The affordability of private rents in Scotland

Steve WilcoxCentre for Housing PolicyUniversity of York

Affordability of private rents in Scotland

House prices and mortgage costs Growth of the private rented sector Trends in private rents Affordability of private rents Housing market prospects Local Housing Allowance issues

Housing market affordability in Scotland

0.0

1.0

2.0

3.0

4.0

5.0

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

Ra

tio

s

0

5

10

15

20

25

30

35

40

45

50

Pe

rce

nta

ge

s

House prices to earnings Mortgage costs to earnings

All full time earnings and first time buyer house prices

Rapid growth in PRS in Scotland- but not in lettings to HB claimants

0

50

100

150

200

250

Th

ou

san

ds

PRS dwellings HB Caseload

Private renting important for movers and mobility

0%

20%

40%

60%

80%

100%

Stock Moves in last year

Private Rent Other Social Rent Home owners

Source : SHS, 2005

Growth in new buy to let mortgages

0

20

40

60

80

100

120

140

160

180

Th

ou

san

ds

1999 2000 2001 2002 2003 2004 2005 2006 2007

Source : CML website : New advances per half year

Little change in household dwelling balances over last fifteen years

1,800

1,900

2,000

2,100

2,200

2,300

2,400

2,500

Th

ou

san

ds

1991 1996 2001 2006

Households Dwellings

Little difference in recent household growth and net house building

0

5

10

15

20

25

Th

ou

san

ds

2002 2003 2004 2005 2006 2007

Net house building Household growth

Impact of PRS growth on house prices

£0

£25,000

£50,000

£75,000

£100,000

£125,000

£150,000

£175,000

£200,000

Q2 2000 Q2 2007

Base price PRS Impact

Source : NPHAU

Competitiveness with ownership

Both part of problem and solution Typically cheaper to rent than to buy but

- some qualitative differences - variability between areas

Competitive with shared ownership

House prices, mortgage costs, rents and earnings compared (1994 = 100)

50

100

150

200

250

300

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Ind

ex

House prices Mortgage costs Private rents Earnings

First time buyer house prices and mortgage costs

Percentages

Rents as a percentage of mortgage costs

Hometrack,

2006

Mortgage cost to earnings ratios

0

10

20

30

40

Per

cen

tag

es

Household Earnings (Can rent; can’t buy) 2006

Private rent to earnings ratios

0

10

20

30

40

Per

cen

tag

es

Household Earnings (Can rent; can’t buy); LRR/LHA Rents 2006

Rents compared to mortgage costs

0

20

40

60

80

100

Per

cen

tag

es

2006

Size of landlord portfolios

0%

20%

40%

60%

80%

100%

1993/94 1998 2001 2003 2006

Per

cen

tag

es

1 2-4 5-9 10-24 25-49 50-99 100-249 250+

Source : Crooks et al 1993/94 & 1998; CLG Surveys 2001 onwards

Gross returns on Investment

0

5

10

15

20

25

30

35

40

2003 2004 2005 2006 2007

Pe

rce

nta

ge

s

Rental Yield Capital Growth

Source : Paragon Mortgages

Net (pre tax) returns on Investment

0

5

10

15

20

25

2001 2002 2003 2004 2005 2006

Pe

rce

nta

ge

s

Rental Yield Capital Growth

Source : IPD Index

Competitiveness with social renting

Social renting generally less expensive - but not everywhere

Consumer choice rather than allocations No constraints based on current location Alternative local logics of homeless,

waiting list and HB/PRS support Appropriate for mobile single households

Some policy issues

Cost effectiveness of PRS and social renting supply for low income households

Market cycles and housing policies Rationale for shared ownership? Issues for levels of social sector rents The LHA roll out & HB Review

HB cases as a percentage of total PRS

0

20

40

60

80

100

Per

cen

tag

es

2006