Affordable Housing Supply Programme (AHSP) - Deliverability Review

Deliverability of the Affordable Housing Supply Programme

Are there any steps that can be taken to reliably increase affordable housing output in line with Scottish Government priorities and what may be the implications/trade-offs intrinsic to pursuing that?

Overall, stakeholders recognised the Affordable Housing Supply Programme has contributed to increasing the availability of quality housing in Scotland, embedding place making into the system, and supporting social housing providers and the construction industry. The programme was highly valued and seen as a necessary source of funding to support both the delivery and longer-term affordability of homes.

Several responses referenced that the Affordable Housing Supply Programme has helped to establish and sustain partnerships such as housing delivery between government, local authorities and housing associations, as well as the private sector and construction industry.

The setting of a clear delivery target of 110,000 affordable homes by 2032, with associated funding over five years, was considered to provide the clarity and focus necessary to the sector. It also offers a degree of certainty to those considering development that funding would be available to support investment priorities. One respondent noted that this helps the development sector to manage their appetite for risk and provides confidence to the sector to invest in development capacity. Generally, respondents recognised that, through collaboration, the programme benefits communities across the whole of Scotland.

On the overall deliverability of the target, in general, respondents were acknowledging of the challenge. It was recognised that the target had always been an ambitious stretch target. While its long-term scope offered a degree of certainty, deliverability was also dependent on external factors continuing to align in a positive way in each year.

Most survey respondents highlighted the “unexpected reduction” to the 2024 to 2025 Affordable Housing Supply Programme capital budget, with strong reactions being evoked. Some respondents reflected their view that the 2024 to 2025 decrease in funding levels “strained strategic planning efforts”.

The impacts of even a single year’s reduction in the programme budgets were also recognised in terms of its effect on partners’ confidence to take forward projects and their potential need to reduce staff capacity in response to budget reductions.

Despite the increased £768 million budget for 2025 to 2026, stakeholders highlighted that time would be needed to recover capacity and development activity back to the previous levels.

The desire to reduce construction costs through the use of offsite construction (often referred to as “Modern Methods of Construction” or “MMC”) was identified as a potential opportunity.

The grant funded Edinburgh Homes Demonstrator model was cited as an exemplar of good practice, involving multiple partners including the Scottish Government, CCG, Off-site Solutions Scotland, the City of Edinburgh Council, University of Edinburgh/Napier University, Scottish Futures Trust and BE-ST (Built Environment – Smarter Transformation). The project is testing real life performance gaps, componentry and design standardisation, and a new business model based on collaborative procurement and site aggregation.

A number of respondents also noted the potential role that existing housing stock could have in supporting the target. This was mentioned specifically in relation to alleviating immediate pressures in terms of homelessness and the reduction in the use of temporary accommodation.

Respondents highlighted the potential to re-let existing housing stock in the ownership of local authorities and Registered Social Landlords more quickly and/or scope to improve homes which, due to issues of condition or possibly low demand for the house type or location, are lying empty. Respondents noted the potential to improve long term voids to bring them back into use, although caveated this with concerns around additional costs for work to bring them up to standard.

Similarly, empty homes across all tenures were identified as a wasted resource and some could have the potential to be brought back into effective use as homes and potentially as affordable homes. We are considering the linkages between efforts to identify empty homes and opportunities to bring them into the affordable sector to ensure all viable opportunities are considered.

The role of acquisitions of existing properties was also mentioned to complement new build supply activity with the benefit of bringing properties into affordable use more quickly, reducing the number of households in temporary accommodation. This includes acquisitions of empty homes as well as those being sold on the open market and new build off the shelf purchase opportunities direct from housebuilders/developers.

A summary of general observations is as follows:

• the Affordable Housing Supply Programme continues to be highly valued and the essential role it has in supporting the delivery of affordable housing as well as broader social, economic and place making impacts is recognised
• the setting of a long term and ambitious target with associated funding commitment is essential to support delivery, providing the clarity and confidence the sector needs to deliver
• delivery to date against the target has been impacted by a number of challenges, however, the sub targets in relation to social rented and rural and island homes are being met
• the sector is generally pessimistic about the ability to meet the target given pressures on budgets, rising costs and concerns over capacity
• Stakeholders believe that further value for money savings could be identified through greater use of offsite construction however it was not clear how this could be achieved. Currently, 90% of homes delivered through the Affordable Housing Supply Programme employ an element of off-site construction
• continued focus on effective use of existing stock including acquisitions is important but, in terms of numbers, will continue to be quite limited
• deliver the commitments in the November 2024 announcement on planning, including the creation of a Planning Hub for housing
• potential to drive efficiencies through alternative procurement whilst recognising that little has come from previous approaches to do this

Scottish Government Response to Feedback

The Scottish Government has, for many years, supported offsite construction in housing through investment in projects as part of the Affordable Housing Supply Programme, with approximately 90% of all new homes delivered through the programme currently using some form of MMC. Based on the current available evidence of costs and benefits, there is no case at a national level for market intervention on the part of the Scottish Government to support one form of construction over another, however, procuring bodies will take account of costs, the evidence of benefits and overall value for money in their decision making.

Since 2010, the Scottish Government has invested over £3.7 million in the Scottish Empty Homes Partnership, including funding to embed dedicated empty homes officers within councils. Since 2010, this has helped to return almost 11,000 properties to active use, providing much needed homes. Councils are able to utilise ring-fenced revenue they derive from council tax on second and empty homes to contribute to affordable housing projects and to fund empty homes services.

We understand the balance that is required to keep rents affordable while utilising increased private investment to increase supply through constrained public finances. In addition to taking action to deliver mid-market rent with increased private investment, we will implement the Housing Investment Taskforce recommendations that:

• build investor confidence and attract further mobile capital investment into housing
• unlock existing financial commitments
• encourage and promote new delivery partnerships
• identify ways to shift the balance of investment in affordable housing to increase private funding, including from relevant comparator markets and jurisdictions

In 2023 to 2024 we invested £83 million to support the purchase of almost 1,500 homes through acquisitions, with 30 of the 32 local authority areas using this option to help deliver affordable homes, helping to accelerate available affordable homes and reduce the number of households in temporary accommodation, including those with children. Levels of acquisitions activity was varied and reflected the suitability of local opportunities – including location, size, quality and sales values – as well as programme capacity once existing commitments were accounted for. We continue to support acquisitions and the additional £40 million announced for 2024 to 2025 was targeted at existing housing stock to build on the success of previous programmes as well as tackling empty social homes, with a further £40 million being targeted for acquisitions, including larger family homes, in 2025 to 2026.

Housing Emergency Actions

• implement the Housing Investment Taskforce recommendations to unlock existing and new investment in housing of all tenures
• deliver mid-market rent more efficiently by investing £100 million into a new Fund-based approach that will lever significantly more private investment and increase the supply of homes (announced as part of the 2024 to 2025 Programme for Government)
• work with Local Authorities and Registered Social Landlords (RSLs) to optimise the use of acquisitions, where appropriate to address immediate housing pressures