To mark Scottish Housing Day 2020 we consider how the growth of the build to rent (BTR) market provides an exciting opportunity to deliver affordable housing.
Affordable housing
Affordable housing includes various forms of tenure, not limited to provision by a Registered Social Landlord (RSL):
"Affordable housing is defined broadly as housing of a reasonable quality that is affordable to people on modest incomes. Affordable housing may be provided in the form of social rented accommodation, mid-market rented accommodation, shared ownership housing, shared equity housing, housing sold at a discount (including plots for self-build), and low cost housing without subsidy" (Scottish Planning Policy, para 126)
An Audit Scotland report in April found that several factors (not including coronavirus restrictions) could adversely affect delivery of the targeted 50,000 affordable homes in Scotland by end of March 2021.
Planning system
The planning system plays a key role in the delivery of affordable housing. In most local authority areas, planning policy requires each housing development to include 25% affordable housing:
"Plans should identify any expected developer contributions towards delivery of affordable housing. Where a contribution is required, this should generally be for a specified proportion of the serviced land within a development site to be made available for affordable housing. Planning authorities should consider the level of affordable housing contribution which is likely to be deliverable in the current economic climate, as part of a viable housing development. The level of affordable housing required as a contribution within a market site should generally be no more than 25% of the total number of houses." (SPP, para 129)
Alternative tenures
A SPICe Briefing reported that alternative housing tenures, like BTR and Mid-Market Rent (MMR), can help to meet demand and have the potential to meet a wider range of housing need in Scotland.
BTR and delivery of affordable housing
BTR is not just about the luxury end of the rental market:
"Build to Rent housing offers purpose-built accommodation for rent within high-quality, professionally managed developments. It can take on a variety of forms, from high to low density developments, and range from homes that appear indistinguishable from those on the market for purchase, to schemes which have greater similarities to purpose-built student accommodation." (Planning delivery advice: build to rent)
Investors often wish to retain 100% ownership of developments to protect their long-term investment. BTR affordable homes, unlike RSL affordable housing, do not benefit from Scottish Government grant subsidy and the developer is not able to secure an immediate financial return from selling homes.
There is a potential pipeline of around 6,000 BTR homes across Edinburgh over the next few years. Rather than the RSL model, a recent City of Edinburgh Council report recommends a different approach to provision of affordable housing in BTR developments:
"affordable housing within a BTR development will normally be delivered as ‘Intermediate Rent’ by the BTR operator; intermediate rent homes will be secured as affordable through a Section 75 Legal Agreement for a minimum of 25 years; and rents for the affordable homes will be capped at Broad Rental Market Area (BRMA) 30th Percentile and rent increases will be restricted by the Section 75 Legal Agreement"
(Intermediate rent is also known as unsubsidised MMR.)
The commercial drivers of the BTR model are key to delivery. The Council report acknowledges that affordable rents need to be set at a level which is viable in relation to development costs.
As ever, the devil is in the detail. Brodies is currently negotiating one of the first of these section 75 agreements on behalf of a BTR developer.
Completing that section 75 agreement will be an important step in converting the opportunity into actual delivery of affordable housing.
Contributors
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Senior Associate
