Blog: Will the Scottish Government respond positively to support Scotland’s build-to-rent sector?

9 Aug 2017

David Melhuish

Director, Scottish Property Federation

 

Recent news that the UK Government is to introduce further proposals to support the development of bespoke build-to-rent (BTR) homes across England is to be welcomed, but it should also serve as a stark reminder that more action is required here in Scotland.

With the introduction of the mechanisms for Scottish local authorities to apply to establish Rent Pressure Zones (RPZs) at the end of this year, as well as the abolition of the tenancy term in favour of lifelong security of tenure, there is now a huge gulf between Scottish and English law as it relates to the Private Rented Sector.   Last year, during the passage of the Private Housing (Tenancies) Act, we argued robustly that the real issue for the private rented sector is supply and that build-to-rent is needed to boost, not just the quality of Scottish renting, but the quantity of homes available to let in the right place and of the right type.  We remain of this view.  We need an increase in housing supply across all tenures and this means making BTR work as well traditional house-building for private sale and affordable living.

Whilst we do not believe that local authorities should seek to establish RPZs where the market is functioning (for example Aberdeen, where average rents for 2-bedroom properties are 12.5% below Q2 2012 according to CityLets Q2 report), there are also several measures that the Scottish Government can implement now to support BTR investment to unlock build-to-rent opportunities in Scotland over the course of the next few years.  There is an urgent need for these measures.  Currently little more than 1% of UK build-to-rent PRS investment is being directed to Scotland.  This is simply not good enough given the gap between demand and supply across the country.  A failure to act now could mean that hundreds of millions of pounds could bypass Scotland as investors see England as a more attractive proposition.

In Scotland, we have some important advantages.  We welcome the Scottish Government’s decision to exempt large scale private rented sector transactions of six or more properties from the 3% additional dwelling supplement.  This measure can offer a positive differentiation to investors in UK real estate from the Scottish perspective.  We are also encouraged that the Scottish Government is at an advanced stage of proposing a Rental Income Guarantee Scheme, which will send a positive signal to the markets of the government’s intent to build a BTR sector.

Yet there are some outstanding issues that must be resolved if we are to see BTR become a real asset class in Scotland.  A key area where the Scottish Government can be supportive to the BTR sector is to provide a supportive planning environment and we hope to see some positive steps forward in this area soon.  Last year our members engaged in the BTR sector provided comprehensive and detailed commentary to the Scottish Government on how to amend planning policy guidance to support BTR developments.  This guidance is critical because, as a new market sector in Scotland, there is relatively little understanding of BTR among local planning authorities who tend to relate it to conventional house-building.  For example, we provided the government with a detailed explanation of the differences in valuation treatment and development viability between a BTR and a traditional private sale-led development.  It is critical that the government and local authorities understand these differences between BTR and traditional house-building and adapt their policies to allow BTR the chance to thrive.

Scotland urgently needs its government to follow up on some of the promising noises which have emanated from Ministers and officials.  Without action, I fear Scotland will continue to be left behind in the creation of this new and exciting residential market.