The NHBC has invited me to give an update on the state of the Scottish property market to set the scene for their ‘Building for Tomorrow’ seminar today.
That means I’ve been busy creating a bunch of graphs to illustrate certain features of the market and one, in particular, struck me as significant. Here it is:
It shows the change in average house prices and rents in Scotland since the start of the recession. The data is taken from the Registers of Scotland (prices) and Citylets.co.uk (rents). And the reason it is important is that is shows both prices and rents rising (albeit very gradually).
Now, in normal circumstances, you would expect these two to move in different directions. As tenants buy their own home, demand for rental properties falls. Conversely, if buying is out of reach, demand to rent grows and prices fall.
So, how is it that prices and rents are rising at the same time? The answer is simply that demand for accommodation of any tenure is outstripping supply. While sales have risen steadily since 2001 (see here), there has been no slackening in demand for rental properties.
And that is likely to be the case for some time to come.
Since the recession, house building in Scotland has not matched the rise in the number of households and it will take many years for construction to make up that shortfall. Moreover, the rise in rents triggered by lack of mortgage availability and a shortage of supply has made buy-to-let more attractive, adding new demand to buy from landlords to the recovery in demand from aspiring homeowners.
Both factors will tend to support house prices and rents. An increase in interest rates (when it comes) might dampen demand from landlords and home owners somewhat, but the fundamental issue of a shortage of homes will take longer to deal with.