The Private Housing Rent Control (Exempt Property) (Scotland) Regulations 2026 - business and regulatory impact assessment

Section 3: Costs, impacts and benefits

Quantified costs to businesses

Option 1 – take no action to set out exemptions from rent control.

If no action is taken, the rent control measures in the Act will be brought into force with no exemptions from the rent cap, and the rent cap will be applied to all qualifying tenancies in a rent control area.

Foregone Rent

BtR Providers

If BtR providers have built their properties, and then rent controls are subsequently introduced in the future, they could receive lower rental income than would otherwise be the case. A comprehensive dataset on BtR rents was not readily available to estimate potential foregone rent. Therefore, in Annex A, estimates of foregone rent are presented drawing on rental data for the private rented sector as a whole. These estimates follow the same methodology as used in the Financial Memorandum to the Housing Bill and the Rented Sector Reform BRIA, but have been updated to reflect the final form of the rent cap which was determined during the legislative process (CPI+1% point up to 6%) as well as more recent rental data. These foregone rents represent a corresponding benefit to tenants.

However, as set out previously in the sections on ‘Background, aims and options’ and ‘Purpose / aim of action and desired effect’, the uncertainty about the potential for foregone rent is likely to deter investment in the BtR sector. For this reason, it is likely to be the case that at least a significant portion of BtR developments will not take place if no action is taken to set out exemptions. In such a situation, the cost to BtR developers and investors is therefore not foregone rental income, but rather the potential profits from such developments (less the profits from the next best alternative for using those funds). For tenants, the costs are that fewer new BtR units are available, with a corresponding reduction in options of this type of accommodation to choose from. The smaller supply of PRS properties is also likely to push up rents on existing units relative to what they would otherwise have been.

MMR Providers

As for BtR providers, there is not a readily accessible dataset on rental trends for MMR rents. Therefore, as for BtR, the estimates for potential foregone rent set out in Annex A for the market as a whole can help to illustrate the potential impact on MMR providers. However, even for those MMR developments which go ahead, the estimates of foregone rent set out in Table 1 are likely to overstate the foregone rent because MMR providers will be subject to restrictions on the permitted level of rents. Furthermore, MMR providers might choose not to go ahead with developments. The cost to MMR providers will also include the loss of an opportunity to meet their goals of providing support to tenants on low to moderate incomes.

Other potential direct impacts

As set out in the section on ‘Purpose / aim of action and desired effect’, engagement with investors has suggested that, whilst setting out an inflation-linked rent cap in the primary legislation may go some way to mitigating investor concerns, predictable rents over the long term are necessary to ensure that BtR developments are financially viable, given the upfront costs in building new properties.

Option 2 – bring forward regulations to set out exemptions from rent control measures for MMR and BtR properties

It is anticipated that exempting MMR and BtR properties from the rent cap will not lead to a large increase in direct costs for providers of these properties. However, there are likely to be some administrative costs for landlords with properties within a rent control area which are defined as exempt under these proposals.

The Act includes a power for the Scottish Ministers to set out a process by which a property is confirmed as an exempt property, in order to enable tenants to be notified about the exempt status of a property and to verify that a property is exempt from rent control. This could potentially involve application to an approval process and/or some form of inclusion in a register.

It is intended that regulations setting out the how this power will be used will be brought forward ahead of any rent control areas being established, and an assessment of possible regulatory and cost impacts will be carried out to support consideration of those proposals.

Other impacts

As set out above, the proposed Rent Control (Exempt Property)(Scotland) Regulations 2026 are being brought forward at this time to address the perceived barrier to ongoing investment in new rented housing.

Other aspects of the operation of rent control, such as appropriate circumstances where increases above the cap will be allowed, will be set out in future regulations., This could lead to concerns from some small-portfolio landlords that there will not be a sufficiently balanced regime in terms of the property rights of landlords.

Any future regulations developed, will continue to be supported by engagement across the sector, and further impact assessment will be carried, taking into consideration the impact of the full rent control framework.

The Scottish Government is clear that the necessary measures to support the operation of rent control will be in place by the time any rent control areas are designated, noting that it is unlikely to that there will be any rent control areas designated until at least the end of May 2027.

Scottish firms’ international competitiveness

The Scottish Government does not anticipate any impacts on the ability of Scottish businesses to compete internationally. The same legal framework will apply to PRS properties throughout Scotland regardless of where the landlord is based.

Considering whether the proposed exemptions could impact on the attractiveness of Scotland as a destination for global capital investment, while there is international evidence showing 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 proposed exemptions are being brought forward with the intention of ensuring that investors are not discouraged from investing in the PRS in Scotland.

Benefits to business

The proposed exemptions are intended to remove the perceived barriers to investment in a way that gives confidence to investors and supports supply of BtR and MMR properties, in order to support an increase of supply in the PRS in Scotland. Exempt landlords will not be subject to the rent control measures set out in the Act, which would include capping rents at CPI+1% point (up to a maximum of 6%).

There would therefore be a benefit to BtR landlords in rent control areas, as they would be able to set rents in line with market rents.

Encouraging the building or conversion of properties new to the PRS may also bring wider benefits to other related business, such as those focussed on construction and the supply of building materials, for example, as well as wider economic impacts in areas of new development.

Small business impacts

The policy intention which underpins these proposals is for the exemptions to support bringing new, long-term supply into the PRS, and providers in this space are typically institutional landlords, developers and investors, although these do include some small businesses.

Officials met with Scottish Federation of Housing Associations members through their mid-market rent focus group, in order to consider how rent controls will affect those registered social landlords who offer mid-market provision, as well as meeting with Scottish Futures Trust and MMR providers who are small businesses. The recent full public consultation was publicised across the PRS. This included by emails sent to all individual registered landlords in Scotland and requests for stakeholder organisations across the sector to make their members aware of their opportunity to input to the discussion via the consultation.

Whilst the intention is that there will be a verification and/or registration process for exempt landlords or properties, the Scottish Government does not anticipate that a more significant administrative or resource burden would fall on small businesses compared to larger businesses, in cases where they wish to be classed as exempt. However, the potential for administrative impacts will be considered during development of the verification process.

The majority of landlords in Scotland are small-portfolio landlords, whose properties may be less likely to meet the criteria for exemption from rent controls. However, in cases where properties belonging to small-portfolio landlords do meet the criteria for an exemption under the proposed measures, the exemption would be applied equitably to them.

Investment

The Scottish Government has considered whether the proposed exemptions will make Scotland a more, or less, attractive place for global investment.

As set out in the section on ‘Purpose / aim of action and desired effect’, concerns have been raised by BtR developers and investors, about the potential for the rent control measures in the Act to disrupt the model of development and thereby to impact on investor confidence and therefore on their openness to investing in Scotland.

The recent consultation received, among others, responses from developer and investor respondents. The consultation analysis noted that, among some responses,

“It was noted that, being capital intensive, BtR developments are often financed by large institutional investors (such as pension funds) seeking predictable, long-term returns, and it was reported that the prospect of rent control in the BtR sector has caused loss of confidence on the part of such investors, with existing developments cancelled or put on hold and a lack of new funding for large scale BtR projects. Respondents gave examples of stalled developments in Glasgow and Edinburgh and of sites where projects are being switched to PBSA, and it was argued that, without an exemption for BtR property in Scotland, institutional investors will go elsewhere in the UK or Europe where they can make higher returns with lower risk.

The duty on institutional investors to manage pension and insurance funds in the best interests of beneficiaries (including earning secure, inflation-linked returns on invested capital) was emphasised, including a view that the proposed limit on rent increases in a rent control area (to CPI+1% or 6%) will threaten the profitability of BtR schemes during periods when CPI exceeds 6%, as happened during much of 2022 and 2023”^[50].

Specific examples raised by respondents included the following:

“Build to Rent supply stopped in Scotland when the 'temporary' rent caps were introduced. At the same time, we have seen this tenure grow substantially in England, attracting investment from companies who are keen to invest in Scotland and currently locked out due to the uncertainty the rent cap provides. Scotland has missed out on significant levels of private investment and crucially a huge number of new homes.

Springfield worked with Sigma Capital to Scotland's first BTR family homes at our Bertha Park Village in Perth. The demand for the 75 homes completed in 2022 was high. We had agreed to expand our partnership with Sigma and had planned the delivery of a further 300 homes across developments in heated markets across Scotland to help relieve housing pressure, including the Highlands and the Lothians. Unfortunately, when the rent cap was announced the deal was withdrawn as Sigma paused development in Scotland.”^[51]

As mentioned in the consultation analysis, some respondents also reported specific developments which they considered to have stalled as a result of rent controls^[52].

MMR providers have also raised concerns about the potential impact of rent controls on supply, with the Scottish Federation of Housing Associations (SFHA) reporting in their response to the recent consultation that

‘A 2024 SFHA data-gathering exercise concluded that one MMR provider estimated £150 million-£300 million lost in MMR investment due to the uncertainty posed by the rent control provisions, equating to approximately 750-1,500 homes. The effects of lost investment and lost rent are compounded by the 30-year business plans to which RSLs operate, compromising even more new-build homes over the long-term via compounded losses.^[53]’

SFHA also report that, in their most recent MMR survey (2025-2026),

‘...members indicated they are “undertaking a strategic review of [their] MMR due to challenges over the past few years” and others expect their MMR stock will reduce as they convert tenure or consider offloading it. One RSL clearly states, “Rent controls and other proposals on the housing bill have meant we've had to suspend any further development. Rising costs and the inability for us to work efficiently under some of the proposals on the bill mean we need to freeze any development for the foreseeable future.”

Previous survey comments have included the following comments from MMR providers:

• “Rent control has effectively stopped us from getting new UK investors who have a remit wider than Scotland otherwise we could be delivering much more.”
• “Because of the changes in legislation, we are considering the removal of mid-market homes from our portfolio.”
• “If rent controls are introduced we would have to take a serious look on future commitments as we would need to ensure that the net rents were sufficient to meet reactive and planned works as well as keeping up to speed with legislative changes.”

The total pipeline of MMR homes indicated by 2025-2026 survey respondents is low at 2,935 homes (for most survey respondents, this will represent a 5 year pipeline). 40% of 2025-2026 respondents said they have zero MMR homes in their pipeline.’^[54]

The Scottish Government recognises that it is vital to expand the supply of housing in Scotland and is proposing exemptions from rent control for MMR and BtR properties in order to support investment in these sectors and, ultimately, the continued provision of new supply.

Bringing forward these regulations as soon as possible after the Act received Royal Assent is intended to increase investor confidence by giving early clarity regarding which properties will be covered by exemptions.

Providing for exemptions for MMR and BtR properties is in line with the final recommendations of the Housing Investment Taskforce, which was set up to identify actions that will unlock both existing and new commitments to investment in housing across all tenures as part of the Scottish Government’s work to boost housing in Scotland.

The Scottish Government will continue to engage with stakeholders across the sector as the implementation of rent control, and any exemptions, is taken forward, including assessing implications on investment. As set out in the section on post implementation review, below, a report on the operation and effectiveness of the rent control measures in the Act will be prepared after the initial five years from the date of Royal Assent, and it is anticipated that this will give a further opportunity for further consideration of the operation of any exemptions applied to properties.

Workforce and Fair Work

We do not consider that the proposed option will have a significant effect on the workforce, or on business ability to meet the Fair Work First principles. Fair Work First principles are generally a condition of grant funding for MMR developments.

Climate change/ Circular Economy

Whilst we do not consider that there will be a direct impact on business’s ability to contribute to climate targets, an increase in high quality PRS supply has the potential to help to increase the proportion of properties overall in the PRS which have good standards of energy efficiency.

SFHA’s consultation response^[55] set out information from their recent survey, which stated that:

“The standard of property for MMR provided by RSLs is very high, indicated in part by EPC ratings. Half of our survey respondents report that 100% of their MMR stock is EPC C or above, representing high quality stock and investment which ultimately protects against fuel poverty for tenants. The survey average is 98% of MMR providers’ MMR stock is EPC C or above, with the lowest at 91%. These properties require investment to maintain standards and reduce running costs, paid for in part via tenants’ rent. Social landlords are socially oriented organisations with missions to deliver healthy, warm, and affordable homes.

RSL subsidiaries cannot reasonably engage with the case-by-case (single property) applications for rent increases above the capped level based on energy efficiency improvements, as proposed elsewhere in the consultation, which are clearly intended for small portfolio landlords and lower performance stock”.

As the BtR sector in based around the provision of new build, or newly converted homes, it is likely that this housing stock will generally also be completed to modern energy efficiency standards.

Improvements to the fabric efficiency of PRS stock may help to reduce overall emissions from PRS buildings, and may also have an impact on the experience of individual tenants living in properties with a good standard of energy efficiency, who may have lower energy bills as a result of this.

The Scottish Government does not anticipate that the proposed option will directly contribute to circular economy targets.

Competition Assessment

The Scottish Government has considered whether competition could be affected by the proposed policy options, in particular in relation to the following questions:

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

The proposed measures to exempt certain properties from the rent control measures in the legislation are intended to remove the potential barriers to investment in new rented homes. The proposed exemptions would apply both to properties from existing providers in the sector (albeit only properties constructed after 31 August 2021), and to properties from any new providers, where these properties meet the requirements for exemption. The Scottish Government therefore considers that this will have either a neutral or a positive impact on the number of suppliers in the sector.

Will the measure limit the ability of suppliers to compete? Will the measure limit suppliers’ incentives to compete?

There are a broad range of suppliers within the PRS, ranging from institutional investors and developers to small-portfolio landlords who may only have one or two properties to rent out.

The proposed measures will exempt properties which meet particular criteria from rent control. These measures are intended to give confidence to investors in order to increase the overall supply of new PRS properties in Scotland. However, because the exemptions would apply only in cases where the criteria are met, there will be properties in Scotland which would not qualify to be exempt, if rent controls were applied in their area.

It is in line with the policy intention that rent controls will generally be applied to properties in a rent control area other than in the specific circumstances set out. Landlords who offer properties for rent and which are not eligible for exemption, may consider that they are disadvantaged when compared to suppliers of exempt properties. This could limit either the ability or the incentive for these suppliers to compete, although it should be noted that there are a number of other factors (including other regulatory changes as well as potential economic and taxation factors) which may also influence how incentivised landlords are to remain in the sector, and differentiating between the impacts of these different factors is not straightforward^[56].

The Scottish Government has sought to gather information on cases where landlords might be disproportionately affected by the rent control, in order to consider the requirement to set out mitigations for these cases. Where the potential for disproportionate impact is identified, the Scottish Government anticipates that further regulations will be brought forward using the powers in the primary legislation to allow for increases above the rent cap.

The Cabinet Secretary for Housing has signalled that, in principle, she is minded to explore the possibility of regulations that would allow for rent increases above the cap in cases where the landlord has consistently charged a rent that is below market rates or has made significant improvements to the property.

As such, it is not possible to fully assess the potential impacts on the ability or incentive to compete for different types of PRS providers at this point. Reflecting the commitment to future mitigations where these are required to address disproportionate impacts, the Scottish Government considers that, once the full details of how rent control will operate have been set out, the measures in the Act will be capable of operating in a balanced manner without disproportionate impacts.

Will the measure affect consumers’ ability to engage with the market and make choices that align with their preferences?

The Act includes a requirement for landlords of properties which are exempt from rent control to include a statement to that effect in any property advertisement^[57], to ensure that prospective tenants are aware that the property will be exempt from any rent cap which may be applied.

Scottish Government considers that consumers will have the information they need to make informed choices around properties which may be exempt from the rent control measures under these proposals.

Will the measure affect suppliers’ ability and/or incentive to introduce new technologies, products or business models?

The Scottish Government does not consider that the proposed measures will directly affect suppliers’ ability and/or incentive to introduce new technologies, products or business models.

Under the Act, the Scottish Ministers can set out exemptions through regulations, despite calls from some stakeholders for exemptions to be set out on the face of the primary legislation. This supports the ability to respond to future changes in the operation of the PRS, ensuring that the rent control measures as a whole remain fit for purpose over the longer term.

The Scottish Government has consulted on the proposed measures, and has taken account of points made by providers in the design of the final draft regulations. This included considerations of the minimum size of a development that will be exempt, in order to ensure that the emerging model of single-family BtR and small-scale rural BtR offerings are not excluded by a requirement to deliver at scale.

Consumer Duty

The Scottish Government has complied with the duty to consider the impact of these proposals on consumers as required by the Consumer Scotland Act 2020^[58].

Key questions considered when applying the duty have included the following (alongside other considerations set out elsewhere in this BRIA). These were used to assess the impact of the strategic decision on consumers, and as part of consideration given to whether the proposals could be improved to achieve a better outcome for consumers.

What is the proposal trying to achieve?

As set out above, the proposals are intended to remove the perceived barriers to investment in the supply of new BtR and MMR properties, in order to support an increase of supply in the PRS.

What are the impacts on consumers? Is it likely that harm will be experienced by consumers as a result of this proposal?

As set out above, there may be some impacts on tenants in properties which are in a rent control area, but which are exempt from rent control, as their rents will not be subject to the rent cap and could be increased by a greater amount. This could also lead to rents for these properties rising more steeply over time.

As noted in the section on ‘Sectors / Groups affected’, potential impacts in the case of tenants in MMR properties should be mitigated due to restrictions which prevent the landlord from increasing the rent above a specified level^[59]. Tenants in BtR properties, like tenants in properties which are exempt from rent controls or not in a rent control area, will have access to a rent adjudication process which will allow for unreasonable proposed rent increases to be challenged. However, not applying the proposed exemptions could lead to a lack of investment in new private rented properties and a reduction of supply in the PRS, in terms of MMR and BtR properties, than would likely otherwise have been the case. This would potentially impact tenants outwith rent control areas, as well as those within them, in the form of a decrease in choice when seeking a property to rent, as well as potentially higher costs due to pressures on supply.

Lack of MMR supply, in particular, may have the potential to be harmful to some financially vulnerable consumers who are living in the PRS but struggle to afford rents more than others who are less vulnerable.

What alternative proposals are there than can improve outcomes for consumers and/or reduce harm to consumers?

An alternative option of not applying the proposed exemptions, and applying rent control to all properties within any designated rent control area was considered, as set out above.

How do these alternative proposals compare to the original proposal?

The Scottish Government considers that this option would also have negative impacts on consumers, in the form of the potential for lack of investment in new rented properties leading to reduced supply in the BtR and MMR sectors. This could ultimately have outcomes which may be more harmful to consumers than the outcomes of applying the proposed exemptions, particularly over the longer term.