Housing / SIC mid-market rent project aims to increase access to affordable housing
A new arms-length external organisation is set to buy six new homes in Lerwick
SHETLAND Islands Council (SIC) is set to make inroads into the private rental sector in a bid to offer “mid-market” tenancies.
Following a decision from elected members, the SIC will make a new arms-length external organisation (ALEO) to meet rules around local authorities entering the private rental market.
A budget of £1.42 million has been approved to provide grant funding for the ALEO to buy and set-up six one-bedroom homes at North Road in Lerwick.
These are being built by DITT for mid-market rent, and are set to be completed before Christmas.
This would be funded from a second homes council tax reserve and the Scottish Government’s affordable housing supply programme external grant.
Mid-market rent has not been used locally before and it could potentially provide a housing solution for people who tend to be priced out of the buying market, but are unable to demonstrate the level of housing need to secure a social rent.
It also aims to help those who struggle with the often expensive cost of private rent.
Councillors heard that the proposed average mid market rent is £750 per month.
Analysis shows that the average Hjaltland Housing Association social rent in Shetland is £478 a month, but £937 is the average monthly private rent.
Shetland Islands Council chief executive Maggie Sandison said the mid-market rent project is a pilot and is a “test of change”.
A report to elected members at a meeting of the full SIC on Monday said there are “major pressures both in terms of housing access and affordability” in Shetland which affects not just locals but people coming to the isles for employment.
It said there is a “major shortage” of affordable housing options with three households waiting for every social tenancy which becomes available.
The report highlighted that the average house price for purchase is not affordable to two-thirds of local households.
“The evidence suggests a clear need to create a better diversity of affordable housing options in Shetland, particularly for working households,” it added.
“Mid-market rent not only provides a targeted option for those in work, it improves housing affordability for 10 per cent of all Shetland households.”
The ALEO which will be used for the mid-market rent initiative will see the SIC and Scottish Futures Trust Investments Limited team up for a limited liability partnership.
The Scottish Futures Trust is a public body which provides independent advice on infrastructure to the Scottish Government, as well as “working hand in hand with the public and private sectors to maximise the benefits coming from their infrastructure projects”.
It is also recommended that councillors are not representatives of the SIC on the board, with council officers with the “correct skills, background and experience in housing” set to be identified instead.
However SIC legal chief Jan Riise said councillors would retain their overall strategic oversight on the project.
Monday’s full council meeting heard presentations on a range of topics related to the mid-market rent proposal, from the housing context to the legalities of delivering the project.
Housing manager Anita Jamieson said 73 per cent of houses in Shetland are owner-occupied, with 22 per cent social rented and five per cent privately rented.
She said Shetland has the lowest percentage of privately rented homes in Scotland.
Jamieson said mid-market rent, aimed towards low to moderate income households, could help with recruitment and retention of working age people.
Donna Milton, managing director consultant Arneil Johnston, said analysis shows that around half of Shetland households cannot “afford” the cost of private market rent.
She also said the household income needed to afford mid-market rent is around £30,000 a year.
Milton also said the tenancies would have a “high degree of security” as there would be no end date.
Scottish Futures Trust associate director Jenny Davies meanwhile said the organisation has supported the delivery of more than 3,000 mid-market rent homes since 2018.
She said mid-market rent is now an established tenancy type that now receives subsidy from the Scottish Government.
Meanwhile the Scottish Government has committed £667,800 in grant funding for the acquisition and initial set-up costs of the six one-bedroom homes at North Road in Lerwick.
The council is set to allocate £752,200 from its Second Homes Council Tax Reserve, a fund specifically intended to support housing initiatives, to complement this.
The ALEO is intended to operate on a “financially self-sustaining basis”, with rental income set to cover ongoing management, maintenance and administrative costs.
The report added: “Should the initial phase of the mid-market rent programme prove successful, the ALEO may seek further funding for additional acquisitions or developments.”
The meeting also heard that there is no reason why the council could not investigate “full” market rent in the future under the scheme too.
Council lawyer Paul Wishart also told the meeting said the plan is for the Scottish Futures Trust to stand down as a member in the coming years, with the organisation due to assist with the start-up but not the ongoing operation.
Finance manager Paul Fraser said the six North Road homes could bring in an estimated annual income of £39,420. Once expenditure is taken into account, it could leave an estimated surplus of £2,572.
Lerwick South councillor Cecil Smith questioned what was the benefit of going down the ALEO route and not just have the six properties as social housing.
Wishart responded by saying there was a “market failure” identified which would not be addressed by social housing.
“It may be six houses which doesn’t sound an awful lot, but it’s start to try to address that market failure,” he said.
The meeting also heard that the properties would be furnished to the same standard as social housing.
Sandison reiterated that there are people in the community who will never receive enough allocation points to be given social housing.
“The proposal of this pilot is to try to meet that gap,” she said.
During debate SIC depute leader Gary Robinson said he had “no doubt” there would be six tenants ready and waiting for the North Road homes once they become available.
“This is a pilot project, I think it’s a necessary pilot project and I think it’s one that we need to follow through to its conclusion,” he added, before suggesting the council approve the proposals.
Lerwick South councillor John Fraser also said the SIC is “limited and curtailed” in addressing long-held housing issues in Shetland.
He said the council needed to be creative and suggested mid-market rent could be the “birth of a new dawn” for the SIC’s housing aspirations.
Meanwhile Shetland Central councillor Ian Scott said however valuable the six properties will turn out to be, “there is nothing that equates to council housing”.
“It’s local authority run, it’s a stream of income in years to come. It allows young people to get housed, have families, back green, front green,” he said.
Speaking after the meeting, development committee chair councillor Dennis Leask said: “There’s a very small private rental market locally, affordability is challenging and it’s well known that the housing market is under pressure.
“This is an innovative project for Shetland that will increase local housing diversity and help some of those looking for a home who might otherwise be unable to do so.
“We need more affordable homes and this mid-market rental project is part of the solution for us to achieve that.”
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