Edinburgh’s housing market faces a boom or bust situation if Scotland votes Yes on September 18, according to campaigners.
Independence supporters claim a Scottish Government with full powers at its disposal could do more to support the housing market, helping people on to the property ladder and working with developers and banks to ensure buyers get the best deal.
But opponents argue an independent Scotland would face higher interest rates, leading to more expensive mortgages and poor economic prospects would mean a lack of investment.
The city’s housing market is on the up after the slump caused by the financial crisis, with figures published last month showing a 6.8 per cent annual rise in average house prices.
But experts are divided on whether the encouraging situation is a reason to avoid radical change or go for independence in the hope of a brighter long-term future.
David Marshall, business development manager at ESPC, says: “Ultimately the impact of independence on the market comes down to what you believe the impact will be on the wider economy.
“What we have seen over the past 12-18 months has been very much what you would want to see in a recovering market – prices have increased, but not shot up.”
Despite the impending referendum, a lot of the factors which directly affect the property market are already determined at local level.
Mr Marshall says: “The housing supply is largely decided by local authorities, and stamp duty will be replaced next year – regardless of the referendum – by the land and buildings transaction tax, which is controlled by the Scottish Parliament.
“The market has come through five pretty difficult years now and is starting to show signs of improvement.
“There is one view that you don’t want to change anything just now. Some people are feeling particularly risk-averse because of the past few years.
“But others are very positive about what they see as the opportunities offered by independence.
“Whichever way it goes, the decision will reflect the mind of the nation and so the majority of people should feel positive about the outcome.”
But Mr Marshall says the big challenge facing Scotland, regardless of the referendum outcome, is the long-standing need to increase the number of affordable homes.
He says: “The population is living longer, which is great, but it brings with it increasing housing need.”
The Scottish Government’s White Paper on independence argues the housing issues in Scotland are very different from those in England. It says: “Social housing remains an essential part of our housing system, catering for 23 per cent of households. Full flexibility over our budgets will enable future Scottish Governments to broaden action to make more affordable housing available.”
Housing campaign group Shelter believes because housing is a devolved matter, the Scottish Government already has the power to build more houses.
The Yes campaign insists independence would allow Scotland to set its own property taxation rates to suit the market here, as well as boost capital expenditure for new housing and incentivise property development.
But a report published last week by estate agents Strutt & Parker highlights warnings about higher government borrowing costs pushing up mortgage rates. It quoted estimates that average mortgage bills could rise by £1700 a year or £5200 if Scotland did not accept its share of the national debt.
It adds: “Uncertainties around currency and credit risk could deter buyers from entering the market and result in a significant effect on house prices, mostly likely driving them down north of the Border.”
Mark Coulter, of city-based Coulters Estate Agency, claims the referendum has already had a big effect on business confidence and led to investment decisions being shelved or put on hold.
He says: “Markets do not like uncertainty and the property market is no exception.
“The outlook of uncertainty caused by a Yes vote cannot be underestimated – a minimum of two years of currency negotiations, pension uncertainty, EU membership and interest rate rises cannot be a positive for the property market.”
Independence supporters believe a Yes vote will mean an influx of diplomats, government staff and others to the Capital, with a positive impact on the housing market.
One city housing expert says: “Anything which would bolster the local economy in terms of employment would have the potential to boost the housing market. The other side of that is that it puts an upward pressure on the number of houses required in the city and it may accentuate that need for additional housing to be built.”
Any housing boom would not just affect the city-centre and better-off parts of town such as Morningside and Murrayfield.
The expert says: “The rule of thumb is that no market works in isolation, what happens in one area ultimately has a knock-on impact elsewhere.
“In the credit crunch, it was the lower end of the market that got hit first, where people had 100 per cent mortgages, but it then had a knock-on effect further up.
“The opposite is equally true. An increase in demand for more expensive homes might be concentrated in the more fashionable areas of the city in the first instance, but it does eventually have an effect elsewhere. Trends do radiate out from the areas of initial impact.”
DEMAND FOR OFFICE SPACE CLOSELY TIED TO HOUSING
A SURGE in demand for office accommodation could boost the Capital’s commercial property sector after a vote for independence.
One market expert says if embassies, government departments and incoming businesses are competing for premises it could push up prices for office space in parallel with house prices.
“The commercial property market is very closely tied to the general economy,” he says.
“And it’s all to do with employment. If there are new jobs being created and organisations expanding, looking for better offices, that will help to boost the market.”
However, others claim firms worried about the possibility of a Yes vote have been holding back on any expansion plans until they see the result of the referendum.
And there have even been claims of commercial investors asking for “get-out” clauses to be inserted into property agreements, allowing them to exit contracts if there is a vote for independence.
Some property firms say uncertainty caused by the referendum has slowed the commercial sector and investors are making alternative plans in case of a Yes vote.
But pro-independence group Business for Scotland says it has not heard of get-out clauses and insists a Yes vote will be good for the sector.
By John Boyle, Director of Research & Strategy at Rettie & Co Ltd
Predicting house prices with any reasonable degree of accuracy is extremely difficult in even normal market conditions. At the time of the recession, there were some forecasts that house prices would drop by 30 or 40 per cent, which proved to be unfounded.
So far, the referendum has had little effect on the number of houses being sold or the prices they are selling for. The exception is probably the “super prime” market in Edinburgh, that’s houses over £1 million. At the higher end, the purchasing decisions are larger and more affected by currency and tax implications, slowing down decision-making in times of uncertainty.
But there has not been any noticeable effect on other parts of the market, which are clearly improving – people still need to buy and sell property even though there is a referendum and there is a lot of pent-up demand in the market after several years of recessionary conditions that we have now broken out of. For example, first-time buyers still want to get on to the property ladder, regardless of what the result of the referendum is going to be. House buying is driven much more by people’s individual economic and lifestyle factors than by macroeconomic and political matters.
When it comes to what the effect of a Yes or a No vote would be, it’s complete guesswork. If a Yes vote was followed by a big expansion of the civil service and embassies setting up in the Capital, that would boost the market. But some companies in sectors such as finance have indicated that they might move south and that would have an opposite effect. However, the Scottish Government may announce plans to cut corporation tax dramatically, incentivising companies to stay and others to come in.
Since we don’t know the implications of a Yes vote for tax, currency, borrowing and so on, trying to assess the impact on the wider economy, and then on house prices and mortgages is almost impossible.