PRS and Opportunities for Social Landlords in Scotland Dr John Boyle CIH 29 January 2015
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
RENTS HAVE INCREASED. BELOW INFLATION, BUT NOW CATCHING UP Source: Citylets
PRS RENT INCREASES RISING SLOWER THAN RSLS IN MOST PLACES Source: SHR and Scottish Government
RENTS ARE DETERMINED BY ECONOMIC DRIVERS
CONDITIONS RIPE FOR A PRS REVIEW Growth of PRS Increase of BTL since 2002 Increases in house prices, esp 2001-07 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
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 2013 70% 230000 Aberdeen City Edinburgh, City of Glasgow City 1,400,000 60% 210000 Scotland 1,200,000 50% 190000 1,000,000 40% 170000 800,000 30% 150000 600,000 400,000 20% 130000 200,000 10% 110000-0% 90000 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013 2013-2014 2014-2015 Social Rented Private Rented Owner occupied Source: Scottish Household Survey, Citylets
PARTS OF EDINBURGH ARE NOW CLOSE TO 50% PRS
DEMAND FOR SCOTTISH HOUSING RISES WITH THE POPULATION Source: Scottish Government
ANNUAL POPULATION GROWTH NOW ON PAR WITH EU15
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
LONG TERM SCOTTISH HOUSE PRICES Source: Rettie & Co analysis of Registers of Scotland and CPI data
RESI HAS STRONG RETURNS WITH A RELATIVELY LOW RISK PROFILE Source: IPD all prop. Annual index, J.P. Morgan 7-10yr
PROPERTY PRICES HAVE FURTHER TO TRAVEL IN SCOTLAND AND YIELDS ARE NOW HIGHER Source: Registers of Scotland, LSL Academetrics, Citylets and Homelet
PRS IS FOR A BROAD RANGE OF INCOME GROUPS Source: Scottish House Condition Survey 2013
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
Approvals MID-MARKET RENT GROWING IN SCOTLAND 12,000 10,000 8,000 6,000 4,000 2,000 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 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
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
Dr John Boyle john.boyle@rettie.co.uk www.rettie.co.uk/blog/