By Eric Curran, managing partner at DM Hall
RECENT media commentary from usually well-informed sources have raised the so far unresolved but familiar concerns about the supply of affordable property in Scotland, especially in our major cities, for first time buyers.
Typical are the complaints that home ownership is increasingly out of reach, with young people expected to save large deposits to access mortgage finance and the need to make housing more affordable by building more homes of all tenures – for ownership, shared ownership, private rent, mid-market and social rent.
The reality, however, is that private developers are driven by property demand and their aim is to make profit. Competition between the developers keeps land values high and ultimately the cost of land becomes part of the pricing structure of completed homes.
Developers have tried, too, in recent years to find ways of making properties “affordable” for the public by using shared equity schemes, incentives, part exchange etc. and the authorities have aided this by help to buy schemes funded by the Scottish Government. It is debatable if the above makes property “affordable” or simply makes it easier for people to purchase.
Construction costs are fairly transparent but the fact remains that funding construction is difficult for developers and public money is under great pressure from many sectors therefore not necessarily available to fund housing projects to meet the volume expectations. Availability of land is restricted, competition keeps pricing high and often planning policy is not helpful.
There are no easy answers here: renting makes it difficult for many to raise a deposit and often traps them in the profit-making private rented sector. Challenging markets throughout the economy as well, perhaps, as low levels of productivity, keep profit margins low and tend to restrict the funding available for general salary increases. For every highly publicised organisation that makes “super profits” there are thousands of businesses that fight to keep the doors open, but these are the silent majority.
A significant change would be required from the Scottish Government and public sector authorities to help solve the “affordable housing” problems because if nothing else it has been shown that private developers cannot deliver the number of properties required to meet demand at the desired level of pricing.
An added problem is the limited skill set available to builders to accommodate a significant increase in building projects. Education has to take a good look at what it is delivering: vocational education seems to have taken a back seat for a long time and trades are suffering from the skilled labour shortages that would be required to sustain a significant increase in construction.
The property market and property prices are, in essence, the result of supply and demand. This is, perhaps, a little simplistic but generally true. The influences in the market can often be analysed down to supply and demand but at the point of new build or conversion for sale, profit is understandably a driving factor for the construction industry and results in higher pricing.
Limited supply, high demand, poor investment returns on traditional investment vehicles and competition are some of the many influencing factors that drive our property market. To state that the property market is failing first time buyers is rather simplistic when describing the rather complicated entity known as Scotland’s “property market”.