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