Housing (Scotland) Bill: consultation

Chapter 1: properties exempt from rent control area restrictions

The key purpose of rent control is to stabilise housing costs for tenants in areas where rents have been increasing particularly steeply, helping to make rents more affordable and ensuring that people are not priced out of housing due to rent increases. Alongside this, it is also crucial to balance the property rights of landlords and to recognise the important role that the supply of new rented housing plays in ensuring that rents are affordable. We are keen to build a system of rent control that offers these vital protections to tenants and also values investment in delivering new homes specifically for the rented market.

Part 1 of the Bill will create powers for the introduction of a system to deliver longer-term rent controls for private residential tenancies in the Private Rented Sector (“PRS”). The specific policies in this part of the Bill are:

• Chapter 1 – designation of rent control areas
• Chapter 2 – rent control areas: changes to the Private Housing (Tenancies) (Scotland) Act 2016 (“the 2016 Act”)
• Chapter 3 – other restrictions on rent increases

Following publication of the Bill, Ministers and officials have continued to engage with stakeholders across the private rented sector including representatives from both tenant and landlord sectors.

This has included the Rent Control and Private Rented Sector Reform Measures Stakeholder Group^[7] and a local authority working group. In addition, the Minister for Housing, Paul McLennan MSP, has chaired the Housing Investment Taskforce^[8] to identify actions that will unlock both existing and new commitments to investment in housing by bringing together key interests of investors and investees.

In order to ensure this continued flow of investment into our housing stock in Scotland, we are considering, through this consultation, some specific types of property which could be exempted from rent controls, where a rent control area is in force.

This part of the consultation relates to the provision in the Bill which would confer a power on the Scottish Ministers to make provision for a property to be an exempt property. We are also asking questions about how a landlord should confirm that they are exempt, how a tenant would verify that and whether a landlord should be required to communicate to a tenant that the property is exempt to inform our considerations on how changes might be made to the power during the passage of the Bill.

Properties let below market rent - mid-market rent properties

The Scottish Government recognises the important role housing providers play in offering properties at Mid-Market Rent (MMR). We want to see continued investment in this type of housing provision to grow the supply of good quality affordable rented property that offers choices for tenants.

MMR homes are aimed at assisting people on low to moderate incomes to access affordable rented accommodation and helps those who have difficulty accessing social rented housing, buying their own home or renting privately on the open market. Tenants generally pay a lower rate than renting privately, but more than for local social housing.

Although there is no clear definition of MMR, when referring to MMR, generally this means Scottish Government financially supported MMR (e.g. by grant or loan guarantee).

Where MMR is delivered with Scottish Government support, providers accept grant/contractual conditions that the starting rent level for each home (including any service charge) should generally be no more than the relevant Local Housing Allowance rate^[9]/30th percentile market rents for the property size in question. Rents must not at any time exceed the mid-point of market rent levels for the property sizes in question in the relevant Broad Rental Market Area (as assessed by the Scottish Government). Alternatively, where agreed in writing, rents must not exceed the mid-point of market rent levels for the property size in question in a particular local market area, where this is demonstrated and accepted as being materially different from the relevant Broad Rental Market Area.

Since the introduction of the 2016 Act, most MMR properties are let on Private Residential Tenancies (PRT), which is the same tenancy type as most other forms of private rented housing. This means that the rent control measures in the bill would be applicable to those MMR properties.

For MMR homes delivered using Scottish Government support and which count towards the Scottish Government’s affordable homes target, there are already restrictions on the tenants the properties can be let to, and the rent that can be charged. Stakeholders have raised concerns that the potential for imposing further restrictions on rent levels where a rent control area is in force could be harmful to investment in this sector, and the growth of this type of housing delivery. We are therefore seeking views on whether it would be appropriate to exempt this type of property from rent controls in order to maintain and expand the supply of this type of affordable housing provision.

In this section, we ask you to consider that:

• Mid-Market Rent (MMR) properties could be exempted from the application of rent controls under the Bill
• a definition for MMR could incorporate some or all of the following criteria:
  • properties provided at mid-market levels, which have binding restrictions on rent levels
  • including those provided by:
    • subsidiaries of registered social landlords
    • local authority arms-length external organisations
    • other organisations in receipt of Scottish Government financial support to deliver MMR
• these exemptions could be applicable whilst the properties meet the specified criteria

Consultation Questions

1. Should mid-market rent properties be exempted from the application of rent controls under the Bill?

Yes/No

Please explain your answer.

2. We have set out some possible criteria which could be incorporated into a definition of MMR for the purpose of a possible exemption. Do you agree with these criteria?

Yes/No

Please explain your answer.

3. If there is an exemption for mid-market rent properties, should this include specific requirements on the level of rent charged, such as a link to Local Housing Allowance rates or to a specified percentile of market rates?

Yes/No

Please explain your answer.

4. Should MMR properties only be exempted from rent control areas for the duration of time that they meet the specified criteria?

Yes/No

Please explain your answer.

5. Are there any other types of housing provision which should also be considered as part of an exemption for MMR property?

In this question we ask you to consider only housing provision let below market rents, with binding restrictions on the level of rent that can be charged, or with restrictions on the types of tenants than can be granted a tenancy.

Purpose-built rental housing - build to rent

Buld to Rent (BtR) is a type of housing that offers purpose-built accommodation for rent. It can provide bespoke rented housing developments at scale. Our engagement with stakeholders representing investors in housing has shown that encouraging investment in this sector has the potential to have significant positive impact on the supply of rented housing in the places we need - both in urban Scotland and in our rural and island communities.

BtR can often quickly deliver substantial numbers of new rental homes into the housing market which boosts supply and can help to mitigate rental pressures. It is generally defined in the sector as purpose-built new build housing (apartments and/or houses) on a single site (or related sites) in single ownership that is offered exclusively for rent, with management and services provided by a single legal entity via a management regime and a site wide building insurance structure.

Our engagement has suggested that BtR providers tend to be long-term focussed, often pension fund sponsored corporate landlords with a “for-rent only” strategy, which could guarantee both long-term supply of BtR properties as well as the absence of a risk of terminations for personal use.

As BtR is not currently legally defined or categorised under planning legislation, there are no official statistics on the size of this sector. However, there are some private estimates that indicate that this is a small but potentially growing sector. Figures published by the British Property Federation^[10] estimated that by Quarter 4 of 2024 there were around 3,845 operational units in Scotland, with 1,208 under construction and 11,559 at the planning stage.

Although we recognise that there could be significant benefits to providing for an exemption for BtR properties to support the provision of new build rental property, thereby increasing the overall housing stock, we also recognise that groups representing tenants may have concerns should this type of housing provision not be included in restrictions on rent increases. Therefore, as part of our considerations we are seeking views on whether it would be appropriate to exempt BtR properties from rent control to support the provision of new build rental property and the impact that this may have on the sector.

We are seeking views as to whether these exemptions should apply to new properties built at scale that is offered exclusively for rent or properties that are newly converted from non-residential use which are rented out by a single landlord on a single site (or related sites), and whilst these properties continue to be rented on this basis.

Given that the intention of an exemption for BtR is to ensure the continued supply of new purpose built rental property, we are considering whether such an exemption should apply to any property that meets the criteria to be classed as BtR, regardless of when it was constructed, and whether the exemption should apply indefinitely.

In this section, we ask you to consider that:

• purpose-built private rented accommodation (build to rent) could be exempted from the application of rent controls under the Bill
• Build to Rent (BtR) could be defined to incorporate some of the following criteria:
  • new homes built at scale and offered exclusively for rent (apartments and/or houses)
  • new homes provided at scale through conversion of non-residential properties
  • on a single site or related sites
  • in single ownership
  • with management services provided by a single legal entity via a management regime and a single site wide building insurance structure
• exemptions for BtR properties could end when the properties no longer meet these specified criteria

Consultation questions

6. Should build to rent properties be exempted from the application of rent controls under the Bill?

Yes/No

Please explain your answer.

7. We have set out some criteria which could be incorporated into a definition of BtR for the purpose of a possible exemption. Do you agree with these criteria?

Yes/No

Please explain your answer.

8. Are there any other criteria that should be considered as part of a definition of BtR for the purpose of a possible exemption?

9. Should BtR properties only be exempted from rent controls for the timeframe that they meet the specified criteria?

Yes/No

Please explain your answer.

10. Are there any other types of new rental housing provision which should be considered as part of this category of exemption?

Other circumstances where exemptions would be appropriate

The powers set out in section 13 of the bill, as introduced, allow Scottish Ministers to define what is an exempt property with reference to the landlord or tenant of the property, or the type of property. Consideration may, for example, be given to exempting a particular type of property or, a property in particular circumstances, where it might be disproportionate to impose the rent control restrictions that would otherwise apply.

We have set out two areas where powers to exempt certain types of properties from rent controls could be used to ensure the continued flow of investment into new build rented housing stock in Scotland by exempting mid-market rent and build to rent properties from rent controls. However, we recognise that there are a wide variety of different types of property in the private rented sector in Scotland, which could be impacted by rent controls in different ways. Therefore, we are also seeking views on any other types of property that should be considered for exemption from rent control where a rent control area is in force.

In this section, we ask you to consider:

Any other category of property you think should be exempted from rent controls.

Consultation questions

11. Excluding mid-market rent and build to rent/purpose built private rented accommodation, are there other categories of housing provision that should be exempted from rent controls?

Yes/No

Please explain your answer.

Demonstrating eligibility for an exemption

To ensure that tenants can exercise their rights, there is a need for them to have information. The Bill sets out requirements for information that prospective landlords in rent control areas must provide to tenants.

The Bill also includes routes for tenants to verify whether a proposed rent increase is above the level of the rent cap or to apply for a determination of whether the rent set at the start of a new tenancy was set in accordance with the statutory requirements. However, should a certain category of property in a rent control area be exempt from rent control (for example mid-market rent or build to rent properties), these requirements would not apply.

In this section, we ask you to consider:

• what information landlords could use to determine that their property is eligible for an exemption and the steps they can take to verify this
• what information could be provided to a tenant relating to any relevant exemptions

Consultation questions

12. What information would you consider would be acceptable to demonstrate that a property is eligible for the types of exemptions referred to in the previous sections in this chapter? (Properties let below market rent, Purpose-built rental housing, other circumstances where exemptions would be appropriate).

13. What steps should a landlord need to take to confirm that their property is eligible for such an exemption?

14. Should a landlord of an exempt property be required to communicate to tenants and prospective tenants about the exemption?

Yes/No

Please explain your answer.

15. What could the process be for tenants to verify that a property is exempt?