Research shows that the sector has hit a 100,000 milestone, writes Hazel Sharp Webb.
Build to rent (BTR) is the provision of purpose-built private rented units by investors and developers. Many housing industry professionals now see it as part of the solution to the UK’s housing crisis. Such accommodation is highly popular in parts of Europe and the US, but has made little impact on the UK to date.
This is now changing. Latest research published by the British Property Federation (BPF) suggests that the BTR sector has almost hit a 100,000 milestone, with 95,918 homes completed, under construction or in planning across the UK. This represents an increase of almost 40 per cent compared to the first quarter of 2017, but little more than 1 per cent of this investment is being directed to Scotland. This may be partly due to some misconceptions about the sector in Scotland and not enough positive information about why Scotland is an attractive proposition for BTR. However, it should also be recognised that tenancy reform is creating a lot of political “noise”, particularly the apparent keenness of some councillors to use Rent Pressure Zones (RPZs) as a form of reinstatement of the old rent controls. However, RPZs may or may not be used and, in any case, they limit rent increases on existing tenancies only.
The new Private Residential Tenancy, due to come into effect in Scotland on 1 December, has no initial tenancy term, which is also a concern for investors (as well as landlords more generally). However, residents may have no real need or desire to move around if they are living in a professionally managed, high quality home. Under the new tenancy, there also continues to be a number of reasonable grounds for landlord possession or property, even though (rightly) tenants will now have greater security of tenure.
In terms of attracting BTR investment, Scotland benefits from relatively low entry prices; strong yields; multiple dwellings relief on Land & Buildings Transaction Tax; and more certainty around the regulatory regime, relative to the rest of the UK. Our main cities also have significant shortfalls in housing supply at a time of rising demand from increasing populations.
At the Movers & Shakers Scotland BTR Forum, held in Edinburgh last Thursday, the Scottish Government proposed a new Rental Income Guarantee Scheme (RIGS), which should send a positive message out to investors that the Government is intent on encouraging and growing the BTR sector in Scotland. This is effectively a form of government-backed insurance for schemes in the fledging sector, with decisions post application to the scheme taking no more than two months. A new planning advice note for BTR has also been published and “The Build to Rent Opportunity in Scotland”, commissioned by the government, was launched on Thursday. In it, the Minister for Local Government and Housing, Kevin Stewart, stated, “Build to Rent is an important part of the Scottish Government’s approach to growing and improving the private rented sector”.
Scotland needs to get on the map with BTR, especially in our main cities. While rent controls may offer the perception of easy solutions, the fundamental problem of lack of housing supply means that innovations like BTR must be grasped while they still can. Lessons can be learned from the likes of Dundee, where their two BTR schemes took just three months to get planning consent, and Leeds, where there is a BTR Steering Group made up of the public and private sectors. It is very important that our planning system and valuation profession understands what the product is to see the difference it is making in various English cities.
It is estimated that the UK BTR sector could be worth £50 billion by 2020. Scotland’s pro-rata share of this could realistically be £8-9bn over the next four years, which could add over 1 per cent annually to our economic growth. That’s the size of the opportunity.
Hazel Sharp Webb, head of BTR & PRS, Rettie & Co