Jamie Davidson

Translated it means rent cover. It’s relevant in the context of the Scottish rent freeze & cap. There was an interesting announcement in Berlin recently. A city that has a housing crisis and had a rent cap, which was deemed illegal. The cap was overturned by the High Court in 2021. Berlin has now formed a scheme to fund and accelerate social housing construction.

The new Berlin-focused state-funded scheme aims to increase social housing stock by providing a 100% funded, 0% interest 30-year loan. There will always be wrinkles (rent yields) and bumps (planning speed) along the way, but this strategy could be replicated in Scotland.

Bolt on a local pension fund partner to help share the load and a short-term government wrapper to institutionalise the initial development/letting risk and it could be scaled. The central belt of Scotland has roughly, very roughly, the same population as Berlin over a greater land mass which should mean more sites, at a lower cost in potentially better locations.

Current market dynamics might help this cause. Zoopla estimates the average Scottish residential investment yield in 2022 to be just over 4% (3rd highest region in the UK), that feels low and more concerning when calculating the net rent figure yield. BTL landlords are adjusting to the new norm and BTR developments appraised off low (4% to 4.5%) yields are being re-appraised. Commercial capital rates are also a factor; development finance (prime 7.5% to 10%++) and equity investors min return hurdles (coupons of 6% and min IRR’s 15% to 20%+) currently.

Now looks like as good a time as any to deploy long-term public/private capital into this much needed infrastructure.

Jamie Davidson is founder and managing director at Conduit Finance