Scottish Government exempts build-to-rent and mid-market properties from new rent controls

The Scottish Government has confirmed plans to exclude build-to-rent and mid-market rent properties from Scotland's new long-term rent control regime, using powers created by the Housing (Scotland) Act 2025. The exemption regulations, made under section 17D(1) of the Private Housing (Tenancies) (Scotland) Act 2016, follow consultation on how CPI+1% rent caps should apply across different segments of the private rented market.

Under the new framework, local authorities must undertake rent condition assessments at least every five years and can trigger designation of rent control areas. However, exempt categories will be able to raise rents outside the standard cap of CPI+1%, which is itself capped at 6%.

Ministers defend institutional investment protections

Scottish ministers argue the carve-outs are needed to balance tenant protection with incentives for institutional investment in new housing supply, especially larger professionally-managed blocks. The exemptions specifically target build-to-rent developments and mid-market rent properties, both categories seen as crucial to Scotland's housing delivery pipeline.

The regulations were finalised between 19-29 July 2026, marking a significant development in Scotland's approach to private rental market regulation. Ministers maintain that excluding these property types will encourage continued investment in new rental housing whilst still providing protections for tenants in traditional private lets.

Build-to-rent schemes typically involve pension funds, insurance companies, and other institutional investors developing purpose-built rental blocks. These developments often include on-site management, communal facilities, and longer-term tenancy agreements. The Scottish Government views this sector as essential to meeting housing targets, particularly in Edinburgh, Glasgow, and other urban centres where demand for rental accommodation continues to outstrip supply.

Mid-market rent properties, meanwhile, are designed to bridge the gap between social housing and full market rates. These developments often receive public subsidy or land at below-market value in exchange for charging rents below typical market levels. The exemption means these properties can still increase rents beyond the CPI+1% cap, despite their quasi-public nature.

Tenant groups raise affordability concerns

Tenant groups have warned that widespread exemptions risk weakening protections in areas where affordability is already under pressure, particularly for lower-income households relying on mid-market rents. The concern centres on whether the exemptions could create a two-tier system where some renters benefit from caps whilst others face unrestricted increases.

Critics argue that mid-market rent properties, in particular, serve households who may struggle to afford market-rate housing but don't qualify for social housing. Exempting these properties from rent controls could leave vulnerable tenants exposed to significant rent rises.

Living Rent, Scotland's tenants' union, has previously argued that any exemptions should be time-limited and subject to regular review. The organisation contends that institutional investors already benefit from economies of scale and professional management advantages that smaller landlords lack, questioning whether additional regulatory exemptions are necessary to maintain their market participation.

The Scottish Association of Landlords, representing smaller private landlords, has noted the potential for the exemptions to create competitive disadvantages for traditional buy-to-let investors who remain subject to rent caps. This could accelerate the shift towards institutional ownership in Scotland's rental market.

Local authority powers and assessment requirements

The new system places responsibility on local authorities to monitor rental markets and trigger rent control designations where needed. Councils must undertake rent condition assessments at least every five years, giving them the power to implement area-specific rent controls based on local market conditions.

This approach represents a shift from blanket national controls to a more targeted, locally-administered system. However, the exemptions for build-to-rent and mid-market properties will apply regardless of local designation decisions, limiting councils' ability to address affordability pressures in these segments.

Local authorities will need to develop new expertise in rental market analysis and establish monitoring systems to track rent levels across different property types. The Scottish Government has indicated that guidance will be provided to councils on assessment methodologies, but implementation timelines and resource allocation remain under discussion.

Some councils, particularly in high-demand areas like Edinburgh and St Andrews, have already begun preliminary market assessments ahead of the formal requirements taking effect. These early adopters are expected to provide case studies for other local authorities as the system rolls out across Scotland.

Balancing housing supply with tenant protection

The exemptions reflect ongoing tensions in Scottish housing policy between protecting existing tenants and maintaining incentives for new development. Build-to-rent schemes, typically involving large institutional investors, have become increasingly important to Scotland's rental supply, particularly in urban areas facing housing shortages.

The consultation process that led to these regulations examined how different property types should be treated under the CPI+1% framework. Industry submissions during the consultation period highlighted concerns that applying rent caps to new institutional developments could reduce investment flows into Scottish housing markets.

Property industry analysts suggest the exemptions may encourage further consolidation in Scotland's rental market, as institutional investors gain regulatory advantages over smaller landlords. This trend could reshape the sector's structure over the coming decade, potentially improving professional standards but reducing the diversity of landlord types.

According to the Scottish Government's rent control policy, the approach aims to provide certainty for both tenants and investors whilst addressing affordability concerns. However, the effectiveness of this balance will depend on how exempted properties perform in practice and whether local authorities use their designation powers effectively.

The regulations will take effect as local authorities begin implementing their assessment processes, with the first rent control area designations expected in the coming months. The impact on Scotland's rental market will depend largely on how councils use their new powers and whether the exemptions prove sufficient to maintain investment in new rental housing whilst protecting tenants from excessive rent increases in the broader market.