The Scottish housing market is preparing for growth according to new research from the UK’s leading property consultancy, JLL, but clarity over the future of Help to Buy and adequate housing supply will be key to the pace of this growth.
With the referendum now complete, JLL anticipates that a stronger economy will be accompanied by an increase in wages and household confidence. These conditions, alongside low interest rates and the revised LBTT, will boost mainstream market demand, ultimately pushing prices higher, resulting in a 3.5% Scottish house price growth forecast for 2015.
The new report – Positioned for Growth – was launched at a seminar hosted by JLL in its Edinburgh office.
Bright economic prospects will increase demand
In the report JLL points to a number of strong economic indicators which will provide the context for greater activity in the housebuilding industry.
- The Scottish economy is set for a more prosperous and secure future over the next five years (2014-2019) and a significant improvement on the preceding five years. GDP growth is expected to average 2.2% pa during the next five years, with 2.8% growth forecast for Edinburgh and 2.6% for Glasgow.
- The main areas for employment will be the financial and business services sector which is forecast to create a further 48,000 jobs; the transport, communications and construction sectors which are projected to see around 28,000 new jobs; and the retail and accommodation sectors which are projected for an increase of 13,000 jobs.
- Scotland’s current population of 5.3m is projected to increase by 77,000 over the next five years. Around 18,000 additional households across Scotland are expected to form over the next five years, 6,000 of which are due in Edinburgh and Glasgow alone.
Despite these strong economic indicators, JLL questions whether the housing industry will be able to deliver the volume of homes needed to cope with this anticipated rise.
Scotland’s residential markets facing a bright future
Scottish residential markets are facing a promising outlook for 2015, with development activity accelerating and both rental and sales demand supported by a brighter economic background. However, JLL has warned that the outlook for the second half of 2015 looks unsettled, with the Scottish Government yet to declare its intentions for Help to Buy Funding beyond April this year.
- The Edinburgh residential market has prospered over the past year, with sales turnover up by around 20% in 2014 compared to 2013 and rents increasing by 8.8% on average during 2014. Whilst the city centre development market remains active, the lack of new development for rental product is placing additional pressures on an already tight lettings market.
Looking forward, house prices are set to increase by around 4.5% in 2015 and by around 24.6% over the next five years. Competition for proven sites is strong, placing upward pressure on land values. JLL expects a continued increase in activity around Edinburgh and the bypass zone, and points to a potential revival in the North Edinburgh Waterfront area, on the back of significant interest returning to the city centre apartment market.
- Confidence has returned to the residential apartment market in certain parts of Glasgow, including the West End and prime areas of the South Side, with house prices increasing by over 8% in 2014 and rental values rising by more than 10%. Glasgow’s suburbs have witnessed significant development activity, with headline greenfield values rising from c£750,000 per acre to £900,000 in 2014 as developers struggled to meet demand. Looking forward, City Centre prices are forecast to rise by around 3% in 2015 and by around 16.5% over the next five years.
Jason Hogg, Director of JLL’s Residential team in Scotland, said:
“2014 was a fascinating year for the residential market in Scotland which demonstrated its strength and resilience to change.”
“Against the backdrop of the Referendum, the emergence of a new tax regime and the sudden end of Help to Buy budget for 2014/2015 over the summer, we closed out the year in a bidding frenzy for sites in Edinburgh and excitement over new opportunities in Glasgow.”
“But what happens next? The Scottish Government’s current commitment to Help to Buy expires when the budget is spent in the next financial year. However, with the rest of the UK committed until 2020, this needs to be addressed quickly in order to sustain both housebuilder and homebuyer confidence.”