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

Annex A – Estimates of foregone rent

In the Financial Memorandum to the Housing Bill ^[63] and the Rented Sector Reforms BRIA,^[64] estimates of foregone rent were illustrated for a variety of rent caps. As the specific form of the rent cap has now been determined, through a Stage 2 amendment to the Bill during its passage through the Scottish Parliament, estimates can be provided for the final rent cap (CPI + 1% point, up to a maximum of 6%).

The future impact of rent controls will depend on factors such as how quickly market rents rise, what the level of inflation is, and when and how long rent control areas are declared in different areas of the country. Rent caps will only be applied in localities where an assessment by local authorities has shown that rent is increasing steeply, and where restricting rents in line with the rent cap is deemed necessary and proportionate to protect the social and economic interests of tenants.

Given these multiple uncertainties, the potential impact of a rent cap is illustrated using historic data, similar to the approach in the Financial Memorandum and the Rented Sector Reforms BRIA.^[65] Additional data can be drawn on relative to previous costings, as rent data is now available up to the year ending September 2025. The rent data, which covers the period from 2010 to 2025 (which provides 15 years of data when considering rental increases), thus covers a substantial period. This includes the cost-of-living crisis when inflation increased to levels not seen since 1981. Using data from this period therefore allows the impact of the 6% cap during a period of high inflation and rental growth to be illustrated.

The figures are calculated for an average (mean) two-bed property, which is the most common size. The average rent is calculated across all types of properties in the private rented sector, i.e. including but not limited to BtR and MMR properties. The dataset primarily (although not exclusively) comprises advertised new-let rents.

Table 1 shows the number of years during this 15-year period when market rent increases were above the level of the cap. The table also presents estimates of the rent which would be foregone if a cap had been in place over this period. However, it should be noted that any rent control area which is designated will expire after five years, unless it is revoked before that time. Whilst it would be possible for a rent control area to subsequently be designated again in the same area, this would require consultation and further regulations, and would required the Scottish Ministers to be satisfied that restricting rent increases in that area is both necessary and proportionate for the purpose of protecting the social and economic interests of tenants in the area, and is a necessary and proportionate control of landlords’ use of their property in the area.

The estimates of foregone rent are based on a similar methodology to that set out in Annex C of the Rented Sector Reforms BRIA. In Year 1, the increase in market rents is compared to the rent cap. If growth is above the rent cap, the rent is constrained to rise only by the cap. In Year 2, it is assumed that rents would rise from their capped level in Year 1 to the market level if unconstrained. If that increase would be above the cap, then rents are constrained to increase only by the cap again. This process is iterated over all years in the dataset. The value of foregone rent and market rent are adjusted for inflation, and total foregone rent is expressed as a percentage of total market rent.