Open Letter to the SNP: why did Scotland’s PRS stop growing?

Housing debates in Britain often become ideological very quickly. Some argue that the private rented sector is part of the problem; others argue that it is part of the solution.

In reality, housing systems tend to be shaped by something far less dramatic than political narratives. They are shaped by supply, investment and incentives.

Scotland now provides one of the most interesting real-world policy experiments in housing regulation anywhere in the United Kingdom. Over the past decade, the Scottish Government has introduced some of the most ambitious rent regulation policies in Britain, including rent freezes during the cost-of-living crisis and proposals for longer-term rent control zones.

These policies were introduced with the intention of protecting tenants from rapidly rising housing costs. However, the question that now deserves attention is not ideological; it is empirical.

What has the evidence shown so far?

Scotland’s private rented sector expanded rapidly for two decades

Over the past twenty years, Scotland experienced a remarkable expansion in the private rented sector. According to Scottish Government housing statistics, the number of privately rented homes increased from roughly 120,000 in 1999 to around 370,000 by 2016. That expansion added more than 250,000 homes to Scotland’s housing supply.

The growth reflected several structural factors. Mortgage products designed specifically for rental property allowed individual investors to enter the housing market. Many landlords purchased neglected properties and renovated them for rental use. Others converted larger houses into shared accommodation or supported new developments by purchasing homes off-plan.

Taken individually, these decisions may appear small. Collectively, they represented a substantial addition to the country’s housing stock.

For almost two decades the private rented sector became an important part of how Scotland housed a growing and increasingly mobile population.

A change in trajectory

The trajectory becomes clearer when the figures are viewed together.

The trajectory of the sector appears to have changed. More recent figures suggest the number of privately rented households in Scotland has declined from its peak, falling to roughly 320,000 by the early 2020s. Landlord registrations have also declined over the same period. At the same time, the wider housing system has come under increasing strain.

Temporary accommodation use has risen sharply in recent years. Official statistics show that roughly 11,800 households were living in temporary accommodation in Scotland in 2020. By 2025 that figure had risen to more than 17,000 households, the highest level recorded.

More than 10,000 children are now growing up in temporary accommodation while councils struggle to find permanent housing.

These figures do not in themselves prove causation. Housing markets are complex and influenced by many factors, including interest rates, construction costs and demographic change. However, the change in trajectory raises a question that policymakers may need to examine carefully.

For nearly two decades Scotland’s private rented sector expanded rapidly. Since the mid-2010s it has begun to contract.

What explains that change?

The wider context of Scotland’s housing system

To understand this question properly, it is necessary to consider the longer historical context.

In 1980 Scotland had roughly 700,000 council homes. Today that figure is closer to 320,000.

The loss of nearly 380,000 social homes over several decades represents one of the largest structural shifts in Scotland’s housing system.

During roughly the same period the private rented sector expanded significantly, helping to provide accommodation for households who might once have lived in social housing.

Understanding how these two trends interact is essential for housing policy.

If the supply of social housing declines while private investment in rental housing also slows, pressure on the housing system inevitably increases.

Policy changes affecting the sector

Over the past decade Scotland has introduced several major policy reforms affecting the private rented sector.

• The Private Housing (Tenancies) (Scotland) Act 2016, which introduced new tenancy structures and rent pressure zone powers
• Additional regulatory requirements affecting landlords and letting agents
• The emergency rent freeze and subsequent rent caps introduced during the cost-of-living crisis
• Proposals for longer-term rent control mechanisms

Each of these policies was introduced with understandable objectives, including protecting tenants and improving housing security. However, policies that affect rental income and investment returns inevitably influence the behaviour of investors who provide housing.

Housing supply in the private rented sector ultimately depends on private capital. When investors believe the regulatory environment is predictable and sustainable, investment tends to flow into housing. When that environment becomes more uncertain, investment decisions can change.

Taxation and investment incentives

Housing investment is influenced not only by regulation but also by taxation policy.

In Scotland, investors purchasing additional residential property pay the Additional Dwelling Supplement, currently set at 8%, which is higher than the equivalent surcharge applied in England.

Scottish landlords are also affected by the distinct Scottish income tax structure, alongside the UK-wide restrictions on mortgage interest relief introduced in recent years.

Individually these policies may have been introduced for understandable fiscal reasons. Taken together, however, they raise an important question about incentives.

If increasing housing supply requires sustained private investment, how do current taxation and regulatory policies influence the willingness of investors to finance rental housing in Scotland?

The central policy question

Housing shortages ultimately come down to one simple problem. There are not enough homes available for the number of households who need them. The question facing policymakers is therefore not simply how rents behave in the short term, but how housing supply evolves over time.

For almost twenty years Scotland’s private rented sector expanded rapidly, adding hundreds of thousands of homes to the housing system. In recent years that trajectory has changed.

The number of privately rented homes has begun to fall, temporary accommodation use has reached record levels, and councils are struggling to house vulnerable families.

If Scotland wishes to increase housing supply, one question now deserves careful attention.

Why did the private rented sector stop expanding?

Questions for the Scottish Government

In the spirit of constructive policy discussion, several questions may be worth examining.

What factors explain the contraction of Scotland’s private rented sector after its peak in the mid-2010s?

How has the Scottish Government assessed the impact of rent regulation policies on housing investment and supply?

What evidence exists regarding the long-term effects of rent freezes and rent caps on housing availability?

How do taxation policies affecting landlords influence investment decisions within the housing market?

If Scotland wishes to increase housing supply, what role should private investment play alongside social housing development?

A policy challenge worth answering

If Scotland wishes to increase housing supply, the country faces a straightforward but important policy question. Over several decades the number of social homes declined significantly. During roughly the same period the private rented sector expanded, helping to provide housing for hundreds of thousands of households.

In recent years that trajectory has begun to change. The private rented sector appears to be contracting, while the number of households living in temporary accommodation has reached record levels. This raises a question that goes beyond ideology or political preference.

If Scotland needs more homes, what conditions will encourage the investment required to provide them?

A shared objective

Landlords, tenants, housing charities and policymakers should ultimately share the same goal.

Scotland needs more homes.

Increasing housing supply will require contributions from several sources, including social housing construction, private development and individual investment in rental property.

If policymakers wish to expand housing availability, understanding the incentives that drive housing investment may be just as important as regulating rents.

Scotland’s housing policies have effectively created a real-world experiment.

The evidence emerging from that experiment may now be one of the most valuable guides for future housing policy.

This discussion echoes the work of the late David Knox FCA, who wrote for Property118 under the pseudonym Appalled Landlord. David spent years analysing housing statistics and policy trajectories, often highlighting patterns that were not yet widely recognised in public debate. Several of his articles examined how changes in regulation, taxation and investment incentives could reshape the housing system over time. David passed away in 2020, but revisiting the questions he raised now provides a useful starting point for examining how Scotland’s housing policies are affecting supply today.

Invitation to respond

If the Scottish Government, relevant ministers or housing organisations wish to respond to the questions raised in this article, Property118 would be pleased to publish that response in full.

Constructive debate about housing policy is long overdue.