‘We need to play catch-up’: inside Scotland’s return to build-to-rent

The vibe from investors, developers and consultants in Scotland is one of cautious optimism. While a legally enshrined exemption is welcome, the introduction of rent controls did a lot of damage. There was once a healthy supply chain of land, plans and developments. That brought with it evidence of Scottish BTR as a reliable and tradable asset, which is needed to get investors on board.

The market has been effectively “reset’, Mr Whittaker says. “It’s quite easy to destroy confidence and takes quite a bit longer to build it back.”

In February, Mr Murray went on a tour of stalled sites with the potential for thousands of homes, across Glasgow and Edinburgh, along with the Scottish government’s cabinet secretary for housing, Màiri McAllan. He says investors on the tour were “very interested” in the BTR market.

“There were investors that had been here before that are coming back and new ones that had not looked at Scotland but are definitely looking now,” Mr Murray adds.

Developer Moda Group brought forward three BTR schemes in Glasgow and Edinburgh before the 2022 controls. James Blakey, its planning director, says there is a “growing sense of optimism and confidence” in the market.

“We’ve dusted off appraisals and we’ve recommenced and refreshed conversations we’ve been having with landowners, with other stakeholders, and other developers,” Mr Blakey adds. “Scotland is a fantastic place to invest in build-to-rent. We saw that before 2022 and we’re confident in terms of 2026 onwards.”

John McDonald, managing director of investment projects at major BTR contractor Graham Group, has also seen “renewed interest” in Scotland from investors in recent months as markets in regional English cities such as Manchester and Sheffield have become more challenging.

“We’ve got a number of sites sitting on our desk, but we just need to get that confidence in the financial close and the ability to transact.”

But despite this re-piquing of investors’ interest, BTR developments in Scotland face the financial viability issues afflicting other residential sectors and countries of the UK.

“When the Housing Bill issue was resolved, people thought there would be a flood of activity. But there are still very, very serious viability challenges,” Mr McDonald says. “Construction costs have risen significantly, and funding costs have moved out [gone up] in the last couple of years as well.”

Consultants say the market has also moved on in the past three years, with investors more interested in developments of new single-family homes in suburbs instead of the city centre blocks that figured prominently in the pre-freeze market.

“As the living sector matures, high-amenity multifamily stock will still be a large part of the sector, but it will branch out into other forms of residential investment,” says Steven Hendry, a senior director in Scottish investment properties at real estate investment firm CBRE.

“In most of the conversations I’m having with investment capital keen to deploy into the sector, single-family housing is high up the list of requirements. We need to play catch-up in Scotland.”

Mr Hendry says that he is “broadly positive” about the BTR market, but that new funding arrangements are needed, including public sector involvement to get development going again, especially outside the main market epicentres of Edinburgh and Glasgow.

“If we’re going to crack the nut here, it requires a fresh look at how we actually fund housing,” he adds. “We have to find alternative funding structures that will attract capital to locations that perhaps it may not have looked at traditionally. How do we get capital to go and look at locations out with the central belt?”

There is some optimism that interventions by the Scottish government, such as the creation of new development agency More Homes Scotland, may help to ease some of the broader development industry’s viability challenges that are holding BTR back, too.

“We think the new housing agency will work by helping stalled sites move forward into the market and make them viable for delivery. But the full parameters are not yet known,” says Moda’s Mr Blakey.

Bidwells’ Mr Murray points out that the Scottish market is also immune from two main “headwinds” in England: its recent introduction of the Renters’ Rights Act, and the prolonged and costly delays to developments awaiting so-called Gateway 2 approvals.

“There are no real delays like that in Scotland, and we introduced similar forms of protections for renters’ rights many years ago,” Mr Murray adds. “So these two things have really flattened the landscape for development in Scotland.”

And perhaps unsurprisingly, given the lull in BTR development in recent years, demand for the tenure is strong in Scotland as continued supply in some English cities has made them less enticing prospects for investors. Less than 2% of demand for this sort of product is now met in Scotland, compared with around 4% across the UK, according to Bidwells.

Ashley Perry, acquisitions director of multifamily housing at property investor Apache Capital, says it is “very clear” that there is a lack of supply in most of the major cities in Scotland, but singled out Glasgow for having a more “favourable planning environment”.

“Edinburgh has all of the challenges of a historic city with a challenging planning environment,” he adds.

Figures supplied by Glasgow City Council suggest that demand is particularly high in Scotland’s most populous city. Only 2,000 of its 310,000 privately rented homes are BTR.

“In most of the conversations I’m having with investment capital keen to deploy into the sector, single-family housing is high up the list of requirements. We need to play catch-up in Scotland”

Inside Housing Living asked Edinburgh, Glasgow and Dundee city councils about their appetite for BTR.

Only Glasgow responded: “There are extensive development and investment opportunities in Glasgow and considerable demand and need for housing… in the city,” a spokesperson says. “Increasing development activity in private housing tenures can work in parallel with growth in affordable housing provision, and can provide the mixed tenure and range of housing options needed in communities.”

The Scottish government says its ministers acted “swiftly and decisively” to exempt mid-market and build-to-rent properties from rent control to ensure “investment confidence and tenant protection”.

“The response from the investment community has been very positive,” a spokesperson adds. 

While the investors, developers and consultants we spoke to welcomed the government’s enthusiasm for BTR, they do not expect a sudden market upsurge anytime soon.

“It’ll take a little bit of time for the speed to come up; it’s a gentle acceleration rather than a drag race,” Mr Murray says. “I hope the viability challenges will move in the right direction, but it may not be that they’re addressed overnight, and development may still be constrained as a result. It’s going to be a slow burn.”