Despite a commitment to deliver 110,000 homes over the decade to 2032, with at least 70% being for social rent, December’s Scottish Budget saw a fall in funding for 2023/24 compared with the current year. Spending in 2021/22 and 2022/23 was £831 million annually, but the £752m planned for 2023/24 represents a cut of about 9.5% in cash terms and 18% in real terms However, the Budget slightly exceeds earlier commitments to invest £3.5 billion over the life of the parliament, ‘to ensure as much certainty as possible’.

Budget for Affordable Housing Supply Programme (AHSP) 2021/22-2025/26

Source: Scottish Government.

Note: Totals may be affected slightly by rounding. DEL = Departmental Expenditure Limit; TMDF = Transfer of Management of Development Funding (i.e. AHSP funding administered directly by Glasgow and Edinburgh councils).

The previous target of delivering 50,000 affordable dwellings over the five years to 2020/21 also required investment of approximately £3.5bn. By the end of March 2021, 41,355 units were actually delivered, with other completions towards the 50,000 target delayed until 2021/22 because of pandemic-related disruption. The was met actually met on 23 March 2022, from which point the Scottish Government started its count of homes towards the new 110,000 target. Completions in 2021/22 were encouragingly high, the highest since 2000 (9,757 homes); but they still fall short of the annual completion rate of 11,000 homes that will be required to meet the new target.

The Chartered Institute of Housing’s (CIH) 2023 UK Housing Review, published on March 28, received figures from the Scottish Government which enable a comparison to be made of its support for affordable housing with that for the private market. For the five years up to 2020/21 reported in the 2020 Review, they showed 85% of funding being directed towards affordable housing. Of the £929.6m budgeted spend in 2021/22, 89% was directed to affordable housing. Although figures are not yet available for 2022/23, the proportion is likely to be higher as two of the principal components of private market support, Help to Buy and the First Home Fund, have now closed.

Despite the strong priority being given to affordable housing investment, both CIH Scotland and the Scottish Federation of Housing Associations argue that additional resources will be needed if the 110,000 target is to be achieved. The budget for new housing this parliament remains almost the same in cash terms as in the previous parliament, however inflation eroding the value of every pound spent and increasing housing standards making building more expensive, landlords will find it challenging to deliver a similar number of affordable homes. While setting a ten-year target indicates the government’s ambition, it risks delivery being achieved by budget increases later in the cycle which will be decided by the next parliament, and which may have different political and budgetary priorities.

Achieving the target also depends on the sector’s continued ability to raise private finance. The Scottish Housing Regulator assesses social landlords’ finances as ‘robust’ but points to major challenges which could affect their ability to service current debt and raise new debt:

• Rents. In 2022/23, social landlords raised rents by amounts well below inflation (an average increase of 2.98%, compared to inflation in April 2022 of 6%). For 2023/24, agreements with the Scottish Government have again led to sub-inflation increases: housing associations continue to decide their own rent levels (forecast by the SFHA in December to average 6.1%) and local authorities have increased rents by an average of no more than £5 a week.
• Grant benchmarks. These were raised in 2021 and were due to be reviewed and updated for 2023/24. The Scottish Budget notes that it continues to operate a flexible grant funding system, and that ‘this means applicants should request the grant they require to make a project viable, and this will then be assessed to establish value for money’.
• Quality standards for new homes. More stringent requirements are to be placed on all new housing developments, notably that homes will have to meet a Scottish version of the Passivhaus standard, probably starting in 2024. SFHA supports the proposal but notes that it will require ‘significant support’.

There are also huge pressures to invest more in the existing stock, both to meet the Scottish Housing Quality Standard and to meet new energy efficiency standards.

The UK Housing Review points out that Scotland delivers more affordable homes per 10,000 population than does England, Wales or Northern Ireland. Apart from the fall in output attributable to the pandemic, the social sector’s recent performance in delivering new homes has been excellent. However, the budget cuts, combined with the pressures just noted, inevitably put a question mark over the likelihood of the new ten-year target being met.