Two-tier rental market warning as Build-to-Rent exempt from rent controls in Scotland

The Scottish government has been accused of creating a “two-tier rental market” after a consultation revealed that Build-to-Rent (BtR) and mid-market rent (MMR) properties could be exempt from rent controls, unlike the private rented sector.

In its action plan to tackle Scotland’s housing emergency, the government appears to confirm that rent controls will not apply to BtR and MMR properties.

According to the government’s interim analysis, mid-market rent properties are aimed at helping people on low to moderate incomes access affordable rental housing. Tenants typically pay less than in the private rented sector, but more than for local social housing.

Create a two-tier system that unfairly disadvantages small private landlords

The Scottish government says in its Tackling Scotland’s Housing Emergency document that certain properties will be exempt from rent controls.

The document says: “Unlock new scale investment opportunities across all tenures by making early decisions on the use of powers sought in the Housing (Scotland) Bill to allow for the exemption of certain properties from the rent control measures in the Bill.

“In principle, we intend to exempt, where appropriate, Mid-Market Rent and Build to Rent properties, to protect and promote investment in those sectors.”

The Scottish Housing Bill is still progressing through Parliament and is entering its third stage, where MSPs can table further amendments.

A consultation on the bill reveals many landlords believe the rent control exemption for BtR creates a two-tier rental market in Scotland and will create chaos for small landlords.

The consultation says: “With specific refence to the possible exemptions for MMR or BtR properties, there were also private landlord, letting agent or their representative bodies and individual respondents who argued that granting an exemption for (predominantly) large professional landlords operating in one part of the private rented sector will create a two-tier system that unfairly disadvantages the (often) small private landlords whose properties would be subject to rent controls.”

Private landlords provide the vast majority of rented homes in Scotland

However, the Scottish government claims they will balance the rights of landlords by exempting rent controls for build-to-rent.

The government says in the consultation: “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.

“The Scottish government is 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.”

However, an industry body has hit back at the Scottish government, claiming private landlords must not be disadvantaged.

Timothy Douglas, head of policy and campaigns, said on the Propertymark website: “There remains frustration amongst Propertymark members that the only option the Scottish government are proposing to make the private rented sector more affordable is to introduce rent control.

“The necessity for exemptions demonstrates an acknowledgement that the rent control provisions would hinder investment. Private landlords provide the vast majority of rented homes in Scotland and must not be competitively disadvantaged against large institutional investors.”

Ameliorate the damaging effects of rent controls

The Scottish Association of Landlords (SAL) says whilst they welcome an exemption for build-to-rent, the policy of rent controls does more harm than good.

However, the Scottish Association of Landlords (SAL) says: “An exemption for built-to-rent and mid-market rental properties from the Scottish government’s rent controls would be, in itself, welcome but it would not go far enough to ameliorate the damaging effects of rent controls.

“At a time of crisis for housing in Scotland, all our efforts should go into increasing supply and encouraging investment in our sector and we should avoid policies that do the opposite; this includes rent controls.

“We urge the Scottish government to work with Scotland’s landlords to bolster market confidence so that we can create a private rented sector that works for everyone.”