Scottish BTR investment stymied by rent controls

Build-to-Rent investment in Scotland is being driven downward by the Scottish government’s decision to impose rent controls on the private sector, with a significant minority of investors now viewing the country as “un-investable”, according to new research.

Research carried out by consultant Rettie & Co for the Scottish Property Federation found that a majority – nine – of the 14 BTR developers interviewed for the study saw the Scottish market as “unattractive” to new investment.

Furthermore, it found that four developers, including three with existing investments in Scotland, rated the country just 1 out of 5 for investment attractiveness, which the report said meant it was “un-investable under current conditions.” None of the developers rated the country a 4 or a 5, the most positive ratings.

The research follows the Scottish government’s decision to impose a temporary rent freeze and evictions ban on private landlords from October 2022 in response to the deepening cost of living crisis, with the government later saying it would allow rises of up to 3% from April this year.

The government decision has led to anecdotal reports of landlords and developers halting build-to-rent development plans, with Scotland’s largest housebuilder, Springfield, last year making clear it had put its build-to-rent joint venture with Sigma on hold due to the policy change. The research quoted one developer frustrated by the policy change, which it said had pulled out of a number of sites they had been looking to buy in Scotland. The developer said: “We are not planning on doing anything more really. It is really frustrating as our UK model should work well in many parts of Scotland.”

There is currently a pipeline of 17,000 BTR homes in build and planning in Scotland, according to the research, with 6,000 of these having achieved planning permission but yet to start construction on site. The research found that the main concerns of investors were around political risk, particularly around the rent freeze/cap and the uncertainty this created, as well as what was seen as the arbitrary nature of the intervention.

Dr John Boyle, director of research at Rettie & Co, said: “The sector has been stymied by what investors consider to be high levels of political risk. The recent emergency legislation has elevated these risks and less supply will come forward as a result, which will have consequences for affordability and availability of properties for rent in Scotland.”

David Melhuish, director, Scottish Property Federation, said the emergency legislation was acting as a clear disincentive to investment and “as a consequence investors are going to continue to divert capital elsewhere”.

“At a time when we need more housing, and a quality rental sector, investment in Scotland is reducing. The industry and the Scottish Government should be working together to ensure Build-to-Rent investment is flowing into the country.”

When the rent controls were introduced, tenants’ rights minister Patrick Harvie said the legislation gave “tenants across the rented sector additional protection as we continue to live through these challenging and uncertain economic times.”