Plans to introduce a power for local rent controls in ‘high-pressure’ rental areas in Scotland could deter investment in Scotland’s private rented sector (PRS) and curtail much-needed housing supply, according to the Scottish Property Federation (SPF).

The SPF issued the warning as first minister Nicola Sturgeon outlined plans to introduce local rent controls through a Private Tenancies Bill as part of the SNP’s legislative programme for the next eight months.

The bill will contain a range of measures, including a new Scottish Private Rented Tenancy, the remove of the ‘no-fault’ ground for repossession and the ability to introduce local rent controls.

Over the last few months, Scotland has seen significant, high-quality investment into the build to rent sector, with La Salle Investment Management making a £1 billion push into the sector in Aberdeen and Grosvenor submitting plans for 400 purpose built rental units in Edinburgh. The EDI Group has also announced plans for PRS at India Quay, Edinburgh, as has Whiteburn Projects in Dundee.

The SPF is concerned that even the possibility of rent controls could sound the death knell for future investment in the build to rent market. Build to rent has the potential to rapidly boost Scotland’s housing supply, which needs to be increased dramatically across all tenures if the current housing shortage is to be resolved.

David Melhuish, director of the Scottish Property Federation, said: “We will consider the detail of the bill carefully when it is published but we have been trying to encourage investment into Scotland’s purpose-built rental market for a long time, and it has been great to see momentum build over the past few months with some big investments in housing taking place. A clear message we have had from the industry, however, is that the mere prospect of rent controls, could be enough to spook potential investors bring us back to square one again.

“If the Scottish Government wants to increase housing supply, then the introduction of rent controls is not the way to do it. The purpose-built private rented sector has the potential to deliver a large amount of new homes across Scotland, and we should be doing everything we can to encourage investment in this sector rather than regulate this sector before it has had chance to take root.”

The Scottish Association of Landlords (SAL) said it was concerned that measures in the new tenancies bill are not proportionate and could reduce investment in the sector.

Chief executive John Blackwood said: “SAL understands the pressure for legislative action to improve the current rental regime in the PRS and has been working closely with Scottish Ministers, as well as the charitable sector, to ensure the highest standards possible for tenants. However, any legislation should be proportionate and considered, protecting the interests of both landlords and tenants in a well-functioning PRS.

“We are concerned that the Scottish Government continues to state their intention to limit a landlord’s right to end a tenancy, even after giving sufficient notice. This could cause particular problems for some of our customers such as students or those renting holiday homes and we will be working with a broad range of interest groups in those areas to alleviate the effects of this move.

“As the recently published report by the Commission on Health & Wellbeing concluded, there is a much broader housing crisis across Scotland. Legislation should not be passed simply to solve a perceived political problem which could reduce investment and cause longer-term problems.

“Whilst it is true that a housing supply shortage is causing rents to rise in a few areas, in others prices are depressed and landlords are struggling to grow their businesses, preventing them generating the significant economic growth and employment they are capable of.

“The Commission on Health & Wellbeing report also highlighted the potential role for the PRS in solving the housing crisis through the creation of opportunities for landlords to invest in the construction of new housing. SAL would be keen to engage with the Scottish Government to implement this kind of solution as part of a wider package of measures to improve the PRS, ensure tenants are protected and help solve the wider housing crisis.

“There is a high level of consensus between ourselves, tenants’ and housing charities on many of the changes which are needed and it is very much in the interests of our members for higher standards to be enforced in order to drive rogue landlords and letting agents out of the market. These people undermine the excellent work done by the vast majority of the sector and tarnish our reputation.”

Dr John Boyle, an economist and spokesperson for campaign group PRS 4 Scotland, said: “Undoubtedly the biggest issue in housing is the critical lack of supply driven by low levels of housebuilding in Scotland. While we welcome measures set out by the First Minister to speed up developments by improving the planning system, it must be careful that they are not undermined by misguided regulation of the rental sector. Indeed The Scottish Government’s own consultation on these issues highlighted that 70 per cent of respondents were against the introduction of a system of rent controls.

“That’s why the devil will be in the detail of the Private Tenancies Bill. We look forward to working with MSPs to ensure that the legislation does not have unintended consequences that make the current housing supply crisis worse by cutting off investment to Scotland’s PRS.

“What’s needed is a holistic supply and tenure model appropriate for Scotland, which addresses the necessity for investment in rental properties as well as the needs of tenants across the income spectrum. Our ‘framework’ offers a basis to do this and we will be working with Government and opposition parties to address the real issues in housing but also warning of the dangers of adopting a rent control system which would be so detrimental to tenants, landlord and indeed homeowners in Scotland.”

He added: “There is a great deal of consensus around raising standards in the private rented sector and many of the reforms proposed in the government’s consultation and indeed in the bill are very welcome. That said, there is still a danger that the process is knocked off track by a single-minded focus on rent controls. We need to use this opportunity to take account of both tenant and landlord concerns and aspirations and create an innovative and world leading PRS that genuinely answers Scotland’s housing needs.”

PRS champion Gerry More said the move to allow the introduction of local rent controls is counter-productive to its aim of significantly expanding capacity in the PRS by attracting institutional investment to deliver large-scale, purpose-built development.

Mr More, who recently submitted his recommendations to the Scottish Government on the action which needs to be taken in order to achieve the delivery of up to ten thousand new privately rented homes over the remainder of the decade, said: “Key to my proposals to the Scottish Government is for a regulatory framework that is supportive of investor needs, including the requirement for rents to be responsive to market conditions.

“Whilst a simpler, streamlined and fairer tenancy system is welcome, this should not be to the detriment of building the high quality and professionally managed homes in the private rented sector that are required to help meet demand.

“I am therefore concerned that this move could prove counter-productive since these pressurised areas are exactly where investment to increase the supply and quality of PRS properties is needed most.”