The Impact of Buy to Let Residential Investment on Local Housing Markets: Evidence from Glasgow, Scotland

ABSTRACT

The advent of the ‘buy to let’ (BTL) phenomenon in the UK, apart from producing a new wave of individualized rental market investment, has been widely judged to be a speculative and destabilizing force in the housing market. This paper provides a detailed empirical investigation of new residential investment in one city (Glasgow) where BTL has made a relatively large impact. In seeking to overcome data problems, the study employed qualitative (expert interviews and a landlord survey) and quantitative methods (census, the Register of Sasines, standardized house price information and modelling thereof) in order to assess the nature and scale of BTL, the motivations of investors and its impact on the private housing market. The evidence suggests that while Glasgow is in many respects different to rental markets elsewhere in the UK and although the investment has thus far largely occurred in a benign environment, the context for future investment, on balance, looks sustainable (i.e. favourable changes to pension planning law and the maturing market for BTL). Long-term market impact is an empirical question that depends on the specific interactions of market niches or segments (i.e. the first-time buyer market for apartments) with potential buy to let investment. Our conclusion, to borrow a Scottish legal term, is that BTL induced volatility is ‘not proven’.

KEY WORDS:

• Private rented sector
• local housing markets
• buy to let
• UK housing policy

Acknowledgements

The authors are grateful to David Webster and Craig Binns at Glasgow City Council for comments and advice on this research. We also thank Tony O'Sullivan and Peter Kemp, the Editor and two anonymous referees of EJHP for their helpful and constructive comments on an earlier draft. We are also grateful to Gwilym Pryce at the Department of Urban Studies, University of Glasgow, who let us use his data. We also acknowledge all of the research subjects who contributed to the primary research. The usual disclaimers apply.

Notes

1. Here, volatility is conceived of as excessive price and volume movement relative to normal market movements.

2. The hedonic model was developed by Dr Gwilym Pryce at the Department of Urban Studies, University of Glasgow. Findings from the model are published in regular market bulletins produced by GSPC. We are grateful to Dr Pryce for furnishing us with this data.

3. These sub-markets are not based on prior economic analysis. Alternative submarket structures for Glasgow have been developed in a series of papers by Colin Jones and colleagues (e.g. Jones & Watkins, 1996; Watkins, 1998).