Deputy Business Editor – The Herald
Investors have been forecast to return to the Scottish build-to-rent (BTR) property sector this year, after rent controls “devastated” the market, a senior industry figure has declared.
James Blakey, planning director of Moda Group, told a major conference in Glasgow yesterday that new housing legislation currently making its way through the Scottish Parliament is being shaped in a way that will give more confidence to investors.
It follows widespread criticism of emergency rent controls introduced by the Scottish Government at the height of the cost of living crisis in 2022, which BTR developers and business groups say has led to investors turning their backs on Scotland.
Moda Group is a residential investor and long-term operator of BTR projects in Glasgow and Edinburgh. These include the 433-apartment Holland Park development with amenities in Glasgow city centre, and Vista Park in the east end.
The company has invested £450 million in Scotland to date, and Mr Blakey declared it is “poised” to invest a further £500m in BTR projects north of the Border.
Speaking at the Scottish National Investment Bank’s flagship conference, sponsored by The Herald, in Glasgow, Mr Blakey said: “In terms of build-to-rent, a key barrier at the moment is rent control. Rent control came in in September 2022 and that has devastated [the market]. From a long-term investor’s perspective, the Housing [Scotland] Bill has [had] a series of unintended consequences which drove all the investors away from Scotland.
“At Moda, we were heavily invested in Scotland. We can see the potential here in Scotland, so we decided to stay. From a ministerial point of view, we were delighted to be invited on to the housing investment taskforce, to try and change that policy framework to a point where investors would come back into the market.
“And through that work I am delighted to say that [while] there is a little bit of that journey to go, we are on a trajectory of positive change that hopefully will resonate towards the end of the year where investors will start to return to the market.”
Mr Blakey’s message of confidence in the BTR sector came as an expert panel debated the acute challenges facing the wider housing market in Scotland, which has seen numerous authorities declare housing emergencies owing to the severe shortage of homes of all types.
During a panel session chaired by Sara Thiam of Prosper, Jane Wood, chief executive of Homes for Scotland, and William Kyle, fund director of Thriving Investments, joined Mr Blakey in exploring the barriers currently impeding progress towards tackling the shortage.
The issues raised included planning delays, insufficient resources at local authority level, construction costs, and the difficulties faced by small and medium-sized builders in accessing finance. Concern was expressed over the falling rates of house building across Scotland and the “regulatory burden” which adds heavy costs to the construction process.
Mr Kyle, whose firm invests in “mid-market” homes for rent within commuting distance of Glasgow and Edinburgh, said the introduction of rent controls diminished the construction sector in Scotland “quite severely”. He said: “We have seen people pulling out of developing in Scotland. We have seen a number of major contractors who can tender for a job fall away. That just takes the competitiveness out of the market. It just means it is a real struggle, and it is equally difficult for the people that are left to do it to make things work.”
Ms Wood said there is a list of 50 barriers to housebuilding sitting with the Scottish Government, which her organisation is addressing with officials. Top of the list, she declared, is “planning reform”. However, Ms Wood said efforts are not being helped by events south of the Border, where public limited companies are telling Homes for Scotland that it is now “easier to do business”.
Ms Wood said: “That worries me about getting that investment in. Access to finance is a big problem… and we have to be very careful that we are protecting the SME level of our sector. Just to give you a very scary statistic… in 2017 40% of houses being built were built by SMEs. It has gone down to 20% and that is really concerning. The key element to that is access to finance.”
Ms Wood added: “The state of the whole housing supply in Scotland worries me… ultimately, housing completions and starts are falling year on year. They are down 17% and 12% respectively this year and they are not going back up. We have got this horrible badge in Scotland that we have a housing emergency – that is not good for the country or investors. We have got 28% of households in Scotland living in some sort of housing need and that is before we start on homelessness. So the overall picture is a really challenging one.”
Mr Kyle declared that the planning system “has not really been functioning as it should” post-Covid. He said: “We need to get that planning system working such that viable sites, and sites that are broadly acceptable in terms of residential development, are fast-tracked through that system.”