Rent Controls? - Its a Supply - Nay - a mismatch of Supply to Demand Problem

The Granite City – A Mismatch of Supply to Demand?

By Craig Stirrat CEO of Grampian Housing Association Group

Aberdeen, has a population of around 200,000 people and is widely regarded as the Oil - and now the Net Zero Capital of Europe – generating billions of pounds in revenue for the UK treasury coffers since the 1970’s to help with the balance of payments. But like any open market economy, not everyone has benefitted from the distribution of wealth created in the halcyon oil-boom days of the 80’s and 90’s. Peak average House purchase prices (￡251,838) and peak average private rented sector rent levels (￡1110 pcm) meant that these homes were well out of the reach of the average household for many years. The problem was compounded with annual house completions of private housing outstripping affordable homes by 16 to 1. …….. Times however have radically changed in the roaring twenties.

Earlier in September, I was delighted to read local headlines that seemed to spell the end of the local economic downturn – “Aberdeen property market beginning to boom again after year of growth”.

I then paused, and ?reflected on the free fall in the Aberdeen oil industry in 2014 and the consequential property value crash( 17% drop in value), which was then followed in 2017 with property experts confidently ?“talking up the market recovery” ?– nothing like the power of positive thinking – this however ,in the absence of any real tangible actions to try and take control of the local economy and the impact on the Housing Market.

So, I take todays optimism with a pinch of salt, that recovery will happen any time soon as illustrated by current private rents, which are not just well below Scottish Average - but now lowest of all major cities (with the rent for many fully furnished flats comparable to social rent). The recently approved legislation to freeze private (social rents only increase annually) rents until March 23, with the option to extend for another 6 to 12 months will do nothing to instil confidence in the Aberdeen private ?rented sector.

Ironically in that same year,2017, after years of deliberation over what to do in response to Aberdeen’s overheating property market, the Scottish Government announced with great intention, the proposals for private sector rent controls - allowing local authorities to apply for areas to be designated as Rent Pressure Zones (RPZ). Within an RPZ, the minimum cap on rents was to be CPI + 1% (ironically what most social landlords Business Plans assume), with the Scottish Ministers having the power to increase that cap.

RPZ’s never got off the ground as the burden of proof on local authorities was unreasonable and created unnecessary barriers to making successful applications to the Scottish Government and did nothing to improve quality of existing homes or encourage more supply of the right homes people need.

To meet the needs of the population, Aberdeen currently has approximately 117,000 homes, the majority tenure being in owner occupation (57%) and the second largest being the Private rented sector (19%). Since the Right to Buy was introduced, till its abolition in 2016, Aberdeen City Councils housing stock declined from over 48,000 council homes to currently 22,000 .

Although a crude indicator of housing need, 20 years ago, the City Councils Housing waiting list stood at almost 9,000 applicants and now stands at 4,500 applicants – a 50% drop in demand – no doubt affected by the decline in supply of affordable homes and the growth of the private rented sector and availability of cheaper mortgages (how times change).

Whilst on the face of it, it could be argued Aberdeen no longer has a housing supply crisis, but there is clearly a mismatch of supply to demand. This is particularly noticeable in the growth in demand for large family sized houses in all sectors (which is driving the recent resurgence in average house prices) - and critically the type of council housing available, given that 76% (17,000) of the remaining Council stock is now flatted.

Yet in response to the questionable (type of) housing supply crisis in the City, the City Council embarked on a massive 5 year programme in 2017 to deliver 2,000 new council houses by May 2022. This commitment on the face of it is admiral, but perhaps not when you consider that of those properties completed/near completion to date (over 800) – are mainly flats. This doesn’t include the delivery of a sizeable new build programme of flats by Housing Associations during the same period.

Currently there are 2,800 properties listed for sale in the local property centre of which 1800 are flats, creating a buyers' market for flatted properties which are changing hands for below the home report value in many cases, for example, a well-appointed 1 bed city centre flat can be bought for ￡45k or below – good for purchasers but not for sellers in negative equity.

Whilst the economic crisis created by Covid, Brexit and now an energy supply crisis may actually be the saviour of the Aberdeen economy, as more jobs will be created in the oil industry and the emerging renewables industry – I’m not sure that it will significantly resolve the housing market issues unless there is a fundamental review of how to tackle the mismatch of supply to demand …. Such as the Council start refusing/ restrict planning approval for new flats across all tenures the city, and the Council to focus on increasing the supply of larger family type homes…. Comprehensive Regeneration anyone??