JLL Residential

Scotland Residential Forecasts – Rising To The Challenge February 2016

About the report

The economic backdrop and medium-term outlook for Scotland is looking far more positive than in recent years. But with this expansion come issues which will need to be addressed if Scotland is to reach its full potential.

A significant concern for Scotland is that annual housing starts and completions have not increased sufficiently in recent years, raising questions about whether the Scottish Government’s recommended housing delivery target can be met.
In the year to Q2 2015 a total of 15,260 homes were completed, 11,550 of which were private. More worrying is that both totals were marginally below the figures from a year earlier.

The funding associated with the Help to Buy scheme has been useful, but the fact that funds ran out very quickly and have been insufficient to elevate the aggregate development numbers tell their own story. Both homebuyers and housebuilders responded positively to the Help to Buy scheme, but the mechanics have left a market vacuum post-event.

New funding arrangements were announced in January 2016, with the Scottish Government is trying to encourage smaller builders by incrementally increasing their share of the budget allocation. Overall, the Government have pumped £500m of support into Scottish housebuilding (all tenures) but the latest housebuilding totals are notably below the five year average to 2007/8 of 21,170 homes a year, the Government’s current recommended target of 23,000 a year and the previous target of 36,000 homes a year.

How greater housebuilding will be attained is a central issue for the Scottish Government in the medium-term.

THE FINAL WORD

2016 will be a year of challenging questions rather than unbridled forward momentum. And there are several questions on a variety of residential issues which need addressing.

The greatest challenge is how the housebuilding industry and the Scottish Government will move towards building the greater volume of homes the country needs. Development activity is better than 3-4 years ago but still nowhere near the 23,000 homes a year target. The Scottish Government is allocating funds to assist, but we believe closer collaboration with the industry, more innovative and more directly beneficial initiatives as well as higher funding need to be considered if the housing shortfall is to be tackled.

The £195m Help to Buy scheme will help both buyers and housebuilders of “affordable” homes but the stop start nature of the funding and uncertainty of eligible criteria has created uncertainty and weakened some peripheral locations. However, although welcome, it is unlikely that the new tiered funding arrangement will last throughout each financial year and even less likely that the funding will be sufficient in value or longevity to create the sea change in supply required.

2016 will also bring into play legislation that will rebalance the private landlord and tenant relationship. However, we will have to wait and see whether there are any wider market implications or whether any local authorities will use their rent cap powers.

And with some PRC schemes set to get underway in Edinburgh in 2016 and with more sites being considered for the private rental model in cities such as Glasgow and Aberdeen too, the shift in development bias towards PRC rather than private sale will be an interesting change to monitor.

The development and private sale markets in Scotland’s larger cities will also have to adapt to the less favourable private investor environment following tax relief and LBTT changes.

So, more questions than answers, but undoubtedly an interesting year ahead.