Rent freeze has had investment consequences - John Boyle

Emergency legislation was introduced by the Scottish Government in September 2022 as a cost-of-living measure. Initially this was applied as a rent freeze for both the social and private rental sectors. From April 1 2023, this was lifted for the social sector and is now capped at three per cent for the private sector. The emergency legislation is intended as a short-term measure to help solve an immediate cost of living crisis but, by acting against new supply, it risks worsening affordability and availability in the private rental sector.

Rettie & Co’s research team was commissioned by the British Property Federation to undertake an analysis of the Scottish Government’s rent freeze and its impacts, particularly on the Build to Rent (BtR) sector.

BtR is seen as part of the solution to housing shortages in the private rented sector (PRS), as recognised by the Scottish Government itself. BtR provides professionally managed accommodation with a range of amenities. It is generally affordable compared to the wider PRS and caters for a range of income groups and employees. Independent research also shows high levels of satisfaction among those living in BtR homes.

Scotland, especially Edinburgh and Glasgow, meet all or most of the requirements that BtR investors have when they consider locations for BtR. Current operational BtR schemes in Scotland are performing well and have been able to adapt to previous Scottish PRS legislation without significant issues.

John Boyle, Director of Research and Strategy, Rettie & Co.

However, the results of our research show that Scotland is underperforming in terms of delivery in this sector, with political risk being the main factor. Edinburgh and Glasgow, according to a recent report by Colliers, should be in the top 3 UK cities for residential investment, but, in terms of rate of completion of BtR homes in UK local authority areas, Edinburgh is currently 72nd and Glasgow 89th.

This risk has been heightened by the emergency legislation and, as a result, is affecting investor appetite to fund and deliver BtR. None of the 14 institutional investors who we spoke to (largely responsible for investing pension fund money) currently believed that Scotland was attractive for residential investment and four thought it was un-investable in current conditions.

Rettie & Co. estimates that BtR in Scotland is worth around £4.5 billion but less than £1 billion is operational. Over £2.5 billion of potential BtR housing is viewed as being ‘on hold’ and ‘at risk’ in Scotland, with a further £0.5 million of Mid Market Rent (affordable BtR) also estimated to be at risk. Deploying this capital is estimated to lead to the creation of over 15,000 new homes and support around 60,000 jobs.

Further legislation on the rented sector is planned by the Scottish Government, which adds to the uncertainty. If the Scottish Government is serious about BtR being part of the housing crisis solution, it needs to engage the industry and overcome some of the hurdles to investment. Policies such as the rent freeze/cap are perceived by the industry to be adding more hurdles.

If Scotland is going to tackle the housing crisis and house its people, it fundamentally needs more new homes.

John Boyle, Director of Research and Strategy, Rettie & Co.