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Homes For Scotland

Homes For Scotland

The Homes for Scotland Annual Lunch takes place this Friday at the Edinburgh International Conference Centre. It is the date in the Scottish home building calendar and an event that we at Burness Paull are very proud to sponsor.
With over 1,000 attendees it’s a great afternoon, with opportunities aplenty to catch up with familiar faces and to make new connections too. It’s also a fantastic place to ‘take the pulse’ of the home building market in Scotland. It will also be the first Annual Lunch that has been held under the stewardship of the new Chief Executive, Nicola Barclay.
In anticipation of that here are some of my reflections (based on my own experience) of recent times.
We are very active helping house building clients bid for sites.  This is principally for new build developments. There are numerous bids going in at closing dates for sites in the central belt. We are also seeing a number of Aberdeen based house builders focusing their attention south of their traditional markets, where demand seems to be strongest.
However, there is much concern, at a national level, of a housing crisis. Production of new homes has slumped by 40% since 2007. Demand for new homes is most definitely there, but for the right product (at the right price) in the right location. Without new homes being supplied, house prices are going to be forced upwards and further out of reach for a significant number of people.
Affordability and mortgage availability remain a key issue for many people who do not qualify for affordable housing, yet cannot get a mortgage for the home that they want. A fifth of parents believe their kids will need ‘substantial financial support’ for them ever to afford to buy a home. The build to rent sector rightly sees this as a significant opportunity.
There is serious and real interest in the build to rent sector now.  There appear to be numerous investors that are poised to get into that sector on a scale that will make a significant difference to the economy. However, the impact of fundamental reform to the residential tenancy regime in Scotland and the additional tax on second homes, means that there could be negative pressure on existing and potential investors in the build to rent sector in Scotland.  We need to be encouraging that investment and attracting global capital.
The Government’s support of the affordable housing sector through the recession in the Central Belt and continued focus on that part of the market has undoubtedly been of benefit to many that would otherwise have remained in sub-standard accommodation.  However, there has been a gap identified for those that can’t afford private sector rented accommodation, but have no real opportunity of being allocated social housing in the near future.  Initiatives like the LAR Housing Trust (which we have been involved in) are now going to start bearing fruit.  LAR will, over the next five years, work in partnership with house builders and developers to create 1,000 new homes in Scotland.  
There is much demand for housing generally in the mid-market rent area, and house builders and affordable housing providers are looking more and more at opportunities to go into partnership to work together to deliver what the market wants. 
The “Help to Buy” scheme remains much in demand, but the thresholds are now reduced to new homes purchased up to £230,000 prior to 31 March 2017 (and thereafter the threshold reduces annually). Undoubtedly Help to Buy has been a huge success and helped accelerate an improvement in the private residential development market.
Many small and medium sized house builders in the central belt went out of business during the recession.  It will be very interesting to see how that part of the market develops in the next two to three years.  There is certainly demand for the type of product that those house builders could produce, which is probably not of interest to the PLC house builders and strong Scottish house builders that are looking at larger scale developments. Initiatives like the state and LBG backed Housing Growth Partnership will undoubtedly play a very helpful role in that market.
We are still seeing a number of large scale, 1,000 home plus, developments coming through the planning process and beginning to commence development.  It will be interesting to see how many of these move forward into development, and how quickly they can be developed out.  A number are likely to be subject to considerable planning costs (particularly education contributions) and infrastructure costs that could, at certain points of the development, act as a barrier to further development beyond a particular point.  A number of sites are likely to be constrained by such elements and this will put pressure on the Scottish and UK Governments’ desire for increased housing supply unless ways around these issues can be created. This has been addressed, for example, in the Countesswells development in Aberdeen of 3,000 new homes (in which we are involved on behalf of Stewart Milne Group) where the UK Government has recently provided a guarantee to the value of £86M. The UK Guarantee works by providing a state-backed guarantee to help projects access finance. The guarantee will enable funds to be raised from the Capital Markets, issued as revolving Loan Notes, to support the £1bn infrastructure project at Countesswells. The funder for the Countesswells’ development will be Bank of Scotland, who has worked alongside Stewart Milne Group and HMT to create long term lending for the life of the project.
A key practical issue for many of our developer clients is a lack of skilled labour.  In some senses, this is a good problem to have as it is indicative of an uptick in the construction sector.  Certainly, there are lots of opportunities around for skilled tradespeople, but the pressure of major infrastructure projects going on at the moment (including those anticipated by the City Deals funding) are likely to continue to put pressure on the supply of those skills and, ultimately, the increasing price that will have to be paid for them (which will be passed on to the consumer).
There are – as ever – a lot of moving parts in the sector at the moment. The change in the market is pretty dynamic when compared to the period following the recession. There’s a lot more that can be said on the subject, particularly around the planning process.  However, fundamentally, the economics of the market are strong: a cautious confidence is back, but the issue is meeting the demand with the right products and tenures that mean that we go some way to meeting the clear need for quality homes across the board and not just within certain parts of the market.

The Homes for Scotland Annual Lunch takes place this Friday at the Edinburgh International Conference Centre. It is the date in the Scottish home building calendar and an event that we at Burness Paull are very proud to sponsor.

With over 1,000 attendees it’s a great afternoon, with opportunities aplenty to catch up with familiar faces and to make new connections too. It’s also a fantastic place to ‘take the pulse’ of the home building market in Scotland. It will also be the first Annual Lunch that has been held under the stewardship of the new Chief Executive, Nicola Barclay.

In anticipation of that here are some of my reflections (based on my own experience) of recent times.

We are very active helping house building clients bid for sites.  This is principally for new build developments. There are numerous bids going in at closing dates for sites in the central belt. We are also seeing a number of Aberdeen based house builders focusing their attention south of their traditional markets, where demand seems to be strongest.

However, there is much concern, at a national level, of a housing crisis. Production of new homes has slumped by 40% since 2007. Demand for new homes is most definitely there, but for the right product (at the right price) in the right location. Without new homes being supplied, house prices are going to be forced upwards and further out of reach for a significant number of people.

Affordability and mortgage availability remain a key issue for many people who do not qualify for affordable housing, yet cannot get a mortgage for the home that they want. A fifth of parents believe their kids will need ‘substantial financial support’ for them ever to afford to buy a home. The build to rent sector rightly sees this as a significant opportunity.

There is serious and real interest in the build to rent sector now.  There appear to be numerous investors that are poised to get into that sector on a scale that will make a significant difference to the economy. However, the impact of fundamental reform to the residential tenancy regime in Scotland and the additional tax on second homes, means that there could be negative pressure on existing and potential investors in the build to rent sector in Scotland.  We need to be encouraging that investment and attracting global capital.

The Government’s support of the affordable housing sector through the recession in the Central Belt and continued focus on that part of the market has undoubtedly been of benefit to many that would otherwise have remained in sub-standard accommodation.  However, there has been a gap identified for those that can’t afford private sector rented accommodation, but have no real opportunity of being allocated social housing in the near future.  Initiatives like the LAR Housing Trust (which we have been involved in) are now going to start bearing fruit.  LAR will, over the next five years, work in partnership with house builders and developers to create 1,000 new homes in Scotland.  

There is much demand for housing generally in the mid-market rent area, and house builders and affordable housing providers are looking more and more at opportunities to go into partnership to work together to deliver what the market wants. 
The “Help to Buy” scheme remains much in demand, but the thresholds are now reduced to new homes purchased up to £230,000 prior to 31 March 2017 (and thereafter the threshold reduces annually). Undoubtedly Help to Buy has been a huge success and helped accelerate an improvement in the private residential development market.

Many small and medium sized house builders in the central belt went out of business during the recession.  It will be very interesting to see how that part of the market develops in the next two to three years.  There is certainly demand for the type of product that those house builders could produce, which is probably not of interest to the PLC house builders and strong Scottish house builders that are looking at larger scale developments. Initiatives like the state and LBG backed Housing Growth Partnership will undoubtedly play a very helpful role in that market.

We are still seeing a number of large scale, 1,000 home plus, developments coming through the planning process and beginning to commence development.  It will be interesting to see how many of these move forward into development, and how quickly they can be developed out.  A number are likely to be subject to considerable planning costs (particularly education contributions) and infrastructure costs that could, at certain points of the development, act as a barrier to further development beyond a particular point.  A number of sites are likely to be constrained by such elements and this will put pressure on the Scottish and UK Governments’ desire for increased housing supply unless ways around these issues can be created. This has been addressed, for example, in the Countesswells development in Aberdeen of 3,000 new homes (in which we are involved on behalf of Stewart Milne Group) where the UK Government has recently provided a guarantee to the value of £86M. The UK Guarantee works by providing a state-backed guarantee to help projects access finance. The guarantee will enable funds to be raised from the Capital Markets, issued as revolving Loan Notes, to support the £1bn infrastructure project at Countesswells. The funder for the Countesswells’ development will be Bank of Scotland, who has worked alongside Stewart Milne Group and HMT to create long term lending for the life of the project.

A key practical issue for many of our developer clients is a lack of skilled labour.  In some senses, this is a good problem to have as it is indicative of an uptick in the construction sector.  Certainly, there are lots of opportunities around for skilled tradespeople, but the pressure of major infrastructure projects going on at the moment (including those anticipated by the City Deals funding) are likely to continue to put pressure on the supply of those skills and, ultimately, the increasing price that will have to be paid for them (which will be passed on to the consumer).

There are – as ever – a lot of moving parts in the sector at the moment. The change in the market is pretty dynamic when compared to the period following the recession. There’s a lot more that can be said on the subject, particularly around the planning process.  However, fundamentally, the economics of the market are strong: a cautious confidence is back, but the issue is meeting the demand with the right products and tenures that mean that we go some way to meeting the clear need for quality homes across the board and not just within certain parts of the market.

Scott Peterkin
Partner

Burness admin