The Build to Rent (BTR) sector in Scotland continues to grow at pace with over 16,000 homes in the BTR pipeline. With Scotland facing a national housing crisis, BTR schemes are well placed to help deliver the volume of units needed to meet the growing demand for affordable and sustainable new homes not only for young single individuals normally attracted to BTR but for families too.

What is Single Family Housing?

Single Family Housing (SFH) is the latest iteration of BTR and offers an alternative to traditional city centre BTR schemes. Typically located in suburban areas, SFH schemes offer detached and semi-detached homes for rent and often provide more varied communal facilities such as parks, wildlife areas and play areas.

Post-COVID, the demand for suburban living and greater access to green space has increased. With the cost of living crisis continuing to impact the prospects of home ownership for many, SFH is likely to play an increasingly significant role in the delivery of new homes in Scotland in the years to come.

SFH – the challenges and the opportunities

SFH schemes can offer a mix of challenges and opportunities when compared to traditional BTR schemes.

Uncertainty over the future of rent controls in Scotland posed a challenge for some BTR investors. The Scottish Government has undertaken to introduce a permanent form of rent control in the Housing Bill which it is aiming to publish by the end of this year. As other parts of the UK continue to discuss rent controls, giving investors more certainty in Scotland should hopefully encourage more investment to proceed.

By their very nature, SFH schemes typically involve a significant reduction in scale and density compared to typical urban BTR apartment blocks but this may be counter balanced by the fact that tenants in SFH generally stay longer meaning less voids. Proximity to good schools, access to green space and strong transport links are all essential for the viability of SFH schemes. But unlike typical urban BTR developments where strong public transport infrastructure may already exist, SFH schemes just like any housing for sale development, often require much more significant upfront investment in infrastructure which can come at a significant cost.

Gaining access to suitable sites on a commercially viable scale can be difficult for SFH investors with many struggling to compete with housebuilders to acquire suitable sites. With the reduction in scale, it is equally challenging for SFH investors to build as efficiently as traditional housebuilders. For many SFH investors, that reduction in scale combined with significant infrastructure costs means that a number of schemes are simply unviable.

Potential purchasers face their own challenges with the cost of living crisis and increases in mortgage interest rates meaning that affordable home ownership is currently out of reach. SFH can present a more affordable and attractive option than what is traditionally available on the residential rental market.

Current economic conditions have also been challenging for housebuilders. Going forward, both SFH investors and housebuilders could look to work collaboratively to navigate the challenges together and bring forward much needed housing by forming strategic partnerships.

SFH investors and housebuilders: strategic partners?

Whilst many SFH investors struggle to access workable sites, housebuilders typically operate with a strategic land bank meaning they are well placed to continue to bring forward strong masterplanned developments to the market. Housebuilders also benefit from the experience and expertise required to deliver the infrastructure and volume of units needed to make those developments viable. By partnering with housebuilders in delivering those masterplanned sites, SFH investors create opportunities to increase their portfolio and bring forward developments which may otherwise be difficult to achieve. For housebuilders, the benefits are also clear.

SFH (being rental properties) tend to avoid direct competition with traditional plot sales. By reallocating certain development phases from private sale to SFH, housebuilders can accelerate the delivery and completion of their new developments by providing a strong mix of new homes and rental properties.

SFH investors will seek to secure tenants for their completed units as soon as possible helping to quickly populate new developments. In doing so, SFH investors can help to create a vibrant sense of community in growing developments which can help to attract future occupiers and adds value to all involved. SFH investors and housebuilders can also work collaboratively to help market and promote new developments.

As well as helping with the delivery and completion of new developments in shorter timescales, partnerships with SFH investors could also help housebuilders to manage risk within their existing developments. As market conditions change, there are opportunities for housebuilders to adapt their development plans by earmarking sites which may have otherwise been intended for sale for SFH; selling on surplus housing stock to SFH investors; or forward-funding new SFH developments.

Conclusion

Strategic partnerships between SFH investors and housebuilders can offer great opportunity: helping SFH investors to grow their portfolios and deliver viable sites in locations which may otherwise be unachievable; whilst providing housebuilders with an exit route in testing market conditions.

Whilst SFH remains in its infancy in Scotland, the market is expected to grow quickly with investor appetite continuing to increase. Many housebuilders have already established strategic partnerships with SFH operators and going forward, we may expect to see more strategic partnerships and sales between housebuilders and SFH investors. It would certainly be worth housebuilders and investors exploring the opportunities that may exist.

Contributors

Jordon Reid

Associate

Allan Cairns

Partner