Affordable Housing Supply Programme (AHSP) - Deliverability Review

Value for Money of the Affordable Housing Supply Programme

How are costs being managed and could greater value be derived from existing investment?

Stakeholders acknowledged that as local authorities are responsible for identifying affordable housing investment priorities through the Strategic Housing Investment Plan process, the relative importance of a specific project is established prior to a funding application to the Scottish Government.

Some stakeholders questioned the extent to which the Scottish Government suitably prioritised the importance of different aspects of the Affordable Housing Supply Programme, such as housing quality, affordability and place.

The difference between interrogation of value for money analysis depending on location of the property being delivered, and the impact which additional affordable housing has on a community needs continued careful consideration. For example, the same size and specification of a house may cost more to build in a rural or island area than in an urban area, resulting in a cost deficit.

Many stakeholders welcomed the Scottish Government’s approach to affordable housing investment benchmarks, and specifically the uprating of these by 16.9% in 2023 to reflect the Scottish Social Housing Tender Price Index for the year to December 2022. It was suggested that it may be beneficial to disseminate the message more widely that there is a willingness from government to be flexible when there is case-specific justification for supporting “above benchmark” applications. There was also a call for an acceleration of the decision-making process.

During the online workshops, stakeholders also noted that there had been no uplift in benchmarks since 2023 and urged the Scottish Government to uprate benchmarks further to reflect perceived significant increases in construction costs. Using data from the Scottish Social Housing Tender Price Index for the entire 2023 calendar year, the benchmarks were subsequently increased by 5% in October 2024. An additional quality measure benchmark was also introduced at that time to account for updated provisions for energy performance, ventilation and assessment of overheating risk which were introduced through building regulations in February 2023.

Although it was acknowledged that grant funding through the Affordable Housing Supply Programme is regularly provided over and above the relevant benchmark, stakeholders questioned whether the balance was right in this process given the additional work required to achieve grant approval in these circumstances and the potential delays in the construction of new affordable homes.

A summary of general observations is as follows:

• Local authority Strategic Housing Investment Plans should identify the investment priorities in line with Local Housing Strategy priorities
• all applications to the Affordable Housing Supply Programme should therefore be underpinned by broader social, economic and place-based factors which should be taken into account as part of the appraisal process
• benchmarks provide an effective way of fast-tracking local authority and Registered Social Landlord projects as well as providing additional levels of scrutiny, where required, to ensure that spending decisions are supported by evidence, demonstrating that the money being spent will achieve the desired effect as efficiently and effectively as possible
• ensuring that the grant application appraisal process is both proportionate and sufficiently resourced is important to delivery partners
• there is potential to work with stakeholders up stream of submissions to ensure they are complete and best positioned to be assessed timeously
• recognition of the need to balance value for money considerations with a desire to speed up process and pace of delivery, with many stakeholders calling for an uplift to benchmarks to achieve this

Scottish Government Response to Feedback

The Scottish Government’s approach to delivering affordable homes, as noted already, is to support the right homes in the right places, working with local authorities and other partners to identify investment opportunities and priorities. Required investment will differ from area to area, as will place-based considerations associated with its delivery. While there are clearly best practice approaches which can be adopted, each project will by its very nature be different and require a tailored approach in terms of value for money considerations.

To balance this level of local/central decision making, and to allow a broad assessment framework against which projects of different types in different areas can be considered, the Scottish Government uses a “benchmark” approach to determine the level of scrutiny which should be applied at tender stage to each local authority and Registered Social Landlord social rent and mid-market rent project. The amount of grant requested on new build, refurbishment and conversion projects is then compared against the applicable benchmark for the project to determine how the funding application will be assessed. Projects that can be delivered with grant funding at or below the relevant benchmark follow a streamlined approval process, with projects which are seeking grant funding in excess of the relevant benchmark following a more detailed value for money assessment. While many projects which are subject to a more detailed value for money assessment will come through this process unchanged, others may undergo a cost engineering process.

The current set of affordable housing investment benchmarks will be adjusted to account for inflation during the course of 2025.

The benchmark system is therefore a flexible, administrative tool which is used for grant assessment purposes only – rather than being a grant rate or grant ceiling – and should have no bearing on other matters such as rent setting processes.

The current set of affordable housing investment benchmarks will be adjusted to account for inflation during the course of 2025.

The continuous improvement programme grant conditionality was introduced during November 2022 to provide more rigour by stakeholders towards value for money. This requires that (a) Registered Social Landlords participate in (i) a procurement improvement programme every two years and (ii) a programme which assesses value for money in new build affordable housing projects and (b) local authorities participate in a programme which assesses value for money in new build affordable housing projects.

This programme of continuous improvement will enable the sector to measure its performance, identify opportunities for improvement and ensure that investment is achieving the intended high quality and value for money standards. While the programme is still in its infancy, experience in housing management demonstrates the value of comparing results and working practices across landlords to identify and share best practice.

The Review of Scottish Public Sector Procurement in Construction provides comment on the opportunities for better coordination of spend and procurement across the public sector. Read more in the public sector procurement guidance.

Guidance on the operation of the grant-funded element of the Affordable Housing Supply Programme for local authorities and Registered Social Landlord notes that we expect that – in line with their existing strategic responsibilities – local authorities will work closely with partners and consider the scope and potential benefits of collaborative approaches such as:

• sharing design resources
• adopting common specifications and/or designs and considering the use of off-site construction
• procuring jointly to achieve larger and longer contracts with greater scope to deliver community benefits
• using existing framework contracts
• identifying strengths and weaknesses across delivery partners and sharing skills to reduce risks. A partner organisation with strong design resources might, for example, undertake this for the collaborative procurement, whilst a different organisation (say with strong contract management skills) could do likewise

Local authorities’ Strategic Housing Investment Plans should include details of any plans within the local authority area to facilitate and support efficient delivery of projects through collaboration on (a) design/mass customisation and (b) procurement for all construction methods.

Housing Emergency Action

• support additional technical capacity to ensure quality of submissions to allow detailed project appraisal to optimise appraisal time and value for money including feedback to the sector
• reinforce awareness of the flexibility of the programme’s grant funding arrangements to support delivery of the programme
• enable the sector to measure its performance, identify opportunities for improvement and ensure that investment is achieving the intended high quality and value for money standards via participation in a programme of continuous improvement as a condition of grant
• work with the sector to encourage more effective capturing and sharing of case studies and good practice