An amendment to the government’s Housing Bill would rent increase limited to the Consumer Price Index (a measure of inflation) plus 1%, up to a maximum increase of 6%. If approved, the rent cap will apply to rent increases both during the term of a tenancy and in between tenancies, and will only apply in areas where rent control is applied.

A consultation in Spring 2025 will seek views on how powers that allow exemption from rent controls or rent increases above the cap could be used by Scottish Ministers.

Housing minister Paul McLennan said the announcement supports tenants and helps to tackle poverty, whilst providing appropriate protection for the property rights of landlords and supporting investment.

Following his statement to the Scottish Parliament, Mr McLennan said: “The Housing (Scotland) Bill includes a package of reforms which will help ensure people have a safe, secure, and affordable place to live.

“Eradicating child poverty remains this government’s priority and having a home can make a direct contribution to achieving this. This is why ensuring families can have secure and affordable homes that meet their needs is part of our approach to tackling the housing emergency.

“There is a consistent view that Scotland needs a thriving private rented sector - one that offers good quality, affordable housing options and values the benefit that investment in rented property delivers. This announcement provides certainty for tenants and continues to encourage investment.

“Setting out the form of the rent cap in this way – with CPI as the basis – allows for a reflection of the costs to landlords of offering a property for rent whilst offering protection for tenants in terms of limiting more significant rent increases.

“We are bringing forward a system of rent control that works for Scotland – a system that supports stabilisation of rents for tenants, whilst ensuring there can be a balanced approach that provides appropriate protection for the property rights of landlords and supports investment in the development of rented homes.”

The Scottish Greens - who were in government when the Bill was lodged and played a key role in its creation - criticised the size of the proposed caps.

Green MSP Maggie Chapman said her party did not believe the proposals would “tackle the significant unaffordability of rents in many areas across the country”.

She added: “It does not give tenants in the private rented sector the stability they have been promised.”

Campaign group Living Rent welcomed the assertions the caps will apply in between tenancies, but also hit out at their size.

Campaigns chair Ruth Gilbert said: “It is welcome to have clarity today from the Scottish Government that rent controls will apply in between tenancies.

“Carrying over limits between tenancies is central to making rent controls work and reducing evictions, and we are glad that the government has listened to tenants on this point.

“However, setting a cap at above inflation - even by just 1% - will bake in above-inflation rent increases for tenants, and severely weakens the rent controls we so desperately need.

“We will continue to fight for rent controls that bring out-of-control rents down, not just limit future increases.”

Landlord bodies welcomed clarification on the rent control mechanism but warned that the statement leaves many challenges unaddressed.

David Melhuish, director of the Scottish Property Federation, said: “The statement by the housing minister offers a welcome clarification on the amendment to the rent control measures in the Housing Bill. The index-related measure with a cap aligns closely with the suggestions made by us and several other organisations in May. However, the ongoing extension of rent controls to vacant properties between tenancies poses a significant risk of undermining the benefits of this amendment. Investors remain cautious about entering a market where their properties could be subjected to rent controls simply because they are located in a controlled area.

“Furthermore, we are concerned that the consultation on exemptions will not take place until Spring 2025, likely after the first two stages of the Bill. This delay creates uncertainty for investors in new Build-to-Rent developments, privately led mid-market investments, and individual landlords who typically view vacant tenancies as opportunities to update their properties and return them to market rents.

“It is essential that today’s statement is seen as part of a process aimed at enhancing the Bill. Without this, we risk losing the potential for thousands of new homes, at least £3 billion in investment interest, and we may remain trapped in a cycle of insufficient properties to meet tenant demand.”

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.”

Association for Rental Living (ARL) chief executive officer Brendan Geraghty said: “The ARL welcomes the statement made today by the Scottish Minister for Housing Paul McLennan that recognised the need for certainty for investors and developers of purpose-built rental housing at scale, and the announcement of further consultation will take place about rent control for such homes.

“However, the ARL opposes rent caps in any form. 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. 

“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 £2.5 billion 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.”

Anna Gardiner of Scottish Land & Estates said the announcement is a welcome sign that the Scottish Government is listening to the concerns of housing providers.

“The Scottish Government has acknowledged the value of the private rented sector as a key housing provider, which is welcome,” she added. “Offering a suitable environment that incentivises homeowners to improve and expand the housing stock is important for both landlords and tenants. In rural areas this is absolutely crucial.

“While the proposed amendment does not remove the rent control measures, it goes some way to at least ensuring that those with properties in rent control areas will now be able to increase rents to a degree and reflect inflation. 

“Investment in the private rented sector is beneficial for tenants as it means better quality housing and more homes being made available as rental properties. We would urge the government to clarify where exemptions may apply and to engage with the private rental sector to reduce unnecessary cost and bureaucracy.”

David J Alexander, CEO of DJ Alexander Scotland Ltd, added: “This is welcome news. Everybody involved in the private rented sector has been frustrated at the uncertainty of the Scottish Government’s 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.”