tenancies may provide greater incentives for landlords to invest if other elements of the system include a higher level of the rent cap and/or the existence of exceptions from the rent cap for certain types of investment or properties, as compared with a rent control system which does not apply between tenancies but has a lower rent cap and no (or more restrictive) exceptions to the cap. The extent to which different elements of a rent cap system can be robustly enforced will also affect the trade-offs. These considerations underline the point that the impact of a rent control system needs to be considered in the round.
International experience from countries such as Germany, Ireland, France, Norway and Sweden shows that strong regulatory regimes are not incompatible with a sizeable PRS. As Whitehead and Williams[37] conclude:
“[international examples] make it clear that regulation is not inherently good for tenants and bad for landlords. By providing a clear framework it can be a win-win situation, at least for mainstream landlords and tenants alike. It can address market failures for both tenants and landlords, while reducing risks for both. It can give landlords more consistent rent rises and reduce financing costs and risks for landlords, while providing better security of tenants. However, achieving a better solution depends on the detail of each initiative as well as the institutional and market environment.”
Sectors and groups affected
The main sectors and groups who could be directly affected by the various options considered include:
- Tenants in the private rented sector
- Private rented sector landlords
- Letting agents
- Local Authorities
- Rent Service Scotland
- Scottish Courts and Tribunals Service Options
Option 1 – Do nothing
In this option, current legislation would remain the same, with local authorities able to make a voluntary application to Scottish Ministers to create an RPZ under the existing provisions in the 2016 Act. Tenants would also continue to have existing protections against rent increases which were above market rent.
The existing provisions require conditions in local areas to be taken into account when consideration is given by Scottish Ministers to whether rent controls may be necessary after receiving an application from a local authority. However, as there is no duty on local authorities to carry out regular assessment of rents within their area, they do not provide adequate consideration of rents in the context of the protection of tenants; indeed, the RPZ provisions in the 2016 Act have not yet been used by local authorities.
Accordingly, Scottish Ministers consider that if their overarching objective of improving outcomes (including affordability) for tenants is to be achieved, the voluntary approach taken in the RPZ provisions is insufficient.
Option 2 – Non-regulatory measures
Consideration has been given to the potential to optimise the operation of the existing powers under the 2016 Act that allow for the designation of RPZs. However, as the key features of the RPZ framework are set out in primary legislation, there is a limited amount that can be achieved through non-regulatory approaches such as the provision of additional guidance.
Legislative changes are required to address the key objective of protecting the social and economic interests of tenants across Scotland, in particular through making it mandatory for local authorities to assess the conditions in relation to rents in their area, and by extending controls to between-tenancy increases in order to protect those tenants who move from experiencing potentially steep increases in rental costs. Furthermore, legislation is required if local authorities are to have additional powers to collect tenancy information, since stakeholders have suggested that the difficulties local authorities may experience in collecting relevant information may play a part in the ability for local authorities to make an application to create an RPZ not being utilised. For these reasons, Scottish Ministers do not consider non-regulatory measures to be an appropriate option.
Benefits
Not applicable.
Costs
Not applicable.
Option 3 – Legislate (Preferred option)
The proposed measures in the Bill will create the framework to deliver a nationally consistent approach to the consideration of the need for rent control, whilst maintaining the link to local circumstances. The features of the framework, set out below, have been designed taking into account feedback from consultation, and also the lessons from international experience with rent controls.
Local authorities will take the lead in carrying out mandatory assessments in their areas, ensuring that local circumstances are taken into account to reflect the geographical variations that can exist in conditions relating to rents across Scotland (illustrated in Figure 6 and Figure 7). The outcome of these assessments will inform Scottish Ministers’ decisions on whether it is justified and proportionate to designate a rent control area (“RCA”) for the purpose of protecting the social and economic interests of tenants in those areas. The assessments will be carried out on a cyclical basis, to ensure there is ongoing consideration of the need for rent control.
As is typical with second- and third-generation rent control systems, where an RCA is introduced, the controls will apply to rent increases and not rent levels. The initial rent for properties new to the PRS will not be subject to controls, maintaining incentives to invest in new supply. Restrictions on rent increases will apply both within and between tenancies, providing protection to the majority of tenants with private residential tenancies, whether they move or not. This will also minimise any unintended consequences that can arise from a two-tier market, such as reduced labour mobility, incentives for landlords to end a tenancy, and remaining joint tenants no longer being protected when one joint tenant wishes to move.
It is essential that there is a balanced approach with safeguards for landlords, and the Bill creates a power that allows for Scottish Ministers to make provisions for a rent increase above the cap to be allowed for specified properties, based on the circumstances of the tenant, landlord or description of the property. Scottish Ministers also have a separate power to exempt certain categories of property from the requirements of rent control, again based on the circumstances of the landlord, tenant or description of the property. The details of any safeguards would be set out in secondary legislation and Scottish Ministers are required to consult on proposals to ensure transparency and allow those affected to have their views considered. Such exceptions provide flexibility within the framework to ensure that it can operate in a manner that takes into account the property rights of landlords.
The provisions in the Bill also strengthen the ability of local authorities to collect the necessary information to make a rent control assessment. In particular, they give local authorities a power to request information from a landlord for the purposes of assessing rent conditions in their area
Benefits
Tenants
The proposed rent control framework will support the introduction of rent control on a local basis where appropriate in order to protect the social and economic interests of tenants in those areas. As set out in the Background section, there are issues related to poverty, financial vulnerability, and affordability in the PRS, particularly for those on lower incomes. The aim of this legislation would be to help stabilise rents in areas where there has been a significant upward trajectory leading to rents becoming unaffordable for tenants. This will help to avoid the potential costs of rent unaffordability, including the impact on tenants’ health and wellbeing,[38] their ability to afford other essentials such as food and heat, and potentially their capacity to remain in accommodation without risk of homelessness.
International evidence summarised above and set out in more detail in Annex B demonstrates that well-designed and delivered rent controls have the potential to be beneficial for tenants, especially when coupled with other protections related to security of tenure. Evidence suggests that well-designed and delivered rent controls can have positive benefits for tenants and landlords by helping to address market failures for both groups, providing consistency and predictability on rent levels and a potential for reduction of financial costs and risks in relation to voids, while also helping tenants to achieve better security of tenure.
Private landlords
The literature on rent control suggests that there are potential benefits for landlords in the form of longer tenancies and tenants being more incentivised to maintain their properties (leading to lower void and redecoration costs).
Local authorities
Rent control stabilises housing costs for tenants, contributing to affordability and helping to sustaining tenancies, which may help prevent some tenants being evicted into homelessness and requiring support from the local authority.
Costs
Scottish Government
Collective costs for all rented sector reforms
While specific costs associated with implementation and operation have been included within the cost estimates for each individual measure, there are some costs to the Scottish Government which relate to the implementation of the package of measures as a whole. These collective costs are set out here.
One-off costs will include changes to the suite of online tools and information which the Scottish Government provides to support landlords and tenants to understand their rights and responsibilities, helping to ensure compliance with legislative requirements. Awareness-raising to ensure that landlords and tenants are aware of the implementation of the changes will also be essential. A range of costs for information and tools to support landlords and tenants has been estimated, from a minimal approach (essential updates to existing information, model documents and tools only) to a more robust approach, that would allow for the development of new tools.
| Collective Implementation costs | Cost Estimate |
|---|---|
| Information and tools to support landlords and tenants | £82,000 to £332,000 |
| Awareness-raising of new rights and responsibilities – tenants, landlords and letting agents | £300,000 |
| Total Costs | £382,000 to £632,000 |
The Scottish Government also anticipates working with stakeholders to develop a coordinated programme of monitoring and evaluation of all measures in the Bill. It is anticipated that this work could incur costs of around £400,000 over a period of up to eight years. More detail can be found in the section on Monitoring and evaluation.
Implementation of Rent Control Framework
One-off costs associated with implementing the rent control measures will include initial costs to set up the framework which will support the introduction of RCAs, such as the public consultation and administrative costs for the required secondary legislation. We have made allowance for a number of Scottish Statutory Instruments (“SSIs”) to reflect the potential for both the use of delegated powers that Scottish Ministers included in the Bill and for ancillary changes that may be required to existing legislation, as a result of the implementation of the rent control measures, as well as the staff required to deliver the implementation of rent control.[39]
| One-off implementation costs | Cost estimate |
|---|---|
| Public consultations | £50,000 |
| 3 SSIs (negative procedure) | £1,245 |
| 4 SSIs (affirmative procedure) | £2,460 |
| Staff costs | £214,923 |
| Total costs | £268, 628 |
Operation of Rent Control
Once the framework has been implemented, staff will move to support the ongoing operation of rent control. For the first year of operation, staffing costs are estimated as being in line with those for implementation (£214,923).
Costs for imposition of rent control areas
These include costs for consultation and secondary legislation needed to impose rent control, and for awareness-raising with landlords and tenants in RCAs. Given that whether an RCA is designated will depend on local conditions, there is uncertainty about the number of RCAs that will be designated. Three scenarios for the share of private residential tenancies which will fall within an RCA have therefore been developed: Low – 5%, Medium – 10% and High – 20%.[40]
In terms of awareness-raising we have included a uniform cost across all scenarios based on taking an overarching approach that encourages all tenants and landlords to check the status of their rented property as being the most effective approach. In estimating the cost of imposing RCAs we have included 1 year of staff costs in line with the costs for implementation (£214,923).
The intention is that RCAs will be designated for a fixed period (5 years) unless there is a change in circumstances that requires an earlier review. Re-designation of an area as an RCA after the expiry of the 5 year period, if demonstrated as being necessary through the cyclical assessment process, would be subject to imposition costs, although the awareness-raising costs would likely be reduced where rent control is being re-applied in an area where it has already been in place.
| Type of cost | Low | Medium | High |
|---|---|---|---|
| Consultation | £20,000 | £25,000 | £30,000 |
| SSIs (affirmative procedure) | £9,225 | £18,450 | £36,900 |
| Awareness-raising | £125,000 | £125,000 | £125,000 |
| Staffing | £214,923 | £214,923 | £214,923 |
| Total Costs | £369,148 | £383,373 | £406,823 |
Ongoing costs to the Scottish Government for rent control
The main ongoing costs for Scottish Government after RCAs are imposed will be staff costs. These costs are calculated at £105,118 per annum.
Rent Service Scotland
New routes of application
We anticipate two new routes of application to RSS under the measures. These routes will only be open to landlords and tenants of a let property which is in an area subject to rent control and let under a private residential tenancy (“PRT”). The first is a route for a tenant to apply to RSS for verification of whether a proposed rent increase is within the rent cap for the area where the let property is situated. The second relates to a power in the Bill which allows Scottish Ministers to modify by regulations how the rent control requirements apply by making provision for landlords of specified property to increase the rent by more than the rent cap. This route could involve individual landlords of specified properties seeking prior approval where they wish to increase the rent by more than the cap. As above, due to the significant uncertainty about the number of RCAs, we have set out a number of scenarios to illustrate potential costs.
One-off costs for RSS for setting up new application routes
We anticipate that RSS will incur one-off set up costs to support the verification and approval routes, including IT upgrades.
| Type of cost | Cost estimate |
|---|---|
| IT upgrades will be required to add additional functions to process new application types - estimated cost of all changes required to process new applications following the introduction of Rent Control | £50,000 |
| Initial set up cost to develop the verification application process (one-off cost based on the cost of 0.5 FTE B1 officer) | £20,000 |
| Initial set up cost to develop the basic process of evaluating landlord applications to raise rent above a rent cap (one-off cost based on the cost of 0.5 FTE B1 officer) | £20,000 |
| Total one-off costs | £90,000 |
Ongoing costs for RSS for data collection
The assessment process that local authorities will undertake will require to be supported by data. One option under consideration is additional rent officers to allow the RSS to collect more data on advertised rents so that representative rents can be published at a local authority area level and not just at BRMA level, as is currently the case. This information could potentially support the first stage of the RCA assessment. The cost has been estimated as £400,000 per annum.
Ongoing costs for RSS – application route for tenants to apply to RSS for verification
Under the 2016 Act, RSS can determine rent adjudication applications for tenants with PRTs. The intention is that, although tenants in an RCA will not be able to apply for rent adjudication whilst the rent controls are in force, they will instead be able to apply to RSS for verification of whether a proposed rent increase is within the rent cap for the area where the let property is situated. Landlords and tenants will also be able to request a review of the outcome of such a verification by a different rent officer.
In estimating the likely costs, we have considered data on rent adjudication cases under the 2016 Act, as well as rent verification cases under the 2022 Act. Under the 2022 Act the adjudication process was similarly suspended and replaced with a verification process, although this was in relation to a rent cap that applied universally across Scotland. Since RCAs will be designated at a local level, tenants may be more likely to apply for rent verification if they or their landlord are unclear or unaware as to whether the let property is in an RCA, when a rent increase is proposed.
Before the emergency rent controls came into force, the number of rent adjudication applications received by RSS had been increasing year-on-year. We would anticipate that this pattern would continue in future years, as the share of PRTs in the PRS increases and tenants with PRTs become more familiar with their rights.
Under the 2022 Act, following the raising of the rent cap to 3% as from 1 April 2023,[41] RSS had received 81 rent verification applications by 5 February 2024, which scales to an annual rate of 105. This is lower than the number of rent adjudication applications that would have been anticipated in 2023-24 if the 2022 Act had not come into force. This suggests that, in a future RCA, the number of verification applications will be lower than the number of adjudication applications would have been for that area in the absence of a cap. It is also possible that, depending on the processing requirements for verification cases, there may be a lower cost in relation to RSS staff time when compared to requirements for adjudication cases, for which the level of market rent must be determined.
As a result, there could be net savings to RSS when rent verification applications replace rent adjudication applications in an RCA. However, due to the uncertainties about the exact form of a future rent cap, and how many tenants might apply when rent controls apply at a local rather than national level, we have assumed that the impact on RSS will be broadly cost neutral.
Ongoing costs for RSS - applications for approval to apply a modified requirement (“safeguards”)
As set out above, Scottish Ministers could modify how the rent control requirements apply in specific circumstances. In particular, Ministers can set out circumstances where the landlord may increase the rent above the level of the cap by seeking approval through either a rent officer or the Tribunal. Such modifications, which for simplicity we term “safeguards”, will be set out in secondary legislation which will be subject to consultation and approval by Parliament. Accordingly, it is not possible to estimate costs on the basis of the specific form of the safeguards. We have, therefore, considered experience under previous legislation to provide indicative costs.
Again, in considering the likely costs of this for RSS, we have considered data from the operation of the 2022 Act on the provisions allowing a landlord to apply to a rent officer to increase rent above the permitted rate in relation to certain prescribed property costs they had incurred. Over the period from 1 March 2023 to 5 February 2024, 1,384 applications were received by RSS in relation to prescribed property costs, which equates to 1,631 at an annual rate.[42] This level of applications at the Scotland level (rounded to 1,600) serves as the basis for the scenarios presented below,
It is possible that the safeguards will cover different circumstances than those covered by prescribed property costs, which could give rise to greater or smaller numbers of applications than those made under the 2022 Act. A number of scenarios are therefore presented to show a range of costs for application rates. The medium scenario assumes that 1,600 applications would be received if all private tenancies were in an RCA, i.e. it is set at a level that is comparable to the number or prescribed property cost applications that were received under the 2022 Act, which applied across Scotland. The low scenario is set at half of this at 800, and the high scenario at double this at 3,200.
The number of applications will depend not only on the application rate, but also the share of PRTs that will be covered by rent control at any one time. Given that RCAs will be determined based on local conditions, there is significant uncertainty about this share, and we therefore provide estimates on the basis of three scenarios: Low – 5%, Medium – 10%, High – 20%.[43]
Multiplying the application rate at the Scotland level by the share of PRTs subject to rent control results in the following estimates of rent safeguard applications by landlords.
| Share of tenancies in RCA | Low application rate | Medium application rate | High application rate |
|---|---|---|---|
| 5% | 40 | 80 | 160 |
| 10% | 80 | 160 | 320 |
| 20% | 160 | 320 | 640 |
The caseload and costs relating to such safeguards will depend not only on the final design of the safeguards, but also on the application process – in particular, whether applications are made directly to RSS, potentially with a right of appeal to the Tribunal, or directly to the Tribunal. This may depend on the type of safeguard; for example, those that have limited discretion by the decision-maker could be dealt with by RSS, while those which require greater discretion may be required to go directly to the Tribunal.
Before regulations making provision for safeguards are laid in the Scottish Parliament, Scottish Ministers are required to consult with landlords, tenants and others they consider appropriate. More refined estimates of caseloads and costs will be developed as part of that overall process. For the purposes of the indicative cost estimates provided below, it is assumed that 90% of the safeguard applications in each scenario set out in Table 5 will be made to RSS in the first instance.
| Share of tenancies in RCA | Low application rate | Medium application rate | High application rate |
|---|---|---|---|
| 5% | 36 | 72 | 144 |
| 10% | 72 | 144 | 288 |
| 20% | 144 | 288 | 576 |
The cost to the RSS of hearing the caseload is calculated using a cost per case of £697, based on the current cost per case for rent adjudications by RSS.
| Share of tenancies in RCA | Low application rate | Medium application rate | High application rate |
|---|---|---|---|
| 5% | £25,092 | £50,184 | £100,368 |
| 10% | £50,184 | £100,368 | £200,736 |
| 20% | £100,368 | £200,736 | £401,472 |
First-tier Tribunal for Scotland (Housing and Property Chamber)
Implementation costs for the Tribunal for setting up new application routes
There will potentially be a cost to the Tribunal associated with the collective implementation of the PRS tenant protection measures, such as updates to existing case management systems and amendment of websites and forms, which are estimated at a £50,000 capital cost in total. Tribunal cost estimates are based on implementing multiple applications routes at same time; should this not be possible there may be some additional costs above current estimates.
There could also be costs associated with recruitment and induction training of new Tribunal Members and costs of equipment for new staff, depending on whether there is an increase in the total caseload as a result of all Bill provisions which impact the Tribunal. If there is such an increase, by way of providing an indication of the potential scale of costs, the Judicial Appointments Board for Scotland has estimated the costs of recruiting members as £50,000 to recruit 10 members and £75,000 to recruit 20 members. If new members are recruited there would be training costs which will vary depending on whether they relate to a legal or ordinary housing member. Based on the daily fee for each member type these costs are estimated at £1,073 for a legal member and £574 for an ordinary housing member for three days training. Equipment costs are approximately £1,500 per member.
All other costs for the Tribunal, which relate to the potential for an increase in case numbers, have been included in the cost estimates for each individual tenant protection measures.
Cost per application to the Tribunal
For all types of cases, other than those in relation to rent adjudication cases, that would go the Tribunal in relation to all tenant protection measures, the cost per application is estimated to be £1,093, which has been derived as set out in Table 8.
| Type of cost | £ | Basis of costing |
|---|---|---|
| Staff | 495 | Based on PRS staffing requirement of 46 FTE and 2022-23 caseload. Incorporates 2024-25 pay award. |
| Members Fees: Caseload related | 277 | Includes interlocutory/decision fees along with in-house convener time. Based on PRS 2022-23 actual. |
| Members Fees: Training | 6 | Based on 2022-23 training costs but may fluctuate depending on member recruitment |
| In-person Hearings: Venues | 3 | Based on 2023-24 forecast as activity starting to increase with return to in-person hearings |
| In-person Hearings: Security | 3 | Based on 2023-24 forecast as activity starting to increase with return to in-person hearings |
| Office Costs | 4 | Based on 2023-24 forecast as costs inflated in 2022-23 due to additional conferencing costs |
| Sheriff Officers | 61 | Based on 2022-23 actual |
| Registers of Scotland | 3 | Based on 2022-23 actual |
| Interpreters | 3 | Based on 2022-23 actual |
| Sub-Total | 855 | n/a |
| Corporate Overhead | 222 | Corporate overhead is calculated at 26% of running costs |
| Upper Tribunal | 16 | Based on 2024-25 estimated cost per Housing Property Chamber application |
| Total cost | 1,093 | n/a |
Applications for approval to apply a modified requirement (“safeguards”)
In estimating costs to the Tribunal from safeguard applications, we have taken the same approach as for the RSS. In particular, we have used the same total number of applications by landlords (whether to the RSS or Tribunal in the first instance) set out in Table 5 to develop the caseload estimates for the Tribunal.
Since we had assumed that 90% of landlord applications are heard by the RSS, the remaining 10% will be heard by the Tribunal in the first instance. We also assume that there will be a right to appeal a decision by a rent officer to the Tribunal. Around 10% of all rent adjudications decided by RSS since the PRT was introduced in December 2017 have been appealed to the Tribunal. We apply the same appeal rate for decisions by RSS under this new route. The table below shows the estimated total caseload for the Tribunal, i.e. the sum of the applications heard directly as well as appeals from rent officer decisions.
| Share of tenancies in RCA | Low application rate | Medium application rate | High application rate |
|---|---|---|---|
| 5% | 8 | 15 | 30 |
| 10% | 15 | 30 | 61 |
| 20% | 30 | 61 | 122 |
The number applications and appeals to the Tribunal is multiplied by the indicative cost per case of £1,093 (from Table 8) to obtain the following cost scenarios.
| Share of tenancies in RCA | Low application rate | Medium application rate | High application rate |
|---|---|---|---|
| 5% | £8,307 | £16,614 | £33,227 |
| 10% | £16,614 | £33,227 | £66,454 |
| 20% | £33,227 | £66,454 | £132,909 |
Applications related to first rent increase in the tenancy
A tenant would be able to apply to the Tribunal under this route if they considered that a rent increase proposed by their landlord would take effect less than twelve months after the most recent rent increase under the previous tenancy. A tenant would also be able to apply to the Tribunal under this route if they considered that the rent payable at the start of their tenancy (used as the base rent on which a rent increase under the rent cap was to be determined) had not been determined in accordance with rent control requirements. In both cases this route would only be available for the first rent increase notice issued after the tenancy starts and where that tenancy is of a property that is classed under the Bill as being previously let.
Both of these case types would only be applicable where a tenant considered that their landlord was proposing a rent increase which was not compliant with rent control legislation. We consider that cases where tenants applied to a rent officer under the amended procedure brought in by the 2022 Act for verification of whether a proposed rent increase was within the rent cap are comparable. There were 81 rent verification applications between 1 April 2023 and 13 December 2023, equivalent to an annual rate of 105 cases. However, the measures under the 2022 Act applied to all PRT tenancies and RCAs will be designated on a local basis. Furthermore, such cases only apply to the first rent increase notice received by a tenant after the start of the tenancy. In addition, the measures in the Bill require tenants to give their landlord the opportunity to resolve any issue with the rent-increase notice before an application can be made to the Tribunal and cases of genuine error could be resolved without Tribunal involvement.
Additional costs on the basis of these two provisions have therefore been estimated on the basis of the following three scenarios for each measure: Low – 2 applications, Medium – 4 applications, High – 6 applications, which are multiplied by the indicative cost per case of £1,093 (from Table 8).
| Low scenario | Medium scenario | High scenario |
|---|---|---|
| £4,372 | £8,744 | £13,176 |
Applications for payment order where landlord fails to provide information to local authority
The provisions in the Bill give local authorities a power to request information from a landlord for the purposes of assessing rent conditions in their area. In cases where a landlord fails to provide the information requested and does not have a reasonable excuse for failing to do so, a local authority may apply to the Tribunal for a payment order.
In the absence of comparable case types in Scotland, we have considered figures published by the Republic of Ireland’s Residential Tenancies Board (“RTBI”). The Republic of Ireland has 330,632 private rented households as of the 2022 population census, which is similar to the SHS 2022 estimate of 320,000 households and the 346,816 properties on the SLR register as at March 2024. RTBI figures for Alleged Improper Conducts for Investigations Approved in 2022[44] include 36 investigations into non-registration of tenancies, and 6 alleged failures to notify the RTBI of changes to a tenancy within a required period. As these are cases where a landlord is required to provide an authority with specified information relating to a tenancy, we consider these useful comparisons.
However, the requirements on landlords in the Republic of Ireland to provide information are arguably wider, as they generally apply to landlords across the PRS and not just in relation to rent control. The provisions in the Bill which would enable local authorities to require information from landlords are discretionary, and local authorities who use these powers may not consider it necessary to require information from every landlord within their local authority area, as any information gathered this way can only be used to support their assessment of rent conditions.
For these reasons, while we set our high scenario at 40 applications (approximately in line with the experience in Ireland), we set our medium scenario at 20 applications and also include a low scenario of 5 applications, which are multiplied by the indicative cost per case of £1,093 (from Table 8).
| Low scenario | Medium scenario | High scenario |
|---|---|---|
| £5,465 | £21,860 | £43,720 |
Application for payment order where landlord has failed to provide information
As well as the new application routes to the Tribunal set out in the Bill, we are proposing to modify the landlord’s duty to provide specified information under Section 11 of the 2016 Act using the regulation-making powers available to Ministers under Section 12 of the 2016 Act.
This expanded requirement would only apply to landlords of a tenancy in an RCA and would require landlords to provide tenants with details of the previous rent for the property and the date of the last rent increase. If the landlord does not provide the required information timeously, the tenant will be able to make an application to the Tribunal for a payment order under section 16 of the 2016 Act. We have considered whether this may lead to an increase in cases under Rule 107 of the Tribunal’s Rules of Procedure (‘application for payment order where landlord has failed to provide information’).
A tenant will be required to give their landlord notice before making any such application, and, given the low number of cases which have been heard by the Tribunal under this section since the 2016 Act came into force, it is considered that landlords will likely take this opportunity to provide the missing information in most cases. For this reason, we anticipate only a small number of extra applications to the Tribunal as a result of this new provision, comparable to the caseload under the existing provision in the 2016 Act. Figures provided by the Tribunal indicate that six applications were received under Rule 107 during 2022-2023. The additional caseload has therefore been estimated on the basis of the following scenarios: Low – 5, Medium – 10, High – 15. These are multiplied by an indicative cost per case of £1,093 (from Table 8).
| Low scenario | Medium scenario | High scenario |
|---|---|---|
| £5,465 | £10,930 | £16,395 |
Applications for civil proceedings in relation to a private residential tenancy
There may be cases where a tenant in an RCA fails to challenge a rent increase when it is proposed but wishes to do so later. For example, the tenant may not be aware at the time of a rent increase that it was higher than allowed or that the rent payable at the start of the tenancy (used as the base on which a subsequent rent increase was applied) was not in accordance with rent control requirements.
A tenant in these circumstances may be able to make an application to the Tribunal for civil proceedings in relation to a PRT, seeking to claim rent which was overpaid because it was not lawfully due in terms of the rent control requirements in place at the time. This may result in an increase in applications under Rule 111 of the Tribunal’s Rules of Procedure.
Any increase in cases under Rule 111 for such reasons would only apply to tenancies which are (or were) in an RCA. Where an RCA is designated there will be awareness-raising to ensure landlords and tenants understand how the requirements apply to their tenancy, with information and tools available to support landlords and tenants. As described above, there will be specific routes for tenants to challenge a rent increase notice that does not meet the requirements. It is therefore likely that potentially unlawful increases will be resolved at the time they are proposed. Furthermore, although a civil application could be made up to five years after an alleged overpayment, there may be complexities for a tenant in gathering evidence to demonstrate that they have historically overpaid rent.
For these reason, we expect that any increase is likely to be small relative to the total of 981 applications under Rule 111 received by the Tribunal in 2022-23.[45] Applications for damages for unlawful eviction under Rule 69 may give a useful idea of the likely scale.[46] From April to December 2023 the Tribunal received nine applications for unlawful eviction, equating to 12 at an annual rate.[47] Given the uncertainties, we have used a slightly higher rate for our low scenario, as well as medium scenario which is twice as high and a high scenario which is three times as high, yielding the following scenarios: Low – 15 applications, Medium – 30 applications, High – 45 applications. These are multiplied by an indicative cost per case of £1,093 (from Table 8).
| Low scenario | Medium scenario | High scenario |
|---|---|---|
| £16,395 | £32,790 | £49,185 |
Other existing case types
We consider that there may also be a general increase in other types of Tribunal cases resulting from the proposed rent control and PRS reform measures. These include a possible general increase in appeals of cases heard by the Tribunal, as well as other cases such as applications to enforce the letting agent code of practice.
As we consider that these case types may be impacted by many of the rented sector reforms, we have considered a possible range of caseload impacts which could result from all rented sector reforms together. Therefore, caseload estimates and costs for these case types are not included in this section, but are instead set out in Table 27 and Table 28 further below.
Total annual costs to the Tribunal from Rent Control measures
Across all case types considered in relation to rent control, we therefore estimate that the total annual cost (i.e. excluding set-up costs) in respect of rent control measures may fall within the following ranges.
| Low scenario | Medium scenario | High scenario |
|---|---|---|
| £40,004 | £107,551 | £255,385 |
Local authorities
Local authorities will incur costs for collecting and assessing data and evidence around rent conditions as part of the assessment process.[49] An assessment will have to be carried out on a five-year cyclical basis, although there is the potential for assessments outwith this cycle if there are relevant significant changes.[50]
We sought information from local authorities to support consideration of additional costs to meet the new duties as part of the rent control measures and indicative costs have been estimated based on the following stages.
Initial Screening Assessment (Stage 1): All local authorities will complete a screening exercise, including tasks such as a review of data supplied by Scottish Government, informal evidence gathering, reporting writing and internal presentations. It is estimated that this will take around 60 days over a 4-month period, regardless of the size of the authority, and cost around £21,500 (comprising entirely staff costs) for each local authority. The total cost for this element is, therefore, around £688,000, for the 32 local authorities.
Detailed Assessment (Stage 2): Where the outcome of Stage 1 indicates that further assessment is required for some or all parts of a local authority area, detailed work will be undertaken. This would include requesting information from landlords and collating, validating and analysing the data provided. There could also be administrative and governance costs for local authorities e.g. senior level oversight, approval through committee, etc., along with costs if applications were to be made to the Tribunal if a landlord does not comply with a request for information.
It is uncertain how many local authorities would undertake further detailed assessment into the rent conditions in their area, and following that, whether they would apply for all, part or several parts of their area to be designated an RCA. For illustrative purposes, we have based cost estimates on the work related to an "intermediate-sized hotspot”, assumed to include 3,000 PRS properties, as well as a “small-sized hotspot” with 1,000 and “large-sized hotspot” with 6,000 properties.
It is estimated that the total time taken for this work will be nine months, and the costs for the detailed assessment will be around £333,000 for an intermediate hotspot, and £188,000 and £552,000 for a small and large hotspot respectively. Thus, if a local authority undertakes both a Stage 1 assessment and a Stage 2 assessment for an intermediate hotspot, the total cost will be around £355,000.
The total number of properties subject to a detailed assessment could of course vary significantly, depending on the size and number of any hotspots identified in Stage 1. We therefore construct a number of a illustrative scenarios to estimate costs across Scotland. The low scenario is based on the assumption that 5 local authorities identify a hotspot, with one local authority identifying a small hotspot, 3 local authorities identifying an intermediate hotspot and one local authority identifying a large hotspot. The medium and high scenarios are 2 and 4 times these figures respectively. These scenarios are broadly comparable with the scenarios presented in other sections relating to the share of total private rented tenancies in Scotland covered by an RCA at any one time[51].
Table 16 presents cost estimates for the Initial Screening Assessment (stage 1) for all 32 local authorities and cost estimates for the Detailed Assessment (stage 2) for the number of local authorities included in each scenario. The costs are estimated on the basis of a local authority collecting data from all landlords within a given hotspot area as part of the detailed assessment. In practice, a local authority may choose to sample a proportion of landlords which would result in lower costs than estimated. As local authorities will be asked to undertake assessments every 5 years, these costs will be incurred on a cyclical basis.
| Costs | Low scenario: 5 local authorities (1 small, 3 intermediate & 1 large hotspot) | Medium scenario: 10 local authorities (2 small, 6 intermediate & 2 large hotspots) | High scenario: 20 local authorities (4 small, 12 intermediate & 4 large hotspots) |
|---|---|---|---|
| Stage 1 costs | £0.69m | £0.69m | £0.69m |
| Stage 2 costs | £1.74m | £3.48m | £6.95m |
| Total costs* | £2.43m | £4.16m | £7.64m |
*Totals may not sum due to rounding
The Bill provides that a local authority may request, from a person entered in the authority’s landlord register, specified information to support the exercise of its functions in relation to rent control. Where a local authority issues such a request for information to a landlord and that landlord fails to provide all of the information requested and does not have a reasonable excuse for failing to do so, then the local authority may apply to the Tribunal for an order requiring the landlord to pay the local authority an amount not exceeding £1,000. The Tribunal may make such an order if it considers that the landlord has still not provided the local authority with all of the information requested at the time the application was made and they are satisfied that the landlord does not have a reasonable excuse for failing to do so. In making a payment order, the Tribunal may, if it considers appropriate, also order the landlord to provide any information that was requested by the local authority but not already provided. Before making such an application to the Tribunal, the local authority must give the landlord 28 days’ notice of the intention to apply for an order. The local authority can only make the application when this period expires and they are satisfied that the landlord has not provided the information requested and, following a request for review by the landlord, is satisfied that the landlord does not have a reasonable excuse for not doing so.
Given that the information that local authorities may require landlords to provide is limited in nature and relates to details of let properties that most landlords will hold, meeting the requirements is not anticipated to represent a difficulty or give rise to a significant impact on landlords. The requirement for notification of the intent to apply to the Tribunal for an order also allows any landlord who has not complied with a request for information to do so or to ask the local authority to carry out a review, should they think the request or the intent to apply to the Tribunal is erroneous, for example if they did not receive the original request or have just sold the property and are no longer the landlord. Given the ease with which landlords can provide the information and the steps local authorities must take ahead of applying to the Tribunal for an order, it is anticipated that most landlords will comply with the requests for information.
Table 12 sets out three scenarios in relation to the number of new applications to the Tribunal for cases where a landlord has failed to provide information sought by local authority. These are estimated giving consideration to figures published by the RTBI, as we are not aware of any comparable case types in Scotland. Based on these scenarios, the potential revenue that could be generated by local authorities is in the range £5,000 to £40,000, which would be distributed across the number of local authorities that made a successful application. Whilst there is uncertainty in terms of the number of local authorities who would request information from landlords, Table 16 above includes a range of scenarios for the number of local authorities that could take forward detailed assessments where they are likely to request information. These scenarios show the number of local authorities to be in the range of 5 to 20 and, as such, it is likely that any new revenue for individual local authorities as a result of applications to the Tribunal for an order on the grounds that a landlord has not provided information would be insignificant.
The Bill also provides that, where a local authority issues a request for information to a landlord and the landlord provided information in response which the local authority considers must have been known by the landlord to be false in a material way, then the local authority may apply to the Tribunal for an order requiring the landlord to pay the local authority an amount not exceeding £1,000. Before making such an application to the Tribunal, the local authority must give the landlord 28 days’ notice of the intention to apply for an order and can only make the application when this period expires. A landlord who receives a notice of intent to apply for an order can ask the local authority to carry out a review and the local authority can only proceed to make an application to the Tribunal if, after this review, it is satisfied that the landlord provided information in response to its request which the landlord must have known to be false in a material way.
It is not possible to estimate how many cases where a landlord knowingly provides false information are likely to occur but in the above section on Applications for payment order where landlord fails to provide information to local authority consideration was given to information from the RTBI. The low number of cases of Alleged Improper Conducts for Investigations Approved in 2022 by the RTBI, in relation to what are arguably far wider requirements, indicates that cases where a landlord will knowingly provide false information will be rare and that the measures are unlikely to generate new revenue for local authorities.
Private sector landlords
Private sector landlords who are in an area designated for rent control will be restricted in terms of how much they can increase the rent for a let property whilst the rent cap is in place. The form and level of rent cap would be a key factor in determining whether an individual landlord is affected and, if so, the extent of the effect. The Bill includes a duty to consult with stakeholders (including landlord and tenant representatives) before a final decision is made on whether rent controls should be imposed, including on the level of the rent cap that would apply, and the cap would only be in place for a specified time.
Costs for familiarisation with new requirements
Landlords (or letting agents acting on their behalf) may incur costs as they take time to understand and familiarise themselves with the new legislation. To assist landlords and tenants understand the new requirements the Scottish Government will provide information, guidance and tools to support implementation.
We include a one-off familiarisation cost when the rent control legislation first comes into effect, but since staff training on business-critical matters would usually form part of routine staff training, we assume that subsequent training for new staff, or refresher training for existing staff, would fall within business-as-usual ongoing costs. Allowing two hours of familiarisation time for each landlord, and an hourly cost of £25 [52], gives a cost per landlord of £50.
Taking account of the three scenarios developed to reflect the share of tenancies that could be covered by rent control, we have estimated the potential overall one-off costs for familiarisation with the measures, where it is assumed that a cost of £50 is incurred in respect of each private rented property in an RCA.
| Low scenario: 5% of tenancies in RCA | Medium scenario: 10% of tenancies in RCA | High scenario: 20% of tenancies in RCA |
|---|---|---|
| £895,000 | £1,790,000 | £3,580,000 |
In practice, this total cost is likely to be an overestimate since landlords only need to become familiar with the legislation once if they own more than one property in an RCA, or, where landlords use letting agents, the letting agent only has to become familiar with the legislation once on behalf of all their clients. Letting agents can recoup the costs of familiarisation through the usual process of setting fees for landlords, so we assume that familiarisation is cost neutral for letting agents.
Providing information to local authorities
As part of the assessment process, local authorities will be able to request data related to the tenancy and the let property from landlords. The requested information could include the type of property, the amount of rent charged, the date of the last increase, the number of bedrooms, and the type of rented property. This request for information, for most landlords, will not represent a significant additional cost as they will only be asked for information that they already hold, with minimal need for work to comply with the request. However, the individual requirement will vary between landlords, dependant on the number of properties they own where the local authority requests information.
Table 18 estimates the total cost for providing such information, using the scenarios developed above for the potential number of local authorities that may take forward further detailed assessment.
| Low scenario: 5 LAs, 16,000 properties | Medium scenario: 10 LAs, 32,000 properties | High scenario: 20 LAs, 64,000 properties |
|---|---|---|
| £200,000 | £400,000 | £800,000 |
In practice, local authorities may not request information for every property included within an area where further detailed assessment is being carried out, which would result in lower costs for landlords.
Applications for approval to apply a modified requirement (“safeguards”)
The Bill includes powers to create safeguards to take into account the interests of landlords, through exemptions from rent control restrictions or relaxations where rent increases above the level of the rent cap could be permitted in certain circumstances with or without approval. These safeguards would be created via secondary legislation, which would be subject to consultation. The potential costs to landlords associated with the safeguards are not an integral part of the rent control system and will depend on the circumstances in which the exemptions or relaxations apply and whether landlords seek to utilise these routes. Given the proposed approach, based on local circumstances, landlords may find that only some of their properties are in an RCA or covered under the terms of the exception or relaxation.
Feedback through the landlord and tenant engagement questionnaire[53] found that private landlords expressed high levels of support for both improvements to the quality of the property and to the energy efficiency of the property as circumstances where an exception or relaxation could be considered.
To estimate costs to landlords of utilising potential safeguards, we have looked at the process costs for a landlord to prepare for an eviction application. Based on a cost of £25 per hour[54] and an average preparation time of 2 hours, this could result in a cost of £50 per application.
The level of rent control safeguard applications will depend on the nature of the safeguards and how many tenancies are covered by rent control at any time. We therefore combine scenarios relating to the equivalent application rate at the Scotland level with scenarios relating to the share of tenancies covered by rent control to derive estimates of potential numbers of rent safeguard applications by landlords and present a range of costs on that basis. Further details on this approach to estimating the potential number of applications are provided in the section on costs to the RSS from safeguard applications.
| Share of tenancies in RCA | Low application rate | Medium application rate | High application rate |
|---|---|---|---|
| 5% | £2,000 | £4,000 | £8,000 |
| 10% | £4,000 | £8,000 | £16,000 |
| 20% | £8,000 | £16,000 | £32,000 |
Foregone Rent
If a landlord owns a property within an RCA that is rented out under a PRT, their ability to raise the rent will be limited to the level of the cap set for the RCA. The difference between this capped rent and what the market rent for that area would have been represents a loss to the landlord in the form of foregone rent, but also represents a benefit to the tenant. The total amount of foregone rent across the whole PRS would depend on a variety of factors, including the number of RCAs established and their locations, the level at which the rent cap is set, the length of the RCA designation, trends in market rents and any changes in landlord behaviour in response to the rent cap.
Given that RCAs will be designated on a local basis, it will be possible to take into account relevant local circumstances when setting the cap as part of the designation process. RCAs would be designated for a maximum of five years, with any extension beyond this period being on the basis of a further assessment, consultation and secondary legislation.
Since the potential amount of foregone rent depends on a wide range of factors, it is not possible to set out an estimate of the overall level of the foregone rent, since that would pre-empt future decision-making based on local circumstances and the information that is relevant at that point. However, it is possible to use historical data to provide indicative scenarios which illustrate the potential foregone rent to a landlord under different levels of a rent cap in different parts of Scotland.
Scottish Government private rent statistics are currently published at the level of BRMAs, so we use this data as the basis for our scenarios. However, it should be noted that RCAs will be set at a local-authority or sub-local-authority level (procedures for collecting rent data at that level are set out above). The purpose of rent control is to respond to local pressures, and the maximum length of time that an area can be designated for is five years, before conditions must be reassessed. For each BRMA, therefore, over the period for which data is available (2010 to 2023), the five-year period in which rental growth for an average (mean) two-bed private rented properties (the most common property size) was the highest in that particular BRMA is used. It should be noted that the Scottish Government private rent statistics on which the estimates are based are drawn largely from new-let rents. Table 20 sets out which 5-year growth period was the highest for each BRMA, and data for this period is used for foregone rent estimates in Table 21 and Table 22. There could though have been other periods where market rental growth was above some of the rent cap scenarios presented.
| BRMA | Period | Average annual rent growth |
|---|---|---|
| Aberdeen & Shire | 2011 - 2015 | 6.3% |
| Argyll & Bute | 2019 - 2023 | 6.2% |
| Ayrshires | 2019 - 2023 | 2.8% |
| Dumfries & Galloway | 2015 - 2019 | 1.5% |
| Dundee & Angus | 2019 - 2023 | 5.8% |
| East Dunbartonshire | 2019 - 2023 | 5.6% |
| Fife | 2019 - 2023 | 5.0% |
| Forth Valley | 2019 - 2023 | 4.9% |
| Greater Glasgow | 2019 - 2023 | 6.7% |
| Highland & Islands | 2019 - 2023 | 2.6% |
| Lothian | 2014 - 2018 | 5.4% |
| North Lanarkshire | 2019 - 2023 | 5.0% |
| Perth and Kinross | 2019 - 2023 | 3.2% |
| Renfrewshire / Inverclyde | 2019 - 2023 | 4.7% |
| Scottish Borders | 2019 - 2023 | 4.1% |
| South Lanarkshire | 2019 - 2023 | 5.0% |
| West Dunbartonshire | 2019 - 2023 | 6.3% |
| West Lothian | 2015 - 2019 | 3.0% |
Table 21 sets out the average monthly rent foregone while Table 22 expresses this as a share of average monthly rent to help give a sense of scale. Annex C provides a detailed worked example of the underlying calculations. As set out above, the examples relate to the average two-bedroom private rent in each BRMA: to the extent that rental growth trends in a sub-segment of the two-bedroom market in that particular BRMA differed from the average growth rate, the impacts would have been different.
Since the examples are drawn from different time periods, foregone rent is inflated using CPI so that all monetary are figures are shown in 2023 prices. Because the rent cap will be set as part of the local designation process, the level of the cap shown in these illustrative estimates should not be seen as an indication of future decisions in relation to the location of RCAs or the level of any cap which could be set. For this reason, a wide range of example rent caps is presented.
| BRMA | 2% cap | 4% cap | 6% cap | 8% cap | 10% cap |
|---|---|---|---|---|---|
| Aberdeen & Shire | £146 | £91 | £59 | £37 | £26 |
| Argyll & Bute | £44 | £20 | £15 | £13 | £10 |
| Ayrshires | £16 | £10 | £6 | £3 | £1 |
| Dumfries & Galloway | £1 | £0 | £0 | £0 | £0 |
| Dundee & Angus | £40 | £25 | £17 | £9 | £7 |
| East Dunbartonshire | £54 | £31 | £21 | £12 | £8 |
| Fife | £45 | £13 | £2 | £0 | £0 |
| Forth Valley | £42 | £20 | £9 | £1 | £0 |
| Greater Glasgow | £42 | £32 | £25 | £19 | £16 |
| Highland & Islands | £11 | £1 | £0 | £0 | £0 |
| Lothian | £103 | £43 | £9 | £0 | £0 |
| North Lanarkshire | £32 | £17 | £11 | £4 | £1 |
| Perth and Kinross | £16 | £4 | £0 | £0 | £0 |
| Renfrewshire / Inverclyde | £24 | £18 | £12 | £10 | £7 |
| Scottish Borders | £17 | £8 | £6 | £4 | £2 |
| South Lanarkshire | £33 | £22 | £15 | £8 | £0 |
| West Dunbartonshire | £49 | £36 | £22 | £12 | £8 |
| West Lothian | £24 | £0 | £0 | £0 | £0 |
| BRMA | 2% cap | 4% cap | 6% cap | 8% cap | 10% cap |
|---|---|---|---|---|---|
| Aberdeen & Shire | 13.7% | 8.5% | 5.6% | 3.5% | 2.4% |
| Argyll & Bute | 6.3% | 2.9% | 2.2% | 1.8% | 1.5% |
| Ayrshires | 2.9% | 1.7% | 1.0% | 0.5% | 0.1% |
| Dumfries & Galloway | 0.2% | 0.0% | 0.0% | 0.0% | 0.0% |
| Dundee & Angus | 5.6% | 3.4% | 2.4% | 1.3% | 0.9% |
| East Dunbartonshire | 6.3% | 3.6% | 2.5% | 1.4% | 0.9% |
| Fife | 6.4% | 1.9% | 0.3% | 0.0% | 0.0% |
| Forth Valley | 5.6% | 2.7% | 1.2% | 0.1% | 0.0% |
| Greater Glasgow | 5.8% | 4.4% | 3.3% | 2.5% | 2.2% |
| Highland & Islands | 1.5% | 0.2% | 0.0% | 0.0% | 0.0% |
| Lothian | 9.4% | 3.9% | 0.9% | 0.0% | 0.0% |
| North Lanarkshire | 5.2% | 2.9% | 1.8% | 0.7% | 0.2% |
| Perth & Kinross | 2.3% | 0.6% | 0.0% | 0.0% | 0.0% |
| Renfrewshire / Inverclyde | 3.9% | 2.8% | 1.9% | 1.5% | 1.2% |
| Scottish Borders | 2.9% | 1.3% | 1.0% | 0.6% | 0.3% |
| South Lanarkshire | 5.0% | 3.3% | 2.2% | 1.1% | 0.1% |
| West Dunbartonshire | 7.7% | 5.6% | 3.5% | 1.8% | 1.3% |
| West Lothian | 3.1% | 0.0% | 0.0% | 0.0% | 0.0% |
Other potential areas of cost impact
Some stakeholders have expressed concerns that longer-term rent controls could reduce the incentives for new or existing landlords to invest in rented property, both in new supply as well as in the quality of existing properties, which would have negative impacts on tenants as well as on investors and existing landlords. Furthermore, one of the lessons from the international literature on rent controls[55] is that controls must be designed carefully in order to minimise perverse incentives within the system which can lead to unintended consequences, which in addition to any impacts on incentives to invest in new supply and property quality, include other impacts such as a loss of mobility for tenants and higher rents in areas not covered by control.
In order to mitigate any unintended impacts, there is a significant degree of flexibility built into the proposed rent control framework. Assessments will take place at a local level, which will allow local conditions to be taken into account when deciding whether an RCA should be designated, and if so, at what level the rent cap should be set. RCAs will expire after a maximum of five years and a new assessment will have to be undertaken before the area can be redesignated as an RCA, and during the period of an RCA designation Ministers will have a duty to keep the designation under review – these provisions will help ensure that an RCA will only remain in place where it is justified and appropriate.
Rent controls will not apply to the initial rent on a new build property or to a property which is “new to the market” in terms of being an existing property which has not been let in the previous 12 months or was purchased with vacant possession. This will allow the initial rent to be set at a level which helps maintain incentives to invest in new supply. The Bill also includes provision for various safeguards. Scottish Ministers will have the power to make provisions for a rent increase above the cap to be allowed for specified properties, based on the circumstances of the tenant, landlord or description of the property. Ministers will also have a separate power to exempt certain categories of property from the requirements of rent control, again based on the circumstances of the landlord, tenant or description of the property. 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.
The Bill includes a duty to consult with stakeholders (including landlord and tenant representatives) before a final decision is made on whether an RCA should be designated in any area, as well as on the level of the rent cap that would apply. Similarly, the details of any of the safeguards described above would be required to be consulted on as part of the process of setting them out in secondary legislation.
With respect to the issue of reduced tenant mobility, the rent control framework set out in the Bill includes a cap on increases between tenancies as well as within tenancies. This will help prevent the emergence of a two-tiered market where there is a sizable difference between rents for existing tenancies and those set at the beginning of a new tenancy, which could lead to tenants staying in a let longer than they otherwise would (e.g. if they would have moved for job opportunity), reducing labour mobility. A model of rent control such as that brought in by the emergency 2022 Act, which only applied controls to rent increases during tenancies, is also considered less able to meet the policy intention behind the proposals for longer-term rent controls, which is the stabilisation of the level of rents within an area where a need for rent control has been identified. Applying rent controls both between and within tenancies would help to protect tenants regardless of whether they move. It would also provide protection for joint tenants who remain in a property where one joint tenant leaves, because the change in joint tenants results in a new tenancy.
It is acknowledged that some stakeholders have expressed concern about a rent control framework that applies both between and within tenancies, in particular its impact on the incentives to invest. However, as set out above,[56] one of the lessons from the international evidence is that impact of any one element of a rent control framework depends on the overall rent control framework. Thus, the impact of rent controls applying between tenancies needs to be considered in the light of other features of the proposed approach, such as the level of the rent cap, the period for which rent controls will apply, and the various safeguards that are available.
It is also acknowledged that uncertainty around whether and where rent controls may be applied in future, and the form which controls could take in any given area, may have an impact on landlord and investor behaviour. In particular, we have received feedback from stakeholders that the introduction of the emergency rent cap under the 2022 Act, as well as the uncertainty about the exact form of rent controls, has had negative impact on investor confidence which has led to BTR projects being placed on hold.
However, there is a trade-off between the flexibility provided by the proposals in the Bill for the rent control framework to respond to conditions which might vary significantly by geography and over time, and the ability to give landlords and investors as much certainty as possible prior to the designation of any specific RCA.
Contact
Email: housing.legislation@gov.scot
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