Glasgow’s rental market affordability challenges

by Ken Gibb

 

In Scotland we have statutory housing strategies for each local authority. Even though it has no council housing, this is a big deal for Glasgow. The city has control over the distribution of capital grant funding to the housing association sector, remains a key landowner and rightly sees housing as central to the delivery of many of its wider corporate objectives. Glasgow like all Scottish councils manages a number of statutory functions such as homelessness and housing planning. Tuesday past was the first set-piece external consulting event and I was speaking at it on the topic of private housing, need and affordability.

The central evidence base that the housing strategy is informed by is the Glasgow Clyde Valley joint Housing Needs and Demand assessment (HNDA). This is an impressive piece of work and one that conforms to a standardised model of quantifying demographic and economic trends, and the overviews the existing housing system, before then going on to examine sources of housing need and estimate three scenarios (low and high migration and the principal projection). This Scottish Government supported statutory analysis is built on earlier eras of housing planning (such as the Local Housing Systems Analysis framework that I was earlier involved with). It is a solid and internally consistent approach that makes best use of data but, as is widely recognised, it is replete with conventions, judgments and assumptions. There are undoubtedly weaker areas in all HNDAs and one of the main challenges is the private rented sector.

Private renting has grown rapidly in the city (and is now over 60,000 units or 20% of the stock) and while we can put together a narrative about the emerging market based on different sources of quantitative and qualitative evidence, it remains impressionistic and I would argue that, generally, we know little about market behaviour on either the supply or demand side. Consequently, we risk undesirable outcomes if our policies for the sector are not based on firm evidence and convincing models of how the sector works and interacts with the rest of the city. Below is my impressionistic version.

Citylets data for the 4th quarter of 2015 suggested an average monthly rent in Glasgow of £701 (compared to £741 for Scotland). While the level is lower, Glasgow how has higher rental inflation (4.2% compared to 2%) and a reducing time to let period – 21 days compared to 30 for Scotland as a whole. So, the market has rising real rents and a tightening around vacant units being filled more quickly Wider evidence suggest that Glasgow (and in some cases Greater Glasgow has been experiencing rising real rents since 2010 and again this is outpacing the Scottish average. Scottish Government evidence also suggests that rents are diverging with upper quartile rents growing quicker than lower quartile rents.

I sat in a breakout session at the conference yesterday where it was suggested by someone in the industry that Glasgow’s 60,000 or so private rented units and no fewer than 35,000 landlords – that is quite a stylised fact if broadly true. It makes policy intervention, regulation and analysis of the sector highly challenging. Landlords may be largely single property landlords alongside a smaller number of multiple unit portfolio landlords. The former may be more ‘amateur’ and short run in perspective – but some actually may see the property as a pension substitute and hence be in for the longer haul unless external drivers like tax changes force then out.

Two things struck me about the landlord suppliers – the recent tax changes to mortgage interest tax relief, LBTT and capital gains tax will have highly differential effects on landlords. Those with stock and not planning to invest will be less affected by LBTT increases but those investing will. And as was pointed out in the meeting, constraining the tax relief to the basic rate could turn for some a profitable business into a loss-making one. Another colleague, second, differentiated between the amateur landlords being likely to be more likely to exist as the market recovers and in the face of these negative fiscal pressures but also as a result of concerns about the new Scottish legislation and how this all affects capital gains. On the other hand corporate investors with several properties will be more concerned about cash flow and income returns.

I remember my former colleague Peter Kemp used to talk about a highly segmented private rented sector with landlords composed of volunteers and conscripts. I think that both notions apply all the more so now – we have a highly differentiated market which caters for discrete groups: students, generation rent working households, those with short run easy access housing demands, and those at the bottom end of the housing ladder unable to access social housing.  I am not convinced we have the research evidence or monitoring capacity to really understand what is going on in each of these segments. Policy is overwhelmingly concerned with the latter problematic group but actually there is much more going on which has an important impact on the rest of the urban housing system.

I think the other really interesting idea raised by Peter’s characterisation is that we cannot assume all tenants are conscripts but indeed some of them are clearly volunteers. Not all Generation rent working tenants, usually younger households. are potential home owners. Some are clearly happy with their rental experience, do not expect to have the sort of job security associated with a traditional mortgage and certainly do not have the savings required for a deposit). But many are content with that reality and would rather trade off a good location (and a relatively high rent) to be able to access the amenity important to their preferences. But we simply do not know enough about the profile of these two forms of tenant who essentially substitute for the presently less accessible home ownership sector. But we need to know more and Glasgow needs to prioritise this in its evidence gathering and ongoing monitoring of its housing system.

Finally, it is interesting that, in a small way, housing associations in Glasgow are dipping their toe into mid market rent and indeed ‘normal’ private renting. Do they have the skills to manage properties commercially and which segment should they operate in? How do you manage estates or neighbourhoods where you have tenants with quite different rights and conditions? This may be anathema to some housing people but to others it is a diversification that makes sense and offers opportunities to improve local housing quality and widen the range of housing on offer.

Changing times.

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