Hjaltland Housing Association will receive £20 million, which will enable the social landlord to start the project at Staneyhill in Lerwick this year.

The Bute House Agreement includes a commitment to deliver 110,000 affordable homes by 2032 of which at least 70% will be available for social rent and 10% will be in our remote, rural and island communities.

The funding was announced by housing minister Paul McLennan during a series of visits to the Highlands and Islands.

Mr McLennan said: “This is a significant investment in affordable housing supply in Lerwick. It will make a huge contribution to the housing challenges being felt by Shetland, with particular pressures on Lerwick itself.

“Recognising the challenges and barriers facing our rural communities we will continue to support these areas and face those challenges head on. High-quality, highly energy efficient and affordable housing is a key pillar of tackling these issues and this project will be a big step in working towards removing those barriers locally.

“Our rural and island communities play an essential role in our economy, and we will continue to support the delivery of more affordable housing to keep people in these areas and attract others to live there.”

Chief executive of Hjaltland Housing Association, Bryan Leask, added: “Accessing the Housing Infrastructure Fund was essential due to the constraints on the site, and we greatly appreciate the commitment from the Scottish Government in supporting us with this funding.

“This project supplements the existing housing schemes we are currently developing through the Affordable Housing Supply Programme at Scalloway, Aith, Brae and Walls and reaffirms both ours and the Scottish Government commitment to the communities of Shetland.”

Chair of Shetland Islands Council’s Development Committee, Councillor Dennis Leask, commented: “This funding will be a tremendous boost to the supply of much-needed affordable housing for Shetland. This is one of the main challenges to the development and wellbeing of our community, and we look forward to supporting Hjaltland on the project as it moves forward.”