Increasing Scotland’s housing supply with Build to Rent

Suzanne Gray
BTR is currently under-represented in Scotland’s housing provision, but interest and confidence in this emerging sector has been growing.

Build-to-rent (BTR) momentum has been building in Scotland over the past five years. The Scottish government has highlighted the product as an important part of its approach to provide new homes and to improve the private rented sector. It’s seen as a way to create well-designed, sustainable homes, quickly and at scale, as well as supporting key economic sectors in Scotland and encouraging labour market mobility.[1]

Designed for long-term private rental rather than for sale, and typically owned by institutional investors and managed by specialist operators, BTR has flourished in England, where there remains a strong appetite for its development and funding in most cities, particularly those with good infrastructure and transport links. The model is now developing its own sub-sectors such as family housing, co-living, retirement and intergenerational living, and can add value to placemaking, community building/connecting and local regeneration agendas.

In addition to rental home shortages, consumer demand is being fuelled not only by economic uncertainty and financial constraints on home ownership and mortgage availability, but additionally by a demand for flexible and better managed tenancies with higher amenity levels.

In Scotland, there’s been a more cautious entry into this market, but we’re now seeing the sector slowly begin to evolve. The Scottish government cites BTR as an opportunity to increase housing supply not only in city centres, but also beyond, where the government acknowledges a need for good quality well-managed private rental accommodation for families. Suburban locations with good transport connections, nearby schools and other local family-focused amenities are therefore likely to become an important BTR focus.[2]

Investment has largely targeted Glasgow (4,482 units completed or in the pipeline) and Edinburgh (completed/pipeline 3,021) to date. There has been less supply emerging in Aberdeen (completed/pipeline 1,094), where funding interest has been harder to attract.[3] Nonetheless, both Aberdeen and Dundee are likely locations for future supply and there is local authority interest following the cities’ early schemes. Scotland’s first institutionally funded BTR development is in Aberdeen and the city council views the product as an opportunity to increase the range of housing options to younger households.[4] Dundee City Council has also stated support for BTR. [5]

Clearly there are challenges in the expansion of this asset class. The product must be suitable for the local market, both as an investment and for end-user demand and satisfaction. It’s essential to know the local customer base and to interpret their needs, their preferred amenities and which services are most important to them.

Schemes must stack up financially, with capital costs and rental values aligned, taking account of each area’s rental value limitation. Creating a sense of place and community, in which these developments have been shown to flourish, may also be challenging, especially in the light of the pandemic and its after-effects.[6]

Assessment of BTR viability must pay close attention to requirements for developer contributions, which can be onerous and may include the above-mentioned placemaking elements. In addition, developers must navigate the recent changes to the Building Standards, understanding how this affects build costs. Affordable housing requirements can be imposed on BTR schemes for intermediate rent, so it’s important to get the right blend of income through market rent to make it viable.   

There are signs of policy support, with the Scottish government publishing its Planning Delivery Advice on BTR, providing guidance for local authorities. There’s also the Rental Income Guarantee Scheme (RIGS), which provides the developer and funder with greater confidence during the early stages of occupation, compensating for part of any rent shortfall when the letting risk is highest.

Faithful+Gould was one of the earliest UK delivery partners for BTR. We have proactively managed the costs for several schemes in England, reinforced by our expertise in the wider residential and placemaking markets. We anticipate that Scottish stakeholders—planners, developers and tenants alike—will benefit from lessons learned elsewhere in the UK, leading to a BTR market that will steadily mature.

Within our national business we have a wealth of data to draw upon, which is equally applicable in Scotland’s market. The data underpins astute decision-making around spatial metrics, mix of unit types and general design parameters, maximising efficiency of the asset and investment model.

Our team is well positioned to support BTR developers, funders and operators in Scotland as this market continues to evolve. We are already helping clients make informed decisions around planning, designing, funding, operating and maintaining BTR assets in Scotland, and we are active on a fifth of Scotland’s pipeline. Our aim is to optimise the scheme’s design and construction, creating desirable places to live while delivering value for our clients.

 

[1] The Build to rent opportunity in Scotland, the Scottish Government (undated).

[2] The PRS in Scotland for houses - Is this meeting the needs of families? Scottish Futures Trust & Savills, 2019.

[3] Scarlett Land & Development

[4] Aberdeen City Centre Living Strategy Report and Recommendations, Aberdeen City Council, 2017.

[5] Dundee Local Development Plan 2, Dundee City Council, 2018.

[6] Endpoint, 2020.

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