Navigating Scotland’s housing reform: opportunities amid challenges

While the Scottish housing bill aims to enhance tenant rights significantly, there are concerns about its potential to alleviate the core issue of housing supply. The Scottish Property Federation has expressed concerns that uncertainty is stalling the build-to-rent sector, arguing that it has a crucial role to play in addressing housing shortages. Some level of control to prevent short-term spikes should not be off the agenda, but, ultimately, increased supply will slow rental growth.

This challenge to the development of build-to-rent accommodation in Scotland, and to housing supply in general, comes against the backdrop of housing emergencies having been declared across four Scottish cities and well-documented rental pressure.

While rent controls will limit rental increases in the short term, if they discourage the development of new rental properties, the housing shortage across all tenures will be exacerbated, in effect pulling up the drawbridge for new entrants to the market and potentially reducing the already limited supply.

“The Scottish Property Federation has expressed concerns that uncertainty is stalling the build-to-rent sector, arguing that it has a crucial role to play in addressing housing shortages”

When you layer on additional local challenges, such as the shortage of purpose-built student accommodation in Edinburgh, which forces students into the wider rental market, you can understand why increasing supply must be front and centre.

This also shines a light on another issue for Edinburgh. If there isn’t enough affordable housing for students when they graduate, or indeed when they are considering where to study, Scotland loses these qualified generators of wealth to other locations.

A counterargument that is sometimes made points critics to other European markets where rent controls have been in place for some time. However, these are generally markets with an existing, significantly higher, percentage of rented stock and where supply is less of an issue, such as Germany.

This all comes, of course, on top of more far-reaching planning policy changes which have not necessarily helped the supply side. National Planning Framework 4 abolished the presumption in favour of sustainable development. For land not allocated in a development plan, this effectively removed a pathway for planning cases to be determined on their merits where they would support overall housing delivery.

This has been reinforced in the recent Mossend court judgment, at least until such time as new-style local development plans come forward. This could take many years and will most likely create further supply challenges and corresponding impacts on the overall delivery of new homes, and all at a time when the Scottish government has acknowledged the supply issues by declaring a national housing emergency.

In the short term, early and constructive engagement in the new wave of local development plans will therefore be paramount if housing land allocations are to be achieved and delivered.

“Across the UK, almost all regions face a housing shortage, creating a pressing issue for political parties, including Labour, which has pledged to address housing in their election manifesto”

Scotland isn’t alone in facing a supply challenge. Across the UK, almost all regions face a housing shortage, creating a pressing issue for political parties, including Labour, which pledged to address housing in their election manifesto. Housing was a critical topic during their election campaign, with promises to fix systemic issues, and it has continued to generate media attention since their victory.

However, the last government struggled to make significant headway, and the investment market highlights that build-to-rent is not happening as expected due to these uncertainties. The Scottish National Party’s housing policy focuses on increasing affordable housing supply and protecting tenants’ rights, yet the uncertainty surrounding their legislative approaches adds an additional layer of complexity compared with the rest of the UK.

As the bill progresses through parliament, entities like Avison Young can support and research, navigate legislative complexities and potentially influence policy. This stage in the progress of the housing bill is crucial for addressing stakeholder concerns and ensuring the legislation balances tenant protections with stimulating housing sector investment.

Rent controls and extensive tenant protections could significantly impact property values and rental yields, altering the landscape for landlords and investors. While investor caution could slow the private rental market, sectors less affected by new regulations, including other residential or commercial uses, might see increased interest. This shift could drive a reallocation of capital and influence housing development priorities, potentially diversifying investment strategies within Scotland’s property market.

Despite potential challenges, the Scottish housing bill introduces significant changes intended to balance tenant protections with landlord and investor interests.

As we move forward, it’s clear that landlords, developers and investors must strategically adapt to a shifting landscape where tenant welfare and investment returns are redefined. This adaptation requires not only a keen understanding of the new regulations, but also a proactive approach to portfolio and investment strategy reassessment.

Stewart Taylor, managing director for Edinburgh, Avison Young