Affordable Homes - Scottish Government Budget And Progress - Reductions To Funding And Increased Cost Impacting Progress

16th January 2024

The Scottish Parliament is currently scrutinising the Scottish Government's 2024-2025 budget published at the end of last year.

One of the more noticeable proposals is a £200 million cut in the Affordable Housing Supply Programme which funds the Scottish Government's affordable homes target.

This blog takes a closer look at the affordable homes budget, reaction to the plans and progress towards the target.

110,000 affordable homes target

The Scottish Government's commitment is, working with partners, to deliver 110,000 affordable homes by 2032. Of this total, the target is that 70% (77,000) will be available for social rent and 10% will be in remote, rural and island communities.

Affordable housing includes:

housing for social rent provided by registered social landlords (RSLs) and councils
housing for affordable home ownership
mid-market rented housing (i.e. housing above social rent levels but below market rent levels).

Most of these homes will be newly built by councils and registered social landlords (RSLs) but Scottish Government funding can also support off the shelf purchases of existing stock.

Investment in the affordable housing supply programme - a budget cut for 2024-25.
To progress towards the long-term target, the Scottish Government plans to invest £3.5 billion this parliamentary term (May 2021 to end April 2026) in its Affordable Housing Supply Programme (AHSP). This funding is in addition to councils' and RSLs own capital funding.

In their recent budget, the Scottish Government set out plans to spend £556 million on the AHSP in 2024-25.

This is a cut of £196 million in cash terms (-26%), or a real terms cut of £205 million (or ‑27%) compared to the 2023-24 budget. The capital element of the budget, which mainly funds grants for councils and housing associations to build new homes, has been cut by £75 million (-14% in real terms). The other part of the budget is funded by ‘financial transactions.' This is loan funding, mainly used for the Open Market Shared Equity Scheme, that needs to be paid back to the Scottish Government. This part of the budget has decreased by £121m (-72% in real terms).

This is the second year in a row the budget has been reduced, and by more than might have been anticipated compared to plans set out in the targeted review of capital funding.

Given the increased costs of building new homes (see below) the £3.5 billion planned spending will now effectively buy less than it could at the start of the parliamentary session.

The budget states that this reduction in the AHSP ‘reflects wider budgetary pressures across the Scottish Government’. The Minister for Housing, Paul McLennan MSP, previously told the Parliament that the "impact of the UK Government’s economic mismanagement is causing soaring inflation" and "on-going austerity is putting pressure on the Scottish Government’s budget". This will "significantly impact on our ability to deliver on our capital infrastructure commitments."

The UK Government has stated that the Scottish Government is "well-funded to deliver upon its devolved responsibilities - including housing" and that it can also borrow up to £450 million for capital investment on top of this.

The planned AHSP budget has been cut by more than the overall capital budget. The Scottish Government’s total capital expenditure plans for 2024-25, including making full use of its borrowing powers, are around £6 billion, a real terms decrease of -4.3% from 2023-24, compared to the -27% decrease in the AHSP.

Stakeholder groups, including Shelter Scotland, Scottish Federation of Housing Associations (SFHA), and the Chartered Institute of Housing (Scotland), have been critical of the planned budget cut. For example, SFHA argue it is a "hammer blow for tackling homelessness and poverty".

The Joseph Rowntree Foundation, recently told the Finance and Public Administration Committee that, “the Scottish Government has a pretty good record on housing—its record is much better than those of Governments elsewhere in the UK—and that is to its credit”, but it was “baffling that the affordable housing supply programme should be the victim of such a brutal cut.”

Progress towards the 110,000 affordable homes target has slowed and the target may be reviewed by the Scottish Government
The Scottish Government monitors progress towards the target from 23 March 2022, as this was when the previous 50,000 target was completed.

Between 23 March 2022 and 30 September 2023 (the latest data available), 15,705 affordable homes have been completed, representing 14% of the target.

Of the total homes delivered so far:

78% (12,188) were for social rent
12% (1,857) were for mid-market rent
11% (1,660) were for affordable home ownership.
2022-2023 was a good year for completions of new affordable homes with 10,462 completions, the highest number since 2000.

The Scottish Government has previously pointed to its long-term record in affordable housing delivery, citing over 123,000 affordable homes completed since 2007 and a high completion rate per head of the population compared to other UK countries.

However, the future number of affordable homes will depend on how many new homes have been approved and how many homes have started to be built on site. Both approvals and site starts have dropped.

In the year to end September 2023:

the number of homes approved has fallen by 14% (to 6,178 homes)
the number of homes started has fallen by 24% (to 6,302) homes.

With just over 8 years of the target to go around 94,300 homes remain to be completed to meet the target, an average of over 11,000 a year. Although there can be ‘peaks and troughs’ in the funding and delivery of new homes over a long-term programme, at current levels of approvals and site starts of nearer 6,000 a year, the target looks challenging.

The Scottish Government doesn’t set any annual or interim targets. However, in its housing policy document, Housing to 2040, it has stated that it will carry out a mid-point review of the programme.

Following the latest budget announcement groups representing housing bodies have been sceptical that the target will be met. For example, the Chartered Institute of Housing (Scotland) was reported in Scottish Housing News as saying:

We need the Scottish Government to urgently review the viability of its 110,000 affordable homes by 2032 target and consider what funding and support is needed to increase sector capacity immediately to deliver the affordable homes Scotland needs.

Scottish Housing News, Budget: Sector hits out at ‘hammer-blow’ affordable housing cuts, 20 December 2023
Glasgow and West of Scotland Forum of Housing Associations has argued that:

Ministers must finally stop insulting our intelligence and put an end to what are now becoming embarrassing references to the 110,000 homes target. It was disingenuous - if not just dishonest - of the SG’s Budget document to set out the cut yet still refer to the target. This implies it’s still on track, when something nearer 60,000 is probably more realistic.

And the cut is a terrible blow to efforts to tackle child and family poverty. The proud boast that our rate of new social housing provision has been a big factor in Scottish poverty levels being lower than down south is one we can’t reliably make any longer.

Scottish Housing News, David Bookbinder: Is the Scottish Government waving the white flag? 9 January 2024
In a recent Herald article, the Minister for Housing was reported as saying that a review of the target would be brought forward with a focus on “the delivery timeline”. As yet, there is no further detail on this review.

Cost pressures are a major challenge to delivering new affordable homes
Increased costs of construction and supply chain delays are one of the challenges to delivering new homes.

The average cost of a new social rented home funded through the AHSP in 2020-21 was around £158,000 for housing associations and £146,000 for councils.

Now, social landlords report average costs in many new developments can be around £200,000 or above, and can be more, up to £300,000 in rural areas.

The Scottish Government has increased the level of grant subsidy available to social landlords to reflect some of the increased construction costs and in some cases projects requiring higher levels of grant can be approved.

Social landlords also need to balance increased development costs with their other capital commitments whilst operating in a challenging financial environment.

The Scottish Housing Regulator (SHR) has highlighted the ongoing economic uncertainty and volatility RSLs face including higher inflation and borrowing costs, supply chain disruption, labour scarcity and below inflation rent rises.

RSLs also need to continue to fund ongoing investment and decarbonisation of their existing homes and maintain rents at affordable levels for their tenants, resulting in difficult trade offs.

Within this context, the SHR notes that RSLs are reducing their planned development programmes.

SPICe has also published a briefing providing a general overview of the Scottish Government’s budget for 2024-25, and there is a range of other budget information on the Financial Scrutiny Unit’s webpage.

Kate Berry
Senior Researcher (Housing)

Read the report on Spice with many links to more information