Housing to 2040: consultation analysis

Analysis of Question 3. Do you have any proposals that would increase the affordability of housing in the future?

Respondents provided detailed responses to this question and made a series of suggestions for increasing the affordability of housing in the future.

Key issues raised included:

• Clarity is required over the definition of ‘affordable’ in relation to housing;
• The importance of increasing the supply of affordable housing;
• Improving and maximising the use of public sites;
• More focus on affordability in rural areas; 
• Increasing the use of innovative construction methods;
• More support for house buyers/home ownership;
• Changes in taxation, specifically Land Value Tax and LBTT.

A more detailed analysis of the responses to this question is provided throughout this chapter.

Defining affordability

Many respondents referred to the need to define affordability in relation to housing. This included calling for a national, legally agreed definition of affordability. One respondent, for example, felt that this would "encourage the market from across all three tenures to meet this, potentially leading to improved outcomes for residents". 

There was a recognition that affordable means different things in different areas of Scotland, and wages, circumstances, family compliment, age and disability are often drivers of affordability. As a result, some felt that the definition should be devolved to each local authority – enabling them to define affordability according to what the market was like in that area. 

Some felt that affordability needed to be defined as a percentage of income, with a variety of suggestions for how this could be done, including measuring it in a similar way to fuel poverty; defining it as the monthly payment in rent or mortgage as a percentage of the national minimum wage, not as a median point in a broad rental market area dataset; and establishing a benchmark for what ‘good’ affordability would look like including all housing related costs.

Increasing supply

The majority of respondents to this question noted that increasing the supply of affordable housing was key to affordability of housing more widely.

Supply of social rented housing was recognised to be a challenge in many areas, and the supply of housing that met additional needs (and was more accessible) was highlighted as an even more significant challenge.

To meet housing demand and avoid a worsening of the current homelessness crisis many felt that it was important not only to maintain, but to increase the rate of construction of new social homes from 2021 onwards.

Some respondents noted that any increased supply of housing needed to include housing across a range of tenures suitable to respond to changing demographics and social needs, which also considers the needs of our ageing population as well as how people choose to use and live in their homes.

However, some respondents also raised concerns about future budgets and noted the need to ensure that current levels of funding for housing are continued.

"… is extremely concerned by the implication in the consultation paper that current levels of government capital expenditure on social housing cannot or will not be sustained post-2021." - Agencies, advisory groups and other national bodies

"We believe that current levels of funding must be continued as a minimum and we are concerned that investment in housing may not continue to be prioritised. We need increased investment in housing grants and allowances to enable providers to continue to develop energy efficient, affordable homes that will help Scotland achieve Net Zero as well as tackle the lack of affordable housing." - Registered social landlord

A few respondents noted the importance of maintaining a rolling programme for the ongoing delivery of new build affordable housing and one respondent highlighted the need for Resource Planning Assumptions (RPAs) several years into the future.

"… to facilitate long term planning by councils and Registered Social Landlord (RSL) partners. Clarification on future funding would allow Councils and developing RSLs to produce realistic development programmes and plan for the longer term. Lead-in times, development staff capacity, construction workforce capacity and private finance could all become issues if there was a significant reduction in financial support for new build affordable development." - Local authority

A wide range of suggestions for improving the supply of housing were made. For example, a few respondents suggesting measures such as increasing the grant support for registered social landlords who develop housing and introducing a fund for social landlords /social enterprises to buy homes on the open market to rent as affordable tenancies.

Some respondents made suggestions related to revisions to social security payments to better reflect actual costs to individuals. For example, one respondent suggested: 

"Improving affordability in the private rented sector - housing costs payments through the social security system could be reformed to cover actual rents. This could involve action by the UK Government to increase local housing allowance returning it to at least the 50th percentile, or action from the Scottish Government to top up the housing costs payments that private renters can receive." - Health and social care body or professional/umbrella body

Another suggested that there need to be increased scrutiny of rent levels across tenures with rents regulated using a formula on fair rents and profit.

A few respondents suggested the introduction of rent caps to limit future rent increases at the inflation rate, with some of these citing the success of this approach in other countries including Germany. 

A stakeholder within the finance sector suggested introducing a public sector leasehold arrangement, with ground rent paid to the government. They felt the potential benefits would include a steady income stream to the government, and a lower upfront cost for the purchaser.

Some respondents also noted that transports costs needed to be considered as part of housing affordability, pointing out that, even if rent is affordable, if it costs a lot for public or private transport to access essential services such as shops, doctors, and schools then houses may be unaffordable. 

In considering supply issues, some respondents suggested changes to targets for new housing, with one, for example, suggesting a housing target of 25,000 homes per year in Scotland, and another pointing to a Danish model which has strict allocations targets by district which limit the amount of private housing development that can take place until a certain proportion of social housing has been built. 

Others suggested that Government should:

• Change financial regulations to allow local authorities to build affordable housing for sale, in addition to homes for rent. 
• Design and build good quality houses that will last, but that can also be recycled when they come to the end of their usable lives. 
• Encourage the use of more temporary, modular housing as a low-cost option to meet demand.

A number of respondents raised the issue of empty properties, with suggestions including introducing Compulsory Sales Order powers to tackle empty homes to help local authorities bring empty homes back into use; renovating empty homes and letting them through a social letting agency; and converting empty shops and buildings to regenerate town centres. 

Some respondents also suggested measures involving financial support of some kind including continuing the financial support to the Affordable Housing Supply Programme (AHSP); public borrowing as a cost-effective way to fund new social housing; additional Scottish Government Housing Association Grant and access to cheaper private finance (via the Scottish National Investment Bank if it were to go down that route). 

Movement in the market was also considered to be an important element of affordability, with suggestions for change including providing incentives to older people to move and free up larger properties, as the current situation distorts the market and restricts free flow. 

Another suggestion was to abolish Land and Buildings Transaction Tax (LBTT) (either altogether, for a fixed period of time to encourage movement in the market, or for downsizers).

One respondent suggested that shared equity is an effective mechanism to support people to buy a home, prevents them from being rented out and that it could enable the Scottish Government to share the benefits of housing wealth more redistributively by using Scottish Government shared equity stake returns to subsidise the building of more affordable homes.

A few respondents referred to the need to develop new forms of tenure, including in the Co-operative and Community-led Housing (CCLH) sector.

Maximising benefits of public sites

Some respondents raised the issue of improved use of public sites to create opportunities for new housing to be built. A few referred to sites that had been sold to private developers which could have instead been used as an asset for the community. For example, in Edinburgh, an example was given of the conflict between the NHS and local community on a 45-acre site. The land was originally gifted to the community, for the wellbeing of the community. In the 1940s the NHS was given the land but now the NHS is looking to maximise benefit, meaning the site is more likely to be sold to a high-end developer than a community trust who would like to see mixed development including affordable housing. A few respondents felt that the community should get first option on land purchases such as these. 

Others referred more generally to the benefit of releasing public land for building. One respondent, for example, referred to the NHS and Ministry of Defence owning a great deal of vacant land which could be used for the public good.

Affordability in rural areas

Some respondents made specific reference to issues of affordability affecting rural areas. Some noted that in making housing more affordable account needed to be taken of more than just household costs – travel costs were considered to be a particularly important part of the equation in rural areas where people need to commute to work, access shops, travel for health care and so on. 

"The Scottish Government and Local Authorities should do more to massively improve infrastructure and transport, to enable people to choose where they want to live and have easy access to education, training, schools, their places of employment, networks of support and essential services." - National third sector organisation

Uplift on costs associated with construction was also highlighted as needing attention, particularly in relation to the islands. This uplift is passed on to the householder, which immediately makes the matter of affordability questionable, when compared with income and costs of building on the mainland.

A few respondents observed that there are often few suitable options for people seeking accommodation in rural areas, and therefore new build, affordable housing projects with relatively small numbers of units were felt to have a big impact on those communities’ longer-term sustainability. However, some felt that grant levels are not high enough in most rural areas to support commercially viable housing development, an issue which becomes progressively more severe as the location becomes more rural and remote, and is evident through the low levels of RSL and private development in these disadvantaged areas. Some suggested that there is a need to more closely align Scottish Government investment levels with the actual, open book, development costs of these vital but small-scale projects. 

A few respondents called specifically for more social housing in rural Scotland.

Concerns were raised about the lower availability of construction workers post-Brexit and contractor capacity being absorbed by larger more urban development projects which are more commercially attractive, at the expense of more marginal small-scale, rural developments. One respondent referred to growing evidence of difficulties in attracting a range of competitive quotes. 

Some cautioned against a one-size-fits-all approach to building homes as, in a rural environment, the design of a house will often have to be site-specific in order to benefit from passive solar gain or defend against the prevailing wind.

Some respondents raised concerns about the levels of funding available through the Rural and Islands Housing Fund, including comments that this fund needs to be in remote islands to reflect additional build costs resulting from contractors travelling from other islands, and that the Rural Housing Fund and Island Housing Fund still does not have a high enough intervention level to make house building for Affordable Homes viable. One respondent felt that a one-size fits all approach was unsuitable for rural areas and that Government should recognise local circumstances more when deciding grant levels.

Others observed that the Rural and Island Housing Fund (RIHF) should continue beyond March 2021.

Some respondents also thought that grant subsidies or government supplying infrastructure for several properties would encourage building.

Some respondents raised issues particularly related to adaptable housing, noting that these cost more to build in rural areas, and that greater consideration needed to be applied to affordable home ownership – including, considering additional support for self-builders, and developing shell-houses in order for self-builders to fit-out.

Some respondents suggested more innovative approaches including going beyond the limited provision of support to single dwellings in rural areas and embracing support for models such as co-housing provision; and considering greenfield development as an option, with community benefit being weighed against planning considerations. Another respondent suggested there could be merit in supporting new entrants into crofting which offers a very effective mechanism to provide affordable housing, noting that the crofting system provides for croft house development at a very reasonable cost to the crofter (15 times the proportional croft rent, plus legal costs). 

One respondent also suggested sense-checking all national and local housing and homelessness strategies for rural equity.

Use of innovative construction methods

Some respondents suggested that more extensive use of innovative construction methods could be an effective way of improving the affordability of housing in the future. Frequently, these respondents suggested the use of modular design, factory builds, 3-D printed houses and off-site construction that would reduce costs, ensure environmental sustainability and be energy efficient. Respondents described building homes offsite as beneficial in terms of reduction in waste and improving predictability of delivery, which can translate into savings for residents and developers. 

Some respondents raised concerns about the availability of finance for these innovative construction methods and one suggested a possible role for the Scottish National Investment Bank to help with initial funding and increasing the capacity of local manufacturing facilities for off-site construction. However, they also cautioned that for this investment to be low risk, there would be a need for a clear future pipeline of development with consistent standards, free from regulatory delays, that enables all those in the supply chain to have the confidence to invest.

Increasing options for self-build was also noted by a number of respondents as a means of improving affordability, with one respondent highlighting that a self-built house on average costs 20-30% less than one purchased from a developer, making it a more affordable option.

"Moreover, if self-build was recognised as a form of ‘affordable’ housing, developers could be required to service a proportion of plots for self-build (on large housing sites), to be sold at a discounted rate, in order to meet their Section 75 obligations. This would make building your own home even more affordable. In addition, Councils could service and remediate land on brownfield sites and sell these at an affordable price to those on their self-build Register." - Architects and design/development organisation and professional/umbrella organisation

Collective self-build was also identified as a potential route to improve affordability – since it can enable people to negotiate better discounts and co-ordinate building in order to save money. 

Some respondents suggested using new materials including, for example, new brick that is lighter and stronger, or using alternative and cheaper building materials whilst ensuring that these are sustainable/future-proof

Respondents also made suggestions related to different build styles and methods, including consideration being given to using Park/Mobile Homes; factory-built houses which cost less than traditional bricks and mortar homes; building more terraced housing and tenement style properties which have improved insulation, reduce the amount of land required and provide better population density. Another respondent suggested accelerated adoption of Modern Methods of Construction (MMC) as a new way to develop homes; and one respondent referred to trialling client-led strategic regional market intervention in the construction market based on the Arcadis place-making principles to aggregate demand for advanced manufacturing in the region and bringing manufacturing capacity to the region. 

Investment and incentives to improve affordability

Many respondents provided suggestions with regards to potential new investments, subsidies and incentives to improve the affordability of housing. Some called for increases to housing subsidies provided by government, while others called for longer-term commitments to new build investments. A few felt that subsidies should be extended beyond current groups (such as first-time buyers) to other groups including retired members of the community.

Some felt that investment in and subsidies for housing using renewable energy sources should be increased (whilst ensuring a value for money aspect that proves their worth). Some respondents thought these could be in the form of grants and subsidies to encourage individuals to implement green energy measures at individual dwelling level, thus reducing reliance on conventional sources of power and reducing the cost of heating individual homes.

One respondent indicated that improvement and energy efficiency grants could be means-tested. Another respondent organisation argued that local government pension funds provide a potential source of additional funding for social housing.

Other proposals included suggestions related to making repairs to existing properties, including through development funding; redressing the balance to ensure that there is an increased focus on improving existing and re-provisioning as well as developing new housing; and giving a VAT reduction or rebate for housing repairs, maintenance and improvements. Another related proposal involved developing shared equity-based solutions to retrofitting older housing stock, where the government provides cash that owners pay back when selling.

Other proposals included making the mortgage market more accessible to people who do not have long term employment; introducing rent caps; considering use of housing bonds to attract investors; providing incentives and bridging loans to older people to move and free-up larger properties; offering inheritance tax relief on gifts to first-time buyers; and tailoring Land and Buildings Tax regionally.

Support for house buyers/home ownership

Some respondents indicated a need for more support to be provided to first time buyers with subsidies and incentives to promote ownership for those who choose it. Some felt that supporting this group was crucial to the housing market functioning effectively.

One respondent highlighted that investment decisions on land and choice of homes to plot for consent, training and recruitment and supply chains are all hanging on whether the Help to Buy scheme will continue to be available to support future sales, and called for the Scottish Government to clarify its position on the future of the scheme up to the end of March 2023. Others called for the Scottish Government to continue its support and new development of schemes to help people buy homes like the First Time Buyers Fund, the LIFT scheme or shared ownership.

One respondent felt that local authorities also had a role to play in introducing incentives to help people onto the property ladder when transitioning from social housing into private ownership.

However, a few respondents felt that there was also a need to provide subsidies to other groups of people – for example retired members of the community. Some of them argued for more opportunities for Shared Equity housing, Rent to Buy and other models for joint ownership being made available to people at all stages of their lives.

One respondent noted the importance of increasing opportunities for populations who are disadvantaged and removing barriers to home ownership for them – carers were cited as an example. Another respondent emphasised the need to support people with disabilities if they want to move house.

Some considered improved availability of finance to be key to increased home ownership. One respondent called for higher loan to value lending to support those struggling to find the deposit to buy a home. 

A few respondents called for changes to the LBTT regime – one respondent, for example, described it as:

• "out of kilter with the Scottish housing market. At present, it places an additional financial liability on buyers when affordability for most prospective buyers is already stretched or out of reach." - Architects and design/development organisation and professional/umbrella organisation

Another respondent raised concerns that regulatory changes put in place following the 2008 financial crisis which acted to ensure that mortgage lending continues to be prudent and sustainable are now starting to restrict the ability of low deposit households to access home ownership in higher value housing markets. Households in these areas are effectively excluded from ownership unless they have material financial support/equity from their family.

Changes to taxation

Some respondents suggested changes to taxation could be a means of improving the affordability of housing. 

Some respondents called on the Scottish Government to consider changes to Land Value Tax to reform the current system of Council Tax. Some respondents also raised concerns about LBTT, including concerns that having higher rates of LBTT than England is having a disproportionate effect on regional housing markets, especially those in Aberdeen and Edinburgh, where the average family home commonly exceeds £325,000 and as such incurs a higher tax rate of 10% as opposed to 5% in England. There is a strong sense from respondents that this is deterring people from moving up the housing market which narrows the availability of housing stock in the middle of the market. Another respondent suggested that: 

• "a review of LBTT should decide if the government wants to achieve revenue generation, market fluidity or another objective from LBTT; investigate whether the tax is fit for purpose; consider potential alternative taxation measures, such as a LBTT exemption for downsizers or replacing LBTT altogether with a reformed council tax; and consider a transitionary phase from the current system to a new regime". - Architects and design/development organisation and professional /umbrella organisation

Others suggested that subsidies for house builders and developers through the tax system were unjust and resulted in house prices being inflated; and a few respondents thought that there should be increased taxes on empty or second homes.

Some suggestions related to those paying rent, including suggesting changing the VAT position of rental income for housing associations from exempt to VAT-able (and applying a zero rate) which would put the majority of housing associations on a level playing field with local authorities who provide social housing. Another respondent suggested that, in order to encourage renting as a life choice, renters could be offered lower rates of income tax for choosing to live in rented accommodation. Other respondents suggested that the tax system and regulatory regimes could be used to encourage landlords to let properties as long-term homes instead of short-term lets (the latter is currently more favourable both in terms of tax breaks and lower regulatory and compliance standards) and suggested tax incentives for landlords who meet all of the regulatory standards and provides homes using a Private Residential Tenancy. 

Other suggestions related to tax breaks related to investment in low carbon homes, and considering a building’s energy performance and sustainability in determining its valuation. 

Value added tax (VAT) was also highlighted by some respondents as an important area for review – with calls for this to be set at a single rate for new build and refurbishment.