Scotland has approximately 2.5 million homes for the estimated 2.45 million households recorded by National Records of Scotland in December 2016. On the face of it, a balanced equilibrium between supply and demand.
Why, then, do we have a housing crisis with more than thirty thousand people homeless in Scotland, of whom around only 5 per cent are recorded as intentionally so? The average length of private rented tenancies in Scotland is between 18 and 22 months, with marginally longer leases in the east of Scotland. These statistics do not reflect equilibrium.
Dig a little deeper and Scotland’s housing market looks even less fit for purpose. In 2007, the Scottish Government set a target of 35,000 new homes per annum to address the shortage of private family and affordable homes. Private sector and public procurement have produced fewer than 20,000 homes annually, with some 17,739 homes completed in 2017. This is a structural market failure.
In Scotland, some 60 per cent of residential properties are privately owned and financed, and a further 15.4 per cent are privately rented, again backed by private capital. This means less than 25 per cent of Scotland’s housing stock is controlled within community ownership, principally local authorities and housing associations, plus a small number of cooperatives. At the start of the 1980s, this figure was 30 per cent and Adam Smith’s invisible hand in the market has swung the pendulum too far towards private housing provision. Despite the 2008 private property crash, public and community housing provision has not filled the gap.
The idea of mutual funds, matching the needs of savers and borrowers in a structure where each saver is a member, and each borrower has access to loans provided by the mutual fund, could provide a source of cheaper capital for the housing market. The building society movement operated successfully on this principle, established in modern form by The Building Societies Act in 1874. The name building society embodies all that has been lost in the Scottish, and wider UK, residential property development industry; capital provided by savers being used to build a society where those savers live.
UK saving rates are the lowest since records began, with households saving less than 5 per cent of income in the last six quarters. Importantly, the demutualisation of the UK’s six largest building societies between 1989 and 1999 broke the chain of capital between saving and lending for mortgages.
Scotland could look to Scandinavia for examples of cooperative provision of housing. Sweden has 18 per cent cooperative procured housing stock. Denmark, which has a similar housing stock to Scotland, has a single cooperative provider, KAB, holding some 540,000 units, equivalent to 90 per cent of the nation’s social housing stock. The current Scottish model has local authorities and housing associations sharing responsibility for supplying affordable housing.
One suggestion would be a return to a new form of mutual housing provision to supplement cash-starved local authorities and capital-constrained housing associations. The £15 billion Help to Buy subsidy targeted by the government between 2017 and 2027 will only fuel the problem of unaffordable housing in the medium term.
Brownfield land in public ownership urgently needs to be released. Thought should also be given to refocussing taxpayers’ money so it works with their own pension funds to stimulate mutual housebuilding funding solutions that are an affordable use of public and private capital working together, in times of long term low interest rates. Applying this capital to build homes on land currently in public ownership would create an alternative to the private rented sector, an alternative that other countries are already utilising successfully.
- Matthew Edgar, partner, FCP Property Development Fund, Full Circle Partners.