Social landlords face £9bn bill to meet ScotGov net zero demand

The housing regulator has said that "difficult choices" will have to be made between investing in existing properties and funding a new build development programme with forecasts from social landlords indicating that "unprecedented levels of debt" may need to be raised.

But there are concerns that tenants will end up paying the price for the green costs.

The huge bill comes as major housing bodies have warned that cuts to the affordable homes programme is putting at risk a key Scottish Government target to deliver 110,000 social and affordable homes by 2032.

READ MORE: Starts on Scots affordable homes to rent slump to record low in crisis

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.

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.

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 shot up from 11,807 to 15,039.

Concerns have now emerged about the burden on social landlords, including housing associations that are expected to contribute to the affordable homes gap - as they are faced with a multi-billion burden over the next six years to deal with maintenance, a replacement programme and and in meeting the social housing net zero standards.

It is expected that hardest hit will be those landlords who are holding older homes particularly the estimated 25,000 pre-1919 tenements that exist in Scotland.

It said that the cost to those alone was an over £1bn. But the latest five-year financial projections for capital and revenue expenditure on pre-1919 properties is only £370m.

It said that it is recognised that significant future investment will be required to de-carbonise stock towards the Scottish Government's 2045 net zero carbon target.

To achieve this, targeted investment was deemed "essential" to improve energy efficiency but also to aid the move away from fossil fuel-based heating.

The regulator has estimated that the addtional fabric costs for Scotland's 600,000 social housing properties could range between £4.6bn and £9.3bn up to 2030. That estimate is expected to be higher when taking into account council homes.

It is estimated that some 500,000 gas boilers are in social homes which  will need to be changed by 2045 to clean heating systems such as heat pumps and heat networks.

To fund the estimates entirely from rents would require annual increases of 42% and 80%, the regulator has stated.

To fund solely through additional borrowing could see interest charges - based on the current Bank of England base rate of 5.25% - of upwards of £1.3bn added over the next six years.

The regulator is already expecting social landlords to hike rents by between five and ten per cent.

But a survey of landlords carried out by the regulator found that only around 19% had considered decarbonisation as part of their business planning - an even smaller proportion that in 2022.

The regulator has warned that one of the "key risks" to the sector is "not currently being adequately covered within the financial projections and it is disappointing that the number of registered social landlords intimating their consideration of the potential financial impact of decarbonisation has fallen, without a fuller explanation as to why so many appear reluctant to include any estimated costings in their projections".

"It is important that registered social landlords fully understand the condition of their stock and what ongoing investment is needed for its upkeep. This includes any additional requirements to ensure they meet tenant and resident safety obligations," the regulator said in its latest financial montoring.

The Scottish Tenants Organisation said urgent action was needed to ensure that spending on affordable homes is not irreparably damaged and that there should be protection for those who are renting.

"The proposed costs for social landlords is unworkable as it would lead to very large rent rises across Scotland and needs government intervention," the STO said.

It came as the Scottish Association of Landlords said that already one in ten properties in the private rented sector were "no longer financially viable", meaning the outgoings outweight any income coming in.

The group has warned that 20,000 homes to rent are expected to have left the private rent sector in the last year in a "catastrophic" development in the nation's homes and homelessness crisis.

The SAL has warned ministers that there are more expected to leave in the next five years.

"The consumer confidence from a landlords perspective in the private rented sector has gone, and we need to try and rebuild and sustain that, so we have a sustainable private rented sector for the future," said John Blackwood, chief executive of the Scottish Association of Landlords.

Michael Cameron, chief executive of the Scottish Housing Regulator has told MSPs on the local government, housing and planning committee warned that it would "compromise our ability to meet need if we didn't also focus on existing stock and in particular to ensure that that existing stock is at the standards that are expected".

He said: "The Scottish Government is consulting on its proposed net zero standard. I think there's a lot of uncertainty for landlords around that. Landlords haven't necessarily been planning and projecting the financial requirements around investment to meet that standard.

And I think that we will see over the coming years as the standard is defined, and landlords start to do that work that we're facing a significant capital investment requirement.

"That's money that comes from either public subsidy, or through rent paid by tenants. "

The affordable homes budget cuts after it emerged 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.

Professional standard body, the Chartered Institute of Housing Scotland warned ministers that the impact of missing the affordable homes 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.

The STO's campaign co-ordinator Sean Clerkin said of the huge decarbonisation bill : "The UK and Scottish Governments should intervene and set affordable housing in the social housing sector as their top priority to avert even higher levels of homelessness."

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.

A Scottish Government spokesman said: “The Scottish Government is committed to ensuring that everyone in Scotland, no matter their financial situation, has access to good quality housing that they can afford to heat.

“That is why we are currently consulting on a new Net Zero Standard for social housing, building on the pioneering work already carried out by social landlords on energy efficiency and clean heating. That is backed by £1.8 billion of funding for heat transition in this Parliament.

“Scotland has the strongest rights in the UK for people experiencing homelessness, but we are committed to ensuring that no one need become homeless in the first place. We are providing local authorities with £30.5 million annually for their work to prevent homelessness. Separately, we are providing a total of £100 million from our multi-year Ending Homelessness Together fund.”

Carolyn Lochhead, the director of external affairs at the Scottish Federation of Housing Associations (SFHA) said: “Our social homes are already some of the most energy-efficient in Scotland and as a sector we are fully committed to tackling the climate emergency and meeting our net-zero targets.  “We should not shy away from the fact that the costs associated with ensuring existing social homes meet net-zero standards are considerable, and that they simply cannot be met from rents as we must keep them affordable.

“The Scottish Government’s hammer-blow cut to the affordable housing budget is already putting strain on the ability of social landlords to deliver more of the homes Scotland desperately needs.

"When it comes to funding the transition to net-zero, we would urge the Scottish Government to ensure that this transition is fair, with adequate funding made available.”