Investors need certainty to build the homes Scotland needs

In May 2024, the Scottish Parliament declared a national “housing emergency” with some councils also declaring a housing emergency in their areas.

The announcement of the emergency came two months after the Scottish Government laid the Housing (Scotland) Bill before the Scottish Parliament. The Bill continues to work its way through Holyrood and is expected to come into force later this year.

Observers in the world of institutional investment and those working in the sector have been watching the progress of the Bill with interest. Of particular concern to investors are proposals around rent controls.

​Colin Brown is a Partner at TLT

To give one example that has occurred recently – a London-based investment firm, was about to commit many millions of pounds to its first Scottish investment before discovering that a committee considering the Bill had voted to include purpose-built student accommodation as subject to statutory rent controls. All of the financial appraisals the firm had undertaken in making the decision to invest in Scotland were potentially being ripped up by MSPs and they had no power to do anything about this.

In this situation, the Scottish Government moved quickly to make clear it would not support rent control for purpose-built student accommodation. Whilst the project is now starting to come out of the ground it remains to be seen whether they consider Scotland a safe haven for future investment.

The rental income which institutional investors derive from their investments in bricks and mortar helps to fund many individuals' pensions. The investors need to understand that in exchange for making their money available they will get a return on their investment and this return has generally been left to market forces – the law of supply and demand. The housing emergency should make investment in new build housing in Scotland a win-win. The country gets much-needed new housing to alleviate the emergency, and the investment funds get to deploy their capital to deliver housing and make a return on their investment.

In the UK in the first quarter of this year £1.2 billion was invested in private rental accommodation with the potential for £6bn to be invested by the end of the year. 76 per cent of this investment is being directed outside London, with Manchester, Birmingham, and Leeds leading the way. Every penny of this investment creates new housing and sustains and creates job opportunities.

The fact that Scotland has not been able to open the investment tap when cities in England are seeing private rental accommodation expand, could be seen as a missed opportunity.

In launching the latest consultation, the Social Justice Secretary acknowledges that rental properties are a crucial element of the efforts to tackle the housing emergency. Government policy has slowed investment into the sector in recent years and resulted in lower investor confidence in providing much-needed housing.

Rent caps and controls are of course not universally despised and a balance must be struck between protecting tenants and unlocking the investment that delivers the new housing.

The latest consultation on exemptions for certain types of properties from rent control closed earlier this month. There will be investors with capital looking for a home waiting to see if the legislative and political environment in Scotland means they should be deploying more of this in Scotland or continuing to explore opportunities which guarantee a better return elsewhere.

Colin Brown is a Partner at TLT