DM Hall

Blog: It’s time for a grown-up conversation about how to help solve Scotland’s housing crisis

Andrew McFarlane

Andrew McFarlane

Andrew McFarlane discusses the issue of the housing crisis in Scotland and outlines what action has to be taken to rectify the problem.

Housing has risen up the political agenda once again and, as happens with most politically sensitive subjects, the debate about it has immediately become rancorous and ultimately unproductive.

The irony is that there is a general, across-the board-agreement that, faced with a rapidly rising population, Scotland needs to do something about the chronic lack of decent and affordable housing stock.

Nicola Barclay, the chief executive of Homes for Scotland – widely seen as a builders’ and developers’ lobby group – put the cat among the pigeons recently when she said that Holyrood government’s target of 50,000 new affordable homes is damaging private sector growth.

She said that her organisation’s view was that a focus on affordable and social housing is exacerbating Scotland’s housing shortages, ignoring commercial realities and was not the only recipe for solving the looming housing crisis.

Immediately, she was condemned for being anti-social – that is, against the concept of social housing per se. She was accused of lobbying for the property developer model which is stigmatised as having fuelled the housing crisis in the first place.

Ben Wray, head of policy at Common Weal, claimed that Ms Barclay’s view on social housing was “aggressive lobbying” to extract more subsidies for private developers on top of the new subsidy for private sector build-to-rent.

In terms of a spat, it was all fairly predictable and ran along the lines we have come to expect when political considerations begin to intrude on what should be straightforward commercial transactions.

Ms Barclay was subsequently at pains to point out that focusing on one element of the market to the exclusion of others will not, of itself, solve the problem. The 50,000 target, she insisted, can only be met with the help of a healthy and profitable private sector.

Speaking from my long experience with DM Hall, my role as chair of the Judging Panel for the Herald Property Awards for Scotland and a non-executive director for a registered social landlord, I am convinced of one thing: the issue will not be resolved by fighting over it.

We can all agree on the root of the problem: Scotland needs more housing. The number of properties started in Scotland was down again on the previous year and completions were 36% down on 2007 and below 2010.

First-time buyers need an average deposit of more than £21,000 to get on the first rung of the Scottish housing ladder, typically around 16% of the purchase price. It is little wonder they are called Generation Rent.

But Ms Barclay is right in one major aspect – no one part of the house building sector can provide for all the different requirements demanded by an increasingly diverse and financially disparate society.

Collaboration is greatly to be desired among interested parties. We should not lose sight of the fact that there is considerable cross-sector work going on at the moment, but there is little doubt that there could be more of it, and better.

Another thing we should all be able to agree on is that there is more to be gained by collaboration than by conflict. We have to step back from knee-jerk reactions and try to see the points of view of other participants in the debate for what they are.

There is a generation of young people coming through at the moment who are sceptical about the possibility of ever being able to afford their own homes.

An open and mature debate is required from people with the relevant experience and expertise in the field to find solutions which will satisfy everyone.

Trading insults is not going to help.

  • Andrew McFarlane is a consultant in the Glasgow North office of DM Hall Chartered Surveyors and a Fellow of the Chartered Institute of Arbitrators.

Student accommodation plan for former Glasgow print plant

Graeme Todd of DM Hall

Graeme Todd of DM Hall

The former John Watson & Company print works in Glasgow is to be redeveloped as student accommodation and office space following its sale to developers Watkin Jones.

The planned development at Kyle, Calgary and Stafford Streets, will comprise student accommodation of around 300 bedrooms, ancillary accommodation, amenity space and parking.

The 0.85-acre site became available as a result of the sale of John Watson & Company to Multi-Colour Corporation, which is head quartered in Ohio, USA, and its subsequent move to a new build Centre of Excellence in Clydebank.

John Watson OBE, former owner of the business, said: “We operated very successfully from Kyle Street since the early 1970s, so its sale represents the end of an era. On the other hand, it please me greatly that the site will be re-born as student accommodation serving what will be the next generation of educated business people in Glasgow and the rest of the country.”

Graeme Todd of DM Hall, who oversaw the sale, said: “The property was sold at a closing date with several offers generated by a marketing campaign which had the benefit of an existing planning consent for a student accommodation development.

“Whilst there is much talk and debate about continuing demand for student accommodation development, our marketing of Kyle Street generated considerable interest, particularly as the site had so much to commend it, being close to the city centre, the motorway and a short walking distance from major bus and rail links.

“Demolition of the old printing works is imminent and the development should be projected for completion in August 2019.”

Blog: Time for a fresh look at the case for compulsory installation of residential sprinklers?

Andrew McFarlane

Andrew McFarlane

Andrew McFarlane makes the case for UK-wide regulation to make sprinklers mandatory in all new build houses.

The enquiry into the Grenfell Tower tragedy is well under way. And although it is sometimes considered trite to say so, lessons will be learned.

One of those will almost certainly concern the much-discussed issue of making mandatory the installation of sprinklers in residential accommodation. Current Scottish regulations require sprinklers in high rise residential buildings which are those over 18m in height, approximately 6 or 7 storeys.

In that context a further consultation on fire and building safety which will better protect all homes, new-build, privately or socially rented or owner occupied, has been launched this month by the Scottish Government.

Around three quarters of all fire-related deaths arise at home. The horrible incident in west London took place against a backdrop of a sharp increase in numbers of fire-related deaths – up 21 per cent between 2014 and 2015.

An ageing population and, some claim, the cuts that have been applied to local authorities’ budgets have played a part in the increased number of deaths. Certainly, evidence suggests that fire response times are getting longer, especially in the UK’s largest cities.

Social housing tenants are at greater risk from fire than other groups because of demographic factors including an ageing population, with the majority of deaths from fire occurring among those over the age of 65. This is because people in this age group find it harder to evacuate a building in time. The disabled are vulnerable for the same reason.

The issue of costs of installing sprinklers in new homes – around £2800 on average comparable to new heating system or rewiring – is at the crux of the issue. But how much value do we place on human lives?

A 2005 review by the UK Government’s Department for Communities and Local Government argued that research suggested that it would not be cost-effective to provide sprinklers in new homes, but that it would be reasonable to provide them in blocks of flats over 30 metres in height and in certain types of care homes.

This is likely to change as a result of the Grenfell Tower enquiry and, at a minimum, the height of buildings which require sprinklers could be reduced to the 18m level currently applying in Scotland. Some will argue that it should fall further to ensure that all three storey buildings have sprinkler systems fitted.

Regulation in Scotland to require sprinklers in care homes, hostels, hotels and other places of multiple occupancy in Scotland was tightened a few years ago, following the number of lives lost in the fire at the Rosepark nursing home in Uddingston, Lanarkshire. The same safety arguments that convinced politicians of the need for sprinklers in care homes apply equally to residential properties.

So is there a case for UK wide regulation to make sprinklers mandatory in all new build houses? I would say yes. Aside from Grenfell Tower, there is a steady, sorrowful stream of news stories each year about deaths at home as a result of fire and smoke inhalation.

Smoke alarms are already installed in new homes as standard though constant reminders, through newspaper and TV advertising, it seems, are necessary to have householders regularly check their batteries.

And whilst some homeowners are concerned about the possibility of their homes being flooded as a consequence of a faulty sprinkler system, the fact is that a properly installed and maintained system should represent only a very low risk of flooding. A soggy carpet is a small price to pay for saving a family’s lives.

Indeed, the statistics show that, in the incidence of fire, a sprinkler system will reduce the damage to a property by an average of 80% and in 95% of cases only one sprinkler is required to tackle a blaze.

Cost is the real issue though, since while the costs of installing sprinklers – of the order of £2,000 to £5,000 depending on size – or around 1% of the total build cost of a new home – this is a cost that, through lower insurance premiums, is capable of being recouped by the householder within four years. By way of comparison, a fire engine costs around £50,000 per year to run, while a full time fire crew costs around £770,000 per year outside London.

So, is this not a small price to pay for the many lives that can be saved as a direct result of installing sprinklers in homes? In Vancouver, Canada, sprinklers have been 100% effective in preventing fire deaths in new homes. They have been compulsory since 2011 in all new homes built in Wales.

The picture is made more complex, however, by the economics of the housebuilding sector. With recent significant rises in the costs of building materials and a skills shortage set to be exacerbated by Brexit, housebuilders are already wary about building houses where their margins are squeezed.

That there is a screaming need for more new houses is indisputable; equally, it is hard to argue that extra costs of installing sprinkler systems in all new houses increases builders’ costs.

Following its 2005 review a spokesman for the Department for Communities and Local Government said: “New regulation on housing needs to be balanced and proportionate.

“Making sprinklers compulsory in all new homes would add an estimated £2,000 to £3,000 to the regulatory cost of a new-build home, meaning fewer new homes, making home ownership less accessible especially for first-time buyers, and potentially pushing up rents in the private rented sector.”

And there you have it. Further investigation of the position in Wales and further drawing the attention of local and national governments to the issue can only be of value. Let’s hear what the Grenfell enquiry has to say.

  • Andrew McFarlane is a consultant to chartered surveyors DM Hall and a specialist in building surveying

Blog: Rising costs and skills shortages expected to weaken construction industry outlook

Andrew McFarlane

Andrew McFarlane

Increased building material prices and a shortage of labourers can flatten the Scottish Government’s laudable building ambitions, says Andrew McFarlane.

As the population of the UK inexorably increases, the most frequently employed stock response in political circles is to promise to build more houses. In Scotland alone, the Holyrood government has a target of 50,000 new affordable homes.

Vast sums of money have been allocated with a view to upping the building rate and encouraging councils, housing associations and construction companies to deliver new accommodations despite a challenging economic environment.

While such ambitions are laudable, there are many factors which can throw plans off target, and it is becoming clear that considerable increases in the price of building materials are heading up the worry list.

A newspaper investigation earlier in the year disclosed that some of the essential raw materials of the construction industry in the UK have been hit by price increases of up to 35%. Hikes of this magnitude can push the most meticulous margin planning into disarray.

The costs of some construction components, including plasterboard, chipboard and loft insulation, are rising at their fastest rate for 25 years.

The Construction Trade Survey from the Construction Products Association in Q4 last year showed that overall costs increased for 88% of civil engineering contractors, while 75% of main contractors also reported a rise in raw materials costs.

The main blame for these cost rises has been laid at the door of Brexit, with the subsequent decline in the value of sterling which is producing industry-wide inflation. Increased energy prices are also hitting manufacture of items such as bricks.

Nearly a quarter of building materials supplied in the UK are imported and a modicum of good news is that, in a typically proactive response, many trade suppliers are actively seeking to source alternatives to traditional markets.

But as well as cost issues, the construction sector is beset by an ongoing skills shortage affecting key on-site trades, with main contractors reporting at the beginning of the year that shortages of carpenters and plasterers were at their highest in nine years.

The Federation of Master Builders also warned of a shortage of labourers. Nearly one in eight comes from outside the UK and there is concern that many of these employees may decide to repatriate in the event of a hard Brexit.

As well as material costs, wage inflation is playing its part in the worries affecting construction. A survey by recruiter Hays showed that average salaries in construction and property rose by 2.8%, with building services achieving 3.5%.

Nearly two-thirds of building service employers said they had raised salaries over the course of 2016 and the same proportion expect to have to offer similar rises in 2017, with 16% anticipating that these increases will be in the order of 5% or more.

It is hardly surprising that the Office for National Statistics recorded a 1.2% decrease in construction output on May this year, both month on month and three month on three month. The most notable decline was in infrastructure, which fell 4%.

The construction industry is resilient. It has to be, considering the wide variety of external factors which can buffet it unexpectedly. But despite all its efforts, a weaker outlook for the rest of 2017 seems inevitable.

  • Andrew McFarlane is a consultant in the Glasgow North office of DM Hall Chartered Surveyors and a Fellow of Royal Institution of Chartered Surveyors

Blog: Energy efficiency: Holyrood unveils the big stick

Mark O’Neill

Mark O’Neill

By Mark O’Neill

Well, now we know. The Scottish Government has long indicated its desire to reduce the country’s CO2 emission through greater energy efficiency and has been assiduous in providing carrots. Are we are starting to see the stick?

One of the instruments in the drive to increase awareness and reduce unnecessary use of energy has been the Energy Performance Certificate (EPC). ECPs are now widely adopted and accepted in the commercial property sector.

But EPCs are just a measure. Other than the requirement imposed on vendors and landlords to prepare and provide EPCs, they have had no statutory teeth. There has been no element of compulsion on property owners to implement the recommendations contained within them.

From September 1st 2016, the Assessment of Energy Performance of Non-Domestic Buildings (Scotland) Regulations 2016 come into effect. These regulations follow-on from the Climate Change (Scotland) Act 2009 which contained provisions for ministers to bring forward regulations to compel landlords and proprietors to improve their properties.

It has to be said right away the new regulations, while adding to existing EPC regulations, are quite significantly limited in scope. They only apply to buildings, or separate units within them, with a floor area of more than 1000m2, which are being made available for sale or let.

To put this in perspective, the type of building likely to exceed 1000m2 is going to be the largest retail units, such as a High Street department stores, large industrial units, and warehousing and or commercial offices. Potentially, licensed and leisure properties such as hotels built over a number of floors might also be included, but to a lesser extent.

The other limiting factor is that the regulations apply only to buildings which do not comply with energy standards set out in Scottish Building Regulations from 2002 – so, modern property or property altered within the last 14 years may not be impacted.

This means only a small proportion of the current commercial stock – perhaps some 5% or so – will be affected. At the time of writing, there were something in the order of 500 – 600 properties of this size and over currently on the market for sale or let.

But this is a long game. There is provision for the policing of the implementation of the new regulations, backed up by fines, and I think we will almost certainly see a reduction in the size of buildings affected to 500mwithin four to five years – the blink of an eye in property terms.

And, while the initial numbers of landlords and property owners affected may initially be small, the ramifications for them could be costly.

Sellers will now have to have affected properties assessed for compliance to 2002 energy standards and where necessary have an Energy Action Plan prepared and act upon that plan. What is worthy of note is that the Action Plan attaches to the property in question rather than the person paying for it. There will be seven prescribed improvement measures which section 63 assessors can include, ranging from improving lighting to replacement of inefficient boilers.

There is another issue. With the action plan relating to the building, it could become a substantial liability for a seller, since the buyer will be obliged to do the necessary work. The implementation of the action plan may also fall at the door of tenants where their lease obligations require them to meet all statutory obligations relating to the property.

The changes will all cost money and they require to be implemented within three and a half years, so the clock is ticking as soon as the action plan is registered with the Scottish Government, via the EPC register. With the property requiring reassessment to ensure compliance has been met.

An action plan can be deferred, but an owner taking this course will have to exhibit a display energy certificate (DEC), a newcomer to energy assessment in Scotland, with actual energy usage being measured and monitored on an annual basis thereafter. Continual measurement and monitoring will come at a cost, so the price of deferral will quickly outweigh the expense of actually doing something to the building.

DECs could be seen by some as energy compliance avoidance, rather than evasion, but the reality is that recommended improvements have to be done at some time. It may turn out that the most useful purpose of DECs will be in allowing implementation over a longer period to accommodate financial constraints.

The jury is still out on whether this will make properties unsellable, as owners take the view that the game is not worth the candle and go down the road of demolition rather than improvement – a situation already being factored in as a consequence of the changes in empty property relief.

There is certainly the possibility that asking prices will fall, as energy efficiency deficiencies become viewed in the same light as dilapidations, though now with a new statutory requirement attached. Similarly, we might see Landlords passing the responsibility of implementing an Action Plan onto tenants, insisting that tenants comply with all lease obligations.

Commercial agents will have to become acutely aware of how this will impact on marketability and value. But of this there is no doubt: a new regime of compulsion is well under way.

  • Mark O’Neill is a commercial valuations specialist and a non-domestic energy assessor at DM Hall Chartered Surveyors.

Blog: Winners and losers in Lanarkshire’s commercial property market

Ian Woods

Ian Woods

By Ian Woods

The Lanarkshire commercial property sector is, in general terms, holding its own in market conditions which continue to be affected by legislative and political considerations as much as more traditional criteria.

In the industrial sector, some sites continue to do well. DM Hall recently advised on an old Scottish Water site in Blantyre for £500,000 over the asking price, illustrating that willing buyers are still out there.

Logistically, Lanarkshire benefits from its geographical location, astride the main motorway artery with the south, and with good links – currently being made even better with the M8/M73/M74 improvements – to the north and east.

Good properties remain popular with industrial occupiers, especially those with substantial open ground for goods yards where hauliers and contractors can store commercial vehicles and cars. Luckily, space is something Lanarkshire has plenty of.

But the industrial market is, as was widely predicted earlier this year, being affected by the Scottish government’s limitation of the empty property relief which attaches to vacant commercial premises.

This valuable benefit is being reduced from the current 100 per cent relief from rates to 10 per cent after three months, meaning that landlords would face a 90 per cent charge on non-earning buildings.

And, while there is plenty of space in the county, there are also a lot of traditional buildings, whose owners have been content to hold on to them because there was no imposition on them.

Under the new regime, we are likely to see more and more of this element of the built environment being demolished, because developers don’t want it, owners can’t get rid of it and it costs a fortune to hold onto it.

The office market in the Lanarkshire area, which – like the rest of Scotland – had for several years suffered from over-supply and restricted demand was further devastated three and a half years ago when Holyrood introduced additional empty property rating changes, remains poor.

There is so much stock available that no developer is bringing new properties on to the market, speculatively or to order. And some of the prices that have been achieved for the few office sites that have moved have been, frankly, derisory – less than comparable industrial sites.

The retail market is mixed, with encouraging activity and respectable valuations and prices in some of the smaller, provincial market towns, some of which – such as Uddingston and Bothwell – are relatively affluent.

Activity here, and in places such as Strathaven, could be being enhanced by the current fashion for localism, making small retail outlets and services more viable than in recent years.

In contrast, some larger Lanarkshire towns, such as Hamilton and Motherwell continue to struggle, with shopping street values in Hamilton still down by a dispiriting 60 per cent on their peaks.

Areas such as these have never really recovered from the proposal some 10 years ago – never yet realised – to build a massive, mega-shopping centre at Ravenscraig, the site of the old steelworks.

Under threat from the prospect of this kind of competition, they were too weak to withstand the body blow of the 2007/8 recession and many smaller operators have never recovered.

Airdrie and Coatbridge retail premises vary. Again, they are sustained by local economic activity, although values at one end of Coatbridge’s half-mile long main street can differ dramatically from the other end.

East Kilbride continues to outshine other Lanarkshire towns with the enormous East Kilbride Shopping Centre mall, Scotland’s largest undercover shopping centre. It has a mile of mall and there are more than 180 retail, leisure and catering outlets, including Debenhams, H&M, Zara, JD, Topshop, River Island, Next and M&S.

So there are some winners and some losers, but overall the course for Lanarkshire’s commercial property sector is steady as she goes.

  • Ian Woods is a partner at the Hamilton commercial department of DM Hall Chartered Surveyors.