Killing two birds with one stone

Rental property supply currently outstrips demand, driven by the influx of "reluctant landlords" (home movers unable to sell their property) and causing rents to fall in many areas. And in the week that further Scottish Government funding for affordable housing was dismissed by homelessness charities as insufficient to address the growing housing crisis, public-sector housing schemes are under the spotlight.

One initiative succeeding in using rented properties in Edinburgh to address the homelessness problem is the private-sector leasing (PSL) scheme.

The PSL initiative, introduced in Edinburgh in 2005, initially aimed to procure 1,500 homes from the private rented market within five years to help alleviate homelessness, a target that was reached two years ahead of schedule. The properties are leased to the council in three or five-year periods and then used to house people who are homeless

Cathy King, head of housing at the City of Edinburgh Council, said: "Everyone knows about the very real shortages of housing in this city and the PSL scheme is helping to meet people's needs at a crucial time in their lives."

It has also proved a boon for landlords in Edinburgh.

The scheme, run by Orchard & Shipman, continues to get around 70 inquiries from property owners each month, about half of which are from reluctant landlords. The attraction for landlords is that, while rents are slightly below market value, tenancy is guaranteed by the scheme and tenancy management is the responsibility of Orchard & Shipman. Tenancies typically last for three or five years, although Edinburgh leases only run to 2013 at present.

Yields that average around 7 per cent are even attracting some savers struggling with low interest rates, said Andrew Morrison, director of Orchard & Shipman. "These people are becoming property landlords but because they are new to renting, which has become more specialist in recent years, the tenancy management provided by PSL takes care of it for them."

The PSL scheme in Edinburgh has been going since 2005, meaning the first three-year leases are now expiring. As might be expected given housing market conditions and the continuing problem of homelessness, most landlords are accepting new five-year leases, as has been the pattern in the 20-year history of the London PSL scheme. It is also reported that around 200 Edinburgh landlords have indicated that they would be willing to lease further properties to the scheme.

Such a response is a ringing endorsement of the scheme, Morrison claimed. "At the outset some people feel like it sounds too good to be true, with the guaranteed rent and tenancy and the tenancy management service. But there isn't a catch."

Where the five-year lease proves too long, Orchard & Shipman have a ready market of people looking to buy property, so landlords are not necessarily trapped if they have a need to sell.

The Edinburgh operation is the UK's largest and 11 other Scottish councils now have their own schemes, including the Borders and East and Mid Lothian. There are around 200 properties in the scheme in the Lothians, but several hundred more are needed. And while the initial target has been met in Edinburgh, the economic crisis has put new pressure on the council to address homelessness problems.

The Scottish Government has set a target of 2012 to give all unintentionally homeless people access to a permanent home and with more people presenting themselves as homeless or with housing needs, councils face increased housing shortages. "Developers and social housing landlords are developing less property, so there are fewer properties available to local authorities and PSL is becoming one of the few options," said Morrison.

John Blackwood of the Scottish Association of Landlords said PSL schemes were a good option for landlords willing to accept lower than market rent in return for the guaranteed rental income. But he cautioned that, for landlords with a tight cash flow, it may not be viable. "Usually a higher return can be gained by self managing," said Blackwood. "As with most business decisions it is important to be sure of the figures and carefully investigate all the possible costs beforehand."

Another concern is that landlords are relinquishing control over who lives in their property. However, research conducted late last year found that just 1.7 per cent of all PSL tenancies are active nuisance or anti-social behaviour cases, compared with 6 per cent in other temporary housing. Where problems have arisen, over 80 per cent of neighbours of PSL tenants were happy with the complaint system.