New income guarantee scheme launched to boost PRS investment
Housing minister Kevin Stewart has announced the launch of the UK’s first Rental Income Guarantee Scheme (RIGS) to support investment in private rented housing.
Developed in consultation with the sector, the scheme aims to reduce some of the risk that investors see in the emerging build-to-rent market, with potential to attract £0.5 billion of investment and support delivery of around 2,500 new, high quality private rented homes.
According to Mr Stewart, RIGS guarantees 50% of any gap between actual and projected rental income of a development which will provide greater certainty of rental income to investors and landlords during the initial years of letting.
The minister said: “RIGS is a unique scheme, which will boost this emerging sector. As the first of its kind in the UK, the Scottish Government is clearly demonstrating our commitment to the private housing sector.
“This scheme will help deliver new, high quality private rented homes for tenants, which are modern, energy efficient and professionally managed. And it does so in a way that provides assurances for investors, while ensuring good commercial practice and the incentive for investors to let these homes.
“RIGS is just one part of our More Homes approach to increase housing across all tenures. It can deliver potential investment of £0.5 billion, building 2,500 new homes, along with wider economic benefits. And it clearly shows that Scotland is open for business.”
Nicola Barclay, chief executive of Homes for Scotland, which led a Scottish Government commissioned project on how to expand the Build to Rent sector, said: “The announcement of the Rental Income Guarantee Scheme will provide investors with greater confidence during the early stages of development, when letting risk is likely to be highest and is just one of the levers the Scottish Government has put in place to help boost a tenure which has such an important part to play in meeting the diverse housing needs of our growing population.
“As well as the significant investment and development opportunities on offer, expanding build-to-rent will help increase choice, flexibility and affordability for tenants. Most importantly, perhaps, it also has the ability to transform customer experience of the private rented sector through the delivery of new high-quality, purpose-built and professionally-managed accommodation.”
Barry White, chief executive of the Scottish Futures Trust who will manage the scheme, said: “The launch of RIGS has sent out a clear message which demonstrates Scottish Government’s commitment to the Build to Rent sector as an important way to deliver much-needed quality housing.”
The new scheme has drawn criticism for failing to address the affordable housing shortage and increasing subsidies for “already over-subsidised” private landlords.
The Common Weal think-tank has argued that guaranteeing income for developers in the building of private rented sector housing is a backwards step which will accelerate privatisation in the rental market and increase unaffordability for tenants.
Ben Wray, Common Weal head of policy and author of a new report on the experience of living in the private rented sector in Scotland, said: “After the positive news of a not-for-profit public energy company at SNP conference, this announcement is a step in the wrong direction for housing. It is not logical to argue public is better than private for energy but not for housing.
“Ratcheting up privatisation of the rental market – which has already tripled in size since the establishment of the Scottish Parliament while social housing has declined – will only lead to more alienation, insecurity and unaffordability for tenants, who have already seen costs rise well above incomes over the past 10 years since the financial crash.
“Common Weal’s report last week showed that private rental housing was, compared to social housing, insecure and unaffordable, with many stuck in the private rented sector who are on the social housing waiting list actively seeking to get out of it because they can’t afford their rent or have been threatened with homelessness.
“The Scottish Government should be focusing all of its housing budget on new public rental housing, rather than more subsidies for private landlords who are already subsidised massively through the billions they receive in housing benefit payments.
“It could also introduce changes to make it cheaper to build public housing, including a land value capture policy which would allow public authorities to capture the uplift in land values to finance housebuilding.”