Scottish Government

Housing Supply Task Force - Minutes of 3rd Meeting 2009

Conference Room 12, Victoria Quay

Tuesday 30 June 2009

Present:

Alex Neil MSP, Minister for Housing and Communities

Jonathan Fair, Chief Executive, Homes for Scotland

Brian Gegan, Chair, Scottish Federation of Housing Associations

Ronnie Jacobs, Regional Director, Miller Homes

Kennedy Foster, Council for Mortgage Lenders

Mary Mowat, Head of Communications, Scottish Financial Enterprise

Brian Frater, Heads of Planning Scotland

Ritchie Johnson, Association of Local Authority Chief Housing Officers

Rachel Gwyon, Deputy Director, Housing Markets and Supply, Scottish Government

In attendance:

Lindsay McGregor, CoSLA

Jacqui Watt, Scottish Federation of Housing Associations

David Melhuish, Scottish Property Federation

Jen Wallace, Consumer Focus Scotland

Gordon McCrae, Shelter Scotland

Apologies:

Martyn Evans, Consumer Focus Scotland

Graeme Brown, Shelter Scotland

Councillor Harry McGuigan, CoSLA

Ken Ross, Scottish Property Federation

HSTF Secretariat:

Ewan Cameron-Nielsen, Housing Markets and Supply, Scottish Government

Ian Fairweather, Housing Markets and Supply, Scottish Government

1) Welcome and Introductions

1. The Minister welcomed Members to the meeting and noted that Mary Mowat was joining the Task Force to represent Scottish Financial Enterprise. A welcome was extended to Jacqui Watt, the Chief Executive of the Scottish Federation of Housing Associations.

2) Minutes of the Previous Meeting

2. The minutes were agreed subject to one minor drafting change.

3) Review of the Private Rented Sector

3. The Minister invited an open discussion on key issues of relevance to the private rented sector, including its future role in the housing supply system, the scope to secure new sources of funding and develop new models and current barriers and opportunities.

4. Key points raised in discussion are summarised below: -

Current trends

• The private rented sector provides around 8% of the total housing stock in Scotland. The majority of landlords in Scotland are individuals (private landlords) many of whom are dependent on debt finance.
• Only half of landlords surveyed in the Scottish Government's Review of the PRS stated that market rents were sufficient to cover their costs and give a reasonable return, with many landlords relying on capital appreciation to make money.
• There has been a sharp increase in the number of Buy to Let arrears and repossessions.
• The PRS still remains a more affordable option than owner occupation. Data produced by Hometrack in 2007 showed that the cost of paying a private rent was around 73% of the cost of paying a mortgage.
• The downturn in the private housing market has increased both demand for the PRS and the supply of homes for rent. While this has to a certain extent impacted on rent levels, this is dependent on location.

Institutional Investment

• Institutional investment is seen as crucial to ensure sustainable expansion in the PRS. Institutional investors currently have a marginal role in the PRS and incentives may be required to encourage them to invest and help expand the sector, particularly with regards to ensuring a satisfactory return on capital.
• The Scottish Government has lobbied the UK Government in support of the changes to the taxation regime highlighted in its review in order to encourage institutional investment in the PRS.

· The British Property Federation has developed an investment model for the private rented sector in response to the Homes and Communities Agency's (HCA) call for proposals.

• Institutional investment would most likely support a longer term model. Consideration might therefore need to be given to granting longer tenancies to encourage stability, sustainability and help change attitudes towards the PRS.
• This longer term investment may also raise issues over "asset management" as investors look to minimise void levels, get the right yield and maintain properties to a high standard (with a view to them being sold on at some point in the future); this will require a particular skill set, which some RSLs already have.
• Any proposed expansion of the PRS must be done in a way that is part of the Scottish Government's overall aim to encourage mixed communities.

Lending

• The sector has relied heavily on specialist lenders who were dependent on the wholesale market, which has now dried up.
• Most lenders are under severe pressure at the present time and concentrating on re-structuring and "keeping up" liquidity.

• Buy to let mortgages carry a higher risk for lenders. Many would be reluctant to enter this market in light of the current financial situation and uncertainty over proposals by the Financial Services Authority to bring Buy to Let Mortgages into the regulatory framework. The FSA will be consulting later this year on mortgage lending practice in the UK. Any proposed new regulatory framework would have to encourage institutional investment rather than prohibiting it.

Other Considerations

• We need to clearly understand what is meant by "mid market rent", where it sits in the housing system and the inter-relationship between social renting, private renting and home ownership.
• There are essentially two issues which need to be discussed: (i) how we make best use of the current rented stock; and (ii) what scope is there to increase the role of the sector, including in relation to e.g. mid-market rent?
• There is a need for a greater understanding of the target market for a larger private rented sector, including who the customers are, how much they can afford to pay and what they are looking for. This will determine appropriate policy and financial responses. As a first step, an analysis should be made of existing data sources.
• The role of the sector should be considered locally, accepting that no one size solution will fit all.

5. The following conclusions were drawn from discussions:

• The PRS plays an important role in Scotland's housing market and might have a greater role to play in future.

• We need to get a better understanding of, and data on, the dynamics of the PRS, e.g. the profile of those seeking to rent and those on waiting lists. As part of this we need to consider how we might make best use of the data sources which we currently have,
• We need to be clear about what we mean by "mid market rent" and understand better the inter-relationship between the private rented sector, mid-market rent and the social rented sector.
• We need to understand what the barriers are to developers, including in relation to the need to secure a reasonable yield, the lack of major players with capacity to invest and the UK taxation regime.
• We need to look at best practice and innovative approaches throughout Scotland in relation to the management of existing stock.
• There is scope for greater collaboration between developers and Housing Associations and the development of more flexible products across housing tenures.

6. It was confirmed that the Scottish Government intends to establish a Private Rented Sector Expert Group in September, with membership based on the existing Safeguarding Tenancy Deposits Working Group. The group is expected to complete the bulk of its legislative work by the end of the year, but some work would need to be taken forward over a longer period. Members were invited to contact the lead Scottish Government official if they were interested in participating in the group, or one of its sub-groups.

7. The Minister confirmed that the Scottish Government were proposing to include some changes to the Right to Buy and the regulation of social housing in the new Housing Bill which would impact on the social rented sector. There might also be some additional provisions on the private rented sector, following consultation, when the Bill is formally introduced later in the year. However, there are also plans to introduce a more comprehensive Bill on the private rented sector in 2010 which could include any further legislative changes to the sector identified by the Expert Group.

Action

• Task Force members to contact Colin Affleck with expressions of interest in joining this group.
• Secretariat to determine the scope to use existing data sets to develop an improved understanding of the potential market for mid-market rent and an enhanced private rented sector.
• Scottish Financial Enterprise to look at the capacity for institutional investment.
• SFHA/HfS to liaise with a view to identifying scope for closer working between developers and RSLs.

4) Infrastructure Investment Update

8. Lindsay McGregor advised that CoSLA were organising a stakeholder event on infrastructure investment in conjunction with the Scottish Government and the Scottish Property Federation, with a provisional date of 12 August. Following this event, an action plan would be developed setting out how the proposed work on infrastructure investment would be taken forward, potentially involving the Task Force. A progress report would be provided at the next meeting on 14 September.

5) Forward Work Programme

9. The draft work programme, setting out agenda topics for meetings in September, November and January, was agreed.

6) AOB

10. The Minister indicated that he will be meeting with the Chief Valuer in July to discuss the valuation of land for affordable housing. In advance of that meeting Jonathan Fair undertook to provide him with some case studies and the professional valuation advice that Homes for Scotland has been given. Separately, he advised that CoSLA, HfS and the SFHA would be sent a draft of a letter to local authorities clarifying the Scottish Government's understanding of PAN74 and asked for their comment.

11. Jonathan Fair raised concern about developers being charged Council Tax on new build properties not yet complete, on the basis that the local assessors claimed that these properties could be completed within three months. A formal objection was being considered.

Action

• Jonathan Fair to provide the Minister with the information on valuation of land.

• Secretariat to follow up on the issue of charging Council Tax on new build properties.

12. Clarification was sought on whether there would be consequentials from the recent announcement by the Prime Minister of a £1.5bn investment in housing. The Minister confirmed that, based on the available information, this was simply a reallocation of funding and that there would not therefore be consequentials. However, the Scottish Government was investigating further.

13. Jacqui Watt confirmed that the SFHA is continuing to take forward some work on the sharing of best practice and indicated that she intended to speak to Task Force members over the summer about this.

Action

· Secretariat to circulate the Scottish Government statement made on 25 June which outlines the shared view for the way forward in the way the Scottish Government invests in the social housing sector.

Next Meeting

14. The next meeting will take place on Monday 14 September (10.00 - 12.00) in Conference Rooms 7/8 Victoria Quay, Edinburgh.

HSTF Secretariat

July 2009