Last updated 12 November 2024
The Scottish Parliament scrutinised the Scottish Government’s 2024-2025 budget published at the end of last year.
One of the more noticeable proposals was 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, an announcement on additional funding, reaction to the plans and progress towards the target.
110,000 affordable homes target
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.
When the budget was published at the end of 2023, the Scottish Government set out plans to spend £556 million on the AHSP in 2024-25. Since, then an additional £80m over two years for acquisitions has been announced. Up to £40m of this will be available in 2024-25, bringing the budget for the ASHP to almost £600m in 20224-25. Taking this additional money into account, this is a cut of £163m or 22% in real terms from 2023-24.
Most of the cut is to the Financial Transactions part of the budget. These are allocated to the Scottish Government by the UK Government. Whilst the Scottish Government has some discretion over how to allocate Financial Transactions, they must be used for equity or loan finance to private enterprises. In housing, they have mainly been used to support equity loans for affordable home ownership schemes. This part of the budget has been reduced by £123m (72%) in real terms.
The capital element of the AHSP budget, which is used mainly by councils and RSLs to build new homes, has reduced by £41m (7%) 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 previous 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 previous UK Government 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 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 22% 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 budget cut. For example, SFHA argued that it was a “hammer blow for tackling homelessness and poverty”.
The Joseph Rowntree Foundation, 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 is being 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.
Of the total homes delivered so far:
- 17,289 (76%) were for social rent
- 3,219 (14%) were for mid-market rent
- 2,235(11%) were for affordable home ownership.
The Scottish Government has previously pointed to its long-term record in affordable housing delivery, citing a high completion rate per head of the population compared to other UK countries.
2022-2023 was a good year for completions of new affordable homes with 10,462 completions, the highest number since 2000. However, in 2023-24 there was a dip with 9,514 homes completed.
The future number of affordable homes completed will depend on how many new homes have been approved and how many homes have started to be built on site.
In the year to the end of June 2024, the number of affordable homes approved was 6,239, a fall of 1% from the previous year. The number of homes started was, 6,046, a fall of 20% from the previous year.
With under 8 years of the target to go just over 87,000 homes remain to be completed to meet the target, an average of around 10,800 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.
Following the budget groups representing housing bodies were 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.
The Scottish Government is currently reviewing the target with a “with a focus on the delivery timeline.”
Scottish Housing News, David Bookbinder: Is the Scottish Government waving the white flag? 9 January 2024
With 13 councils in Scotland declaring a housing emergency and the Scottish Government agreeing in May 2024 that there is a national housing emergency, further calls for the restoration of the affordable housing supply budget have been made.
The Scottish Government has been clear that tackling the housing emergency requires a joint approach between the UK, Scottish and local government and housing providers.
Cost pressures are a major challenge to delivering new affordable homes
The average cost of a new social rented home funded through the AHSP in 2021-22 was around £170,000.
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.
The new UK Government’s budget published at the end of October 2024 has resulted in additional funding for Scotland – there will be much interest in how the Scottish Government intend to use this additional funding to help tackle the housing emergency in its forthcoming budget.
Kate Berry
Senior Researcher (Housing)