Income strip funding could help deliver the new housing Scotland needs - Euan Pirie

The dust has just settled on UKREiiF 2024, the UK’s largest property and infrastructure forum. Over the course of three days, more than 12,000 built environment professionals gathered together in Leeds to discuss sustainable, inclusive and transformational investment.

There was a strong Scottish presence, such are the investment opportunities here, particularly in areas such as our ports and harbours, healthcare and academia, including student accommodation.

A hot topic of conversation was housing and the Scottish Government’s recent declaration of a housing emergency – an official recognition that demand for affordable, quality housing is outstripping supply, the reasons for which are complex and long-standing.

Euan Pirie is the head of major projects and infrastructure at Harper Macleod (Picture: Mike Wilkinson)

Local authorities and housing providers are not only wrestling with this significant challenge, but also their impact on the environment and their contributions towards Scotland’s 2045 net zero goal. This challenge is made even more stark when you consider that 80 per cent of our existing buildings will still be occupied in 30 years’ time.

Many organisations are facing the real dilemma of delivering more vital frontline services while being measured on their impact. They are required to deliver more for today while being asked to minimise their impact on tomorrow.

Earlier this year, we brought together stakeholders with a direct interest in Scotland’s public sector built environment to examine the key factors which contribute to the country’s ambitions towards net zero.

A common theme emerging from our discussions was that these challenges are becoming increasingly more difficult to overcome when facing funding gaps. This will require hard work and pioneering approaches.

One such approach to fund new housing projects is income strip funding, which is well-established in some sectors, but not one which has necessarily been applied in Scotland to housing or housing for social need when attached to other circumstances such as key worker accommodation.

Income strip, or long income, is a forward funding arrangement where investors – traditionally institutional investors such as pension funds – acquire property and property-related assets and derive a “long income” from the project assets, typically over a 40-year period, before the assets are returned to the sponsoring authority at no cost to the lease term.

This model provides the construction funding against the security of secure rental income. It also offers long-term finance to spread the cost of infrastructure provision. Added to that, in many cases it is a pension fund investing in public projects, so very much a circular economy-type way of thinking.

Further advantages are that, if structured correctly, income strip funding does not count towards public sector borrowing and can be applied to many different uses, including retrofitting programmes.

We’ve examined this in much more detail in our report – The Blueprint – taking a look at some of the other challenges facing Scotland’s public sector built environment, including retrofitting at scale, community building, and city centre regeneration, all under the lens of achieving net zero goals.

What’s clear is that this goal will not be achieved by one solitary activity or isolated policy, but an interconnected and interrelated series of actions and behavioural changes governed by clear frameworks and guidance. Achieving our net zero goals while also addressing our immediate housing shortages will take a significant collective effort, true partnerships, and innovative funding models.

Euan Pirie is the head of major projects and infrastructure at Harper Macleod