Build to rent (BTR), which typically involves the construction of purpose-built rental flats owned by institutional investors, has mushroomed in recent years as investors look to capitalise on growth in the private residential rental market.
However, recent analysis shows that there are only 4,000 BTR homes operational or in the pipeline in Scotland versus 124,000 in the UK as a whole, which equates to Scotland having something in the region of a 3 per cent share when, arguably, it should be 8 to 9 per cent based on proportionate share of households.
These numbers show that Scotland is not punching its weight on BTR, but at least we are now punching and the opportunity is huge, particularly given the potential to provide part of the solution to Scotland’s long-standing housing crisis, which is now manifesting itself with rising rents and house prices in our main cities. BTR has the ability to deliver stock quickly and much faster than conventional housing for sale models. A quick glance at Europe, the US and the Middle East shows how successful these schemes are in meeting the needs of large sections of city populations.
Favourable demography, solid economic growth, rising earnings and strong higher education provision are driving BTR provision in Scotland, while investor concerns around political uncertainty and legislative change, around the new Scottish Private Residential Tenancy, appear to be dissipating. The successful launching of a number of pipeline schemes should see these concerns dissipate further. The experience of Scotland’s first BTR scheme at Forbes Place in Aberdeen shows these schemes can be successful here and the recent purchase of the Lochrin Quay scheme in Edinburgh for BTR by Aberdeen Standard shows that major investors are seeing the opportunity in Scotland with sizeable deals. Establishing Scotland as a destination for other funds to invest in will provide the sector with critical mass.
Overall, we are seeing investor interest starting to accelerate in Scotland and, importantly, there appears to be much more of an acceptance of BTR from Scotland’s local authorities. The sector itself has helped dispel the myth that the BTR product is just a premium rental product for yuppies that many local authority planners and senior executives seemed to assume initially. The majority of the pipeline is in fact targeted at the affordable to middle ends of the market. However, it is clear that planning authorities need to be much better resourced and need to have a fuller understanding of what these schemes are and the impacts that they can have. Investors and developers are still complaining about the length and arduous nature of the planning process in Scotland compared to other parts of the UK.
The Scottish Government is fully behind BTR and leveraging private investment into real estate to help deal with our chronic housing shortage is a key government objective. The Rental Income Guarantee Scheme is a sign of the Scottish Government’s commitment to the sector, as is the continuation of exempting purchases of six properties or more from Additional Dwelling Supplement (ADS), which differs from England & Wales where ADS applies on such transactions despite industry lobbying. Last month, Rettie & Co was appointed by regeneration group Places for People to support the delivery of 1,000 BTR homes across Scotland. This is being funded with a long-term loan of £47.5 million from the Government, which is targeting the delivery of more than 50,000 affordable homes by 2021.
In order to successfully deliver a high quality BTR product in Scotland, collaboration is key; between the private and public sectors, including cross-party agreement on housing strategy and, last but not least, collaboration within the BTR sector itself. Acknowledging respective strengths and bringing these together will without question deliver better housing outcomes for Scotland.
- John Boyle, director of research & strategy, Rettie & Co