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Scottish think tank proposes plan for building rental homes

4 May 20 A Scottish think tank is proposing a way of building an unlimited number of houses for social rent on a zero-subsidy basis.

The approach put forward by Common Weal would make use of the Scottish National Investment Bank.  It says that the model could be used as a post-pandemic stimulus scheme to reform and secure the housing and construction sector.

In the current market a three-bedroom family home would incur a monthly cost in rent, heating and maintenance of about £1,400, said Common Weal. A house built using its proposed methodology would have a monthly rent, maintenance and heating bill of only £820, it claimed.

The paper said that Scotland’s housing sector is deeply unbalanced.  The owner-occupier sector has inflated prices far out of reach of many whilst delivering cold, draughty and poorly built homes to those who can still afford them. The private rental sector has become similarly inflated, it said, trapping many in a situation where they cannot simultaneously pay rent and save for the deposit to buy a house. It said that the social rented sector has been deeply stigmatised and run down over decades to the point where it no longer fits the purpose that it was designed for – to provide an affordable and high quality home to everyone who needs one.

Common Weal said that the economic crisis caused by the 2020 coronavirus pandemic coupled with the looming crisis of the climate emergency will mandate the mass construction of high-quality homes complying with zero-carbon and near-passive heating standards.

 This paper lays out a plan by which Scottish local authorities could build an unlimited number of these high quality houses, subsidy free, with secure and sustainable financing and at a much lower cost than can be delivered at present.

It says Scotland’s housing market should offer people a quality public rental option, whether for young professionals not ready to enter the mortgage market, lower income renters who have few good rental options or families at any point on the income scale who don’t want their lives dictated by mortgages. Public policy should seek to constrain house price rises but also drive up the highest possible thermal performance for new-build houses, it said.

According to Common Weal, Scotland also needs forms of stimulus after the Covid lockdown; public rental house building linked to an industrial strategy to create many more domestic supply chains can create that stimulus.

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It said that there is a financing model that means this can be achieved at unlimited scale without public subsidy. It involving three steps:

the use of ‘Land Value Capture’. At the moment the public buys land and pays for it as if planning permission had already been granted – but planning permission is a value added by the public sector and the public sector can capture that value rather than give it away by buying land only at its current use value and not its later value with planning permission.

borrowing from the Scottish National Investment Bank over mortgage-style periods of time (30 years) and spreading the cost of the borrowing over that period so that rents are low.

building in a proper maintenance budget so they remain high-quality houses in perpetuity. It is also possible to sell off a limited number of plots for self build and a small proportion of the houses, suggested Common Weal. This can give the public developers some additional budget to include extra public infrastructure in new developments.

Common Weal said that, to achieve this, the Scottish National Investment Bank should be given immediate dispensation to operate as a ‘proper’ bank and local authorities should open ‘lists’ for families who want to live in one of these houses.

Supply can then be allowed to meet demand.

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