PRS and Opportunities for Social Landlords in Scotland. Dr John Boyle CIH 29 January 2015

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1 PRS and Opportunities for Social Landlords in Scotland Dr John Boyle CIH 29 January 2015

2 OUR RESPONSE TO GOVT CONSULTATION Removing no-fault evictions Risk is disproportionate to investors Reactive rather than proactive means to enhance security of tenure Evictions decreased more than a third in 5 years (without intervention) Rent control Damaging to investor confidence Rents increase below inflation Perverse effect of driving rents upwards May cause disinvestment Increasing supply is more efficient to increasing housing affordability

3 RENTS HAVE INCREASED. BELOW INFLATION, BUT NOW CATCHING UP Source: Citylets

4 PRS RENT INCREASES RISING SLOWER THAN RSLS IN MOST PLACES Source: SHR and Scottish Government

5 RENTS ARE DETERMINED BY ECONOMIC DRIVERS

6 CONDITIONS RIPE FOR A PRS REVIEW Growth of PRS Increase of BTL since 2002 Increases in house prices, esp Lending restrictions for sales Reduced social lets available Housing Quality 61% failing SQHS in 2010 Age and energy efficiency Changing profile of tenants No longer niche (students, migrants) More under 35s and higher income More permanent rather than life cycle Changing profile of landlords Growth in single property landlords (84% single portfolio) Seek investment through growth in rising house prices rather than income returns 50% set rent to cover costs and returns, 25% set rent to cover costs without expecting a return Growth in HB expenditure Increase cost despite fewer in receipt Increased homelessness among PRS tenants PRS also being used as temporary accommodation

7 Number of Occupied Home Occupied Homes (%) RISE IN PRS COINCIDED WITH RISE IN HOUSE PRICES AND BTL MORTGAGES 1,600,000 Tenure Shift in Scotland: 1993 to % Aberdeen City Edinburgh, City of Glasgow City 1,400,000 60% Scotland 1,200,000 50% ,000,000 40% ,000 30% , ,000 20% ,000 10% % Social Rented Private Rented Owner occupied Source: Scottish Household Survey, Citylets

8 PARTS OF EDINBURGH ARE NOW CLOSE TO 50% PRS

9 DEMAND FOR SCOTTISH HOUSING RISES WITH THE POPULATION Source: Scottish Government

10 ANNUAL POPULATION GROWTH NOW ON PAR WITH EU15

11 SCOTTISH HOUSING SUPPLY IS LOW AND FALLING 2007 Government Target 35,000 homes per year Build rate when 2007 target set 23,000 homes per year Current Build Rate 16,000 homes per year Source: Scottish Government

12 LONG TERM SCOTTISH HOUSE PRICES Source: Rettie & Co analysis of Registers of Scotland and CPI data

13 RESI HAS STRONG RETURNS WITH A RELATIVELY LOW RISK PROFILE Source: IPD all prop. Annual index, J.P. Morgan 7-10yr

14 PROPERTY PRICES HAVE FURTHER TO TRAVEL IN SCOTLAND AND YIELDS ARE NOW HIGHER Source: Registers of Scotland, LSL Academetrics, Citylets and Homelet

15 PRS IS FOR A BROAD RANGE OF INCOME GROUPS Source: Scottish House Condition Survey 2013

16 REASONS TO INVEST IN SCOTLAND Solid legal and regulatory systems Increasing demand due to demographics and economic growth Constrained supply due to availability of land Growing PRS Stable political and economic environments Good mix of product to suit investment strategies

17 Approvals MID-MARKET RENT GROWING IN SCOTLAND 12,000 10,000 8,000 6,000 4,000 2, Total Social Rent Total Affordable Rent Total Affordable Home Ownership DCHA, POLHA, New Gorbals HA (and others) Opportunity New business Addresses gap in market Potential for PRS Addresses affordability and lack of supply Cross subsidies for social housing HAs and PRS in England Sovereign Housing Assn. Nottinghill Housing Assn. A2Dominion Housing Group

18 BARRIERS/SOLUTIONS Finance Bond market, debt/equity swaps, JV partners Sites Good agent(!), networking, building knowledge Demand Discount to OMR, vibrant PRS there already, possibility of price inflation Required returns Modelling with good data & right assumptions

19 Dr John Boyle