Rent controls and political uncertainty is affecting the supply of new build-to-rent homes, according to a report by real estate group The Scottish Property Federation.
Of the 14 investors interviewed with a combined £15 billion of BtR assets, nine judged Scotland to be unattractive, including four who view the country as uninvestable under current conditions – the six month rent freeze and recently introduced 3% rent cap.
Scotland has experienced strong build-to-rent growth in Glasgow and Edinburgh, but it’s thought things are slowing down.
The pipeline of build-to-rent in Scotland sits at around 17,000, but two-thirds (67%) are in planning including 6,000 properties with planning permission where construction is yet to begin on site.
David Melhuish, director, Scottish Property Federation, said: “The impact of the emergency legislation on the BtR market over the last six months is clear. The lack of long-term policy certainty means investors largely view Scotland as a risk, compared with more stable locations in other parts of the UK.
“This situation is a disincentive to investment and as a consequence investors are going to continue to divert capital elsewhere. The rental market in Scotland, and crucially renters, will continue to bear the brunt as new housing supply is constrained and demand for accommodation soars.
“At a time when we need more housing, and a quality rental sector, investment in Scotland is reducing. The industry and the Scottish government should be working together to ensure Build-to-Rent investment is flowing into the country.”
The way in which the rent controls were introduced has increased the risk calculations for investors, with concern that the Scottish Government could implement other short-term policy changes and further undermine the BtR business model.
Investors are calling on the Scottish government to incentivise investment in the BtR sector by:
- Creating a stable policy environment that removes the risk of ongoing interventions in the market and reduces the risk premium
- Positive planning policy, including supporting density for BtR and dealing with planning applications quickly
- Working with the sector to foster confidence and trust for urgently required housing investment
Dr John Boyle, director of research at Rettie & Co and the main author of the research, said: “Our work clearly shows the potential for BtR in Scotland as part of the answer to the housing crisis.
“However, the sector has been stymied by what investors consider to be high levels of political risk.
“The recent emergency legislation has elevated these risks and less supply will come forward as a result, which will have consequences for affordability and availability of properties for rent in Scotland.”
