This is a model for building an unlimited number of houses for social rent on a zero-subsidy basis using the Scottish National Investment Bank.
These houses would be built to extremely high standards of thermal efficiency and on a stable finance model ensuring costs to the tenant are far lower than the private market.
The case is made that this model could be used as a post-pandemic stimulus scheme which will reform and secure the housing and construction sector.
― 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 simply don’t want their lives dictated by mortgages. Public policy should also seek to constrain house price rises but also drive up the highest possible thermal performance for new build houses.
― Scotland also needs forms of stimulus after the Covid lockdown and public rental house building linked to an industrial strategy to create many more domestic supply chains can create that stimulus.
― There is a financing model which means this can be achieved at unlimited
scale without public subsidy, involving three steps:
- Use ‘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. - Then borrow from the Scottish National Investment Bank over
mortgage-style periods of time (30 years) and spread the cost of the
borrowing over that period so that rents are low. - Finally, build in a proper maintenance budget so these 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.
This can give the public developers some additional budget to include
extra public infrastructure in new developments.
― 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.
― In the current market a three-bedroom family home would incur a monthly
cost in rent, heating and maintenance of about £1,400. A house built using
the above methodology would have a monthly rent, maintenance and
heating bill of only £820.