Rent hikes in Scotland could be tied to inflation under fresh proposals put forward by the Scottish government.
An amendment to the government’s Housing Bill would see increases restricted to 1% over the Consumer Price Index, a measure of inflation, up to a maximum 6%.
The rules would only apply to properties in rent control areas, with a consultation due to get underway in spring 2025.
This would mean that in most cases rents in a RCA would be able to increase by CPI + 1% of the existing rent. Where the relevant CPI figure exceeds 5% then the increase permitted would be capped at 6% of the existing rent. So if CPI was 3% then rents within a RCA could be increased by 4%. If CPI was 8% then rents within a RCA could be increased by 6%.
The rent cap is proposed to apply to rent increases both during the term of a tenancy and in between tenancies, but only within RCAs which would be designated by Scottish ministers if they consider it “justified and proportionate” based on assessments carried out by local authorities.
Scottish housing minister Paul McLennan said the announcement provides certainty for tenants and encourages investment.
The Scottish Greens – who were in government when the bill was lodged and played a key role in its creation – have criticised the size of the proposed caps.
The Scottish Conservatives said the housing secretary “must see sense and finally ditch the SNP’s botched rent controls scheme”.
The Housing Bill was lodged earlier this year, and the legislation allows ministers to create rent control zones following a recommendation from local councils.
McLennan said: “Setting out the cap in this way, with CPI as its basis, allows for a reflection of the costs of landlords to offering a property for rent, while offering protections to tenants in terms of limiting more significant rent increases.”
The likely timescales for the introduction of the proposals set out in the Bill are as follows:
Bill stage 1 (during which MSPs decide whether parliament agrees with the general principles of the Bill) – complete November 2024
Bill stage 2 (during which MSPs can propose and vote on amendments to the Bill) – complete by early 2025
Bill stage 3 (during which final amendments are proposed/considered and parliament votes on whether the Bill should become law) – complete by late spring 2025
Bill receives Royal Assent (becomes an Act of parliament) – summer 2025
Secondary legislation to set out the finer details of how the measures will operate then needs to be published and considered by parliament – this is likely to take place during 2025-2026.
The earliest date for provisions to come into force in the private rented sector is likely to be some time during 2027-2028.
Reflecting on the Scottish government’s new amendment to rent control in the Housing (Scotland) Bill, Timothy Douglas, head of policy and campaigns at Propertymark, said: “Whilst the minister is beginning to recognise that landlords and investors are vital to solving the housing crisis in Scotland, and inflation-linked rent increases will support investor appetite, further changes are still needed to strengthen the legislation and give more confidence to letting agents and their landlords.
“The Bill, in its current form does nothing to address the demand for private rented property and the proposals for rent control areas, in terms of data collection, designation and reporting timescales are inconsistent.
“Furthermore, rent control measures between tenancies removes any incentive for landlords to invest or upgrade properties and the Scottish government must reduce the tax burden on landlords to bring down the cost of renting for tenants.”
The Association for Rental Living (ARL) CEO, Brendan Geraghy, also shared his views, insisting that his organisation welcomed the statement made yesterday by the Scottish minister for housing, which he said “recognised the need for certainty for investors and developers of purpose-built rental housing at scale”.
“However, the ARL opposes rent caps in any form,” he added. “Such controls lower investor confidence and inhibit the ability to deliver customer, community and investor value. Institutional investors in Build to Rent (BTR) invest for the long term, this means that they are equally committed to creating sustained community value as they are to delivering investment value. Rent caps harm long term investment in both.”
Geragy continued: “As the minister reflected, investors require the certainty of stable returns to enable the substantial investment they can bring to deliver quality homes in Scotland. If rent control is in play, it can disrupt and harm the certainty of those returns.
“A number of investors, which have successfully invested in BTR in Scotland, have put further schemes on hold or abandoned them altogether – around £2.5bn of investment is now viewed as at risk. National and international research also highlights the negative impacts on supply due to strict rent restrictions.
“The ARL will continue to work with the minister throughout the consultation in Spring 2025 to ensure clear understanding of the impact of rent controls on the investment and delivery of much-needed quality rental homes.”
David J Alexander, CEO of DJ Alexander Scotland, added: “This is welcome news. Everybody involved in the private rented sector has been frustrated at the uncertainty of the Scottish governments’ policy on rent controls but this amendment offers landlords and investors a degree of hope for the future.”
“Most would agree that rent increases capped at CPI+1% up to a maximum of 6% is a fair offer and would allow landlords to plan for the future with a greater degree of certainty. Although there is to be further consultation next year – which sounds unnecessary given how much these issues have already been discussed – this is a change which, if approved in the final stages of the bill, should free up investment and start to resolve the current housing crisis.”