Builders warn of Scots home affordability crisis and homelessness rise

And there has been a warning that it will lead to an increase in the number of homeless people in Scotland during the housing emergency as property developers providing homes to rent look elsewhere due to what has been described as an "uncertain policy environment".

The Scottish Government's More Homes budget plans, which covers its affordable housing supply programme is to take a cumulative hit of over half a billion pounds over two years - based against the 2022/23 allocation of £740.089m.

READ MORE: Anger as cuts to Scots affordable homes revealed

There has been a £188.8m (33%) cut to the budget in the past year alone with the spending plans for 2024/25 set at £375.8m.

The affordable homes plan set out by Nicola Sturgeon in a Programme for Government in 2021 to "build on our investment in housing" had already seen its budget cut by £175.5m in 2023/24 dropping by some 24% in a year.

The cuts have come as Scottish Government information seen by the Herald reveals that the average cost per unit for homes for social rent through the Affordable Housing Supply Programme rose by over 26% (£39,174) over two years to stand at £189,157 at the start of 2023.

The Scottish Property Federation, the voice of the real estate industry in Scotland, said that the housing budget policy was "at odds with increasing the supply of affordable homes" and will be a "significant barrier towards delivering 110,000 new affordable homes by 2032.

It has told ministers that it was "deeply concerned" by the cuts and that it was a "step in the wrong direction".

Professional standard body, the Chartered Institute of Housing Scotland said that the cuts combined with "inflationary pressures" on building costs meant that the affordable homes target is "highly unlikely to be met.

It has warned ministers that the impact of missing the target will be "increasing housing need and increasing homeless presentations with many local authorities at risk of being overwhelmed by demand - unless there is front loading of money from the Scottish Government and a fast track review of how to deliver the [affordable homes] programme up to 2032.

"It is increasingly clear that without additional grant funding from Scottish Government that the 110,000 homes target is unlikely to be achieved by 2032 as inflation has added significantly to the cost of each new home delivered," it said.

Official data shows the overall number of affordable homes being started for build including for rent in the social sector has dropped to the lowest annual level for eight years. Some 6,302 affordable homes were begun in the year to the end of September as part of an official programme - but that is a 24% drop (1,996 homes) on the 7,159 started in the last annual analysis.

Some 6,178 homes were given the nod for grant funding in the year to the end of September as part of the Affordable Housing Supply Programme - down by 14% (981 homes) on the 7159 approved in the previous year and the lowest equivalent annual figure since 2013.

This is set against the number of open homelessness applications in Scotland soaring by 30% since the pandemic began - from 22,754 in March, 2020, to 29,652 in 2022/23. The homeless household numbers being forced into temporary accommodation - like hotels and bed and breakfasts - rather than settled homes has shot up from 11,807 to 15,039.

Tenants' union Living Rent has warned that private tenants are facing big rent rises and mass evictions as emergency protections expire at the end of next month.

A 3% cap on all in-tenancy rent increases in the private rented sector as well as protections against eviction were first introduced in September 2022. The emergency legislation was intended as a temporary response to the cost of living crisis and comes to an end on March 31.

Despite the bill curbs, the average private sector rent across Scotland soared by up to 22% in a year.

The official figures for the year to September, 2023, based predominantly on advertised rents, put the average rent for a two-bedroom in Scotland at £841 – up £105 compared with the previous year.

READ MORE: Appeal for more Glasgow homes to let in homelessness 'meltdown'

In a briefing, the SPF warned: "We fundamentally believe that we must increase housing of all tenures to improve affordability and so renters and buyers have choice within the market. However, we are concerned that there is a current lack of supply across all housing types including social, affordable, the private rented sector and private for sale.

"A lack of supply coupled with recent legislation in the PRS [the Private Rented Sector] market has undoubtedly created an affordability crisis with rents having recently reached a record high in Scotland.

"Therefore, we acknowledge that currently housing is not affordable for all. Increasing the supply of housing is the best way to put downwards pressure on rents."

It has called on the Scottish Government to create "policy certainty to make Scotland a more attractive place for investment to ensure we can meet our housing needs".

The SPF, whose members include property investors, including major institutional pension and life funds, developers, landlords and professional property consultants said there was an estimated £2.5bn of investment in build-to rent and mid-market rent assessed at being at risk of being diverted away from Scotland, or changed to alternative forms of property, or put on hold.

They said that there are nominally 17,000 build-to-rent homes in the Scottish pipeline but there is "no guarantee" they will be delivered due to the "uncertain policy environment".

It said: "The government must work in collaboration with the private sector to make the country a more attractive place to build homes of all tenures, or we risk losing investment to other areas of the UK."

Scotland is the only part of Great Britain where sales of properties by landlords has gone up, amid claims that government rent curbs are forcing them out.

Research from Hamptons, the estate agent, has come as Scottish Government rent rise curbs under the Cost of Living (Tenant Protection) (Scotland) Act 2022 were blamed for encouraging sales, cutting the supply of properties and causing bills to rise during a homelessness crisis which has seen three of Scotland's local authorities register housing emergencies.

A December survey of 697 members by the Scottish Association of Landlords (SAL) has warned that the size of the private rented sector is reducing and will continue to drop over the next five years with rent controls and politicians' attitude to the sector identified as key factors.

Three local authorities have declared a housing emergency - Glasgow, Edinburgh and Argyll and Bute - all citing shortages of affordable housing.

Glasgow cited "unprecedented pressures" after the Home Office planned to make around 2,500 batched asylum decisions in Glasgow by the end of this year, which the council would cost them more than £53m.

The SPF added: "It is difficult to understand how we intend to meet the supply targets... when affordable housing provision has not been prioritised in the most recent budget.

"We are concerned that the proposed cuts will limit the ability for housing associations to have the funds needed to bring forward development, thus reducing the supply of affordable housing. The cuts also pose a knock-on effect in the private sector, where certain schemes combining affordable, private for sale (and other tenures such as PRS) could be delayed until funds can be unlocked for the affordable supply side.

"It is possible that whole sites may be at risk because housing associations and private developers work in tandem to make schemes viable. This would then have the effect of reducing traditional private for sale properties on the market."

Housing minister Paul McLennan said: "The Scottish Government has led the UK in housing by delivering more than 126,000 affordable homes since 2007, over 89,000 of which were for social rent, including almost 24,000 council homes. We will invest £556 million in affordable housing in 2024-25, the majority of which will be for social rent.

“The UK Government failed to inflation-proof their capital budget, and this has resulted in nearly a 10% real terms cut in our UK capital funding between 2023-24 and 2027-28. This is on top of the disastrous impact Brexit has had on construction supply chain issues, labour shortages and the inflationary pressures driven by UK Government financial mismanagement.

“We remain focused on delivering 110,000 affordable homes by 2032 and to support that we will bring forward the review scheduled for 2026-27 to 2024, which will concentrate on deliverability. We are working with the financial community in Scotland, and elsewhere, to boost private sector investment and help deliver more homes.”