Former Housing Minister Launches Action Plan to Solve Scotland’s National Housing Emergency

Alex Neil Calls on the Scottish Government to “Think Big” and target the construction of 200,000 new houses over the next five years.

On 15th May, the Scottish Parliament, and the Scottish Government, declared a housing emergency. Declaring an emergency is a lot easier than dealing with an emergency and unfortunately all Scotland got that day was a declaration.

The housing crisis facing thousands of Scottish families can’t be left as a soundbite, it needs a solution. This paper demonstrates that it is possible to meet this emergency with action equal to the task, with powers currently available to the Scottish Government and crucially with a level of ambition which has been absent from the housing debate for far too long.

THE PROBLEM – A DIRE SHORTAGE OF HOMES THROUGHOUT SCOTLAND

Scotland’s national housing emergency has numerous causes. Margaret Thatcher’s Right-to-Buy policy helped many former social housing tenants get on the housing ladder. But its long-lasting legacy has been to destroy the financial viability of local authority housebuilding programmes, resulting in a drastic reduction in the number of council houses for rent in the last 30 years. Prior to the Right-to-Buy tens of thousands of new council houses were built every year in Scotland. After the Right-to-Buy was introduced the average number of new council houses built annually declined to under 100 per year.

The problems created by the Right-to-Buy have been made worse by the failure of successive governments to build enough houses to keep pace with the increase in Scotland’s population, which has risen from just over 5 million at the start of the 21^st century to the record level of 5.4 million in 2022. Furthermore, a range of social factors, including an ageing Scottish population has meant that there are many more single-person households. That means more new houses per head of population are needed to cater for the reduction in the average number of people per household. Unfortunately, insufficient allowance was made by policy makers to ensure that the demand for these extra houses was factored into local and national Housing Plans, thus creating further imbalance between supply and demand for housing.

The 2008 financial crash had a devastating impact on the housebuilding industry from which it has never fully recovered and has affected both the supply of houses to rent as well as to buy. This situation has been further exacerbated by the austerity measures introduced by the Tory/Liberal Coalition Government from 2010 onwards and the Tory Government since 2015, resulting in the slashing of the public sector’s investment in new housing. The supply of privately rented housing has also been adversely affected by the tax measures introduced by George Osborne as Chancellor of the Exchequer. More recently the unintended consequences of measures introduced by the SNP/Green Coalition Government, such as the legislation on holiday lets and rent caps, has made the situation worse and caused even more damage to the private rented sector, which accounts for over 20% of homes in Scotland.

Currently there are about 110,000 families on council housing waiting lists in Scotland. This is an under-estimate as many families who are looking for a new house think it’s a waste of time putting their names down on the council’s waiting list as there is so little chance of them being allocated a house in the foreseeable future or because they don’t meet the criteria to get enough points to be high enough up the list to qualify for a council house.

Also these lists exclude other groups of people for whom there is a dire shortage of appropriate housing. For example, there is a serious shortage of student accommodation in almost every university town and city in Scotland. There aren’t enough houses for people seeking asylum in Scotland, resulting in many of them being placed in inappropriate hotel accommodation at huge cost to the taxpayer. A record number of over 15,000 families, including 10,000 children, are currently classed as “homeless” and living in inadequate “temporary” accommodation causing serious potential damage to their quality of life and future life chances. There are also families who are forced to live in overcrowded conditions because they can’t access a house of their own.

We still have hundreds of people sleeping rough every night in Scotland, who desperately need somewhere safe to live. Many remote, rural and island communities are suffering devastating levels of depopulation because of housing shortages. Many of our town centres have become rundown partly due to the lack of suitable housing. There is a nation-wide shortage of specialist accommodation such as sheltered housing for the elderly, specially built houses for disabled people, safe accommodation for women and children fleeing domestic violence, etc.

There are also hundreds of thousands of houses in Scotland which are no longer fit for purpose and need to be urgently replaced or comprehensively renovated to bring them up to modern housing standards.

All-in-all Scotland is facing a dire shortage of the houses we need to provide every individual and family with a decent, warm, and affordable home.

Current housebuilding rates come nowhere near to meeting this level of need. The situation is getting worse and has reached crisis point throughout the country. Demand for housing is rising whilst the number of new homes being built, especially for social rent, is falling.

Last year 23,000 new houses were built in Scotland, including houses for sale as well as to rent; a number that is forecast to fall significantly in the future as government cuts to the housing budget take effect. The continuation of relatively high mortgage interest rates makes it more difficult for people to buy a house. The drop in the number of houses being built for the private rented sector in Scotland which has been caused by real concerns about the potential adverse impacts of the rent control measures proposed in the new Housing Bill being introduced by the Scottish Government has resulted in many PRS building projects being suspended or halted. The Scottish Property Federation has warned that Scotland stands to miss out on £4.5 billion of housing investment over the next five years in the private rented sector alone along with the 17,000 jobs this investment would create if the Housing Bill were not amended.

Homes for Scotland, the umbrella organisation for house builders and developers, estimates that Scotland needs another 600,000 homes. As things stand, it will take nearly 30 years to reach this number. Even the much more audacious housebuilding programme proposed in this paper will take 15 years to reach a total of 600,000 new homes.

The housing situation in Scotland therefore is a true emergency. It needs a comprehensive and ambitious action plan to rectify it. Urgent action is needed to jump start a housebuilding programme which is on the scale required to meet this dire emergency. 

To date, neither the Scottish Government nor any of our political parties have put forward a detailed plan for tackling the housing emergency.

More slogans won’t cut it. We need to act.

As a former Scottish Government Housing Minister, who introduced a range of initiatives to significantly increase in housebuilding in Scotland during my time in office, I am proposing that the following Emergency Action Plan be implemented with immediate effect.

THE SOLUTION – A MASSIVE EMERGENCY HOUSEBUILDING PROGRAMME OVER THE NEXT FIVE YEARS COVERING ALL TYPES OF HOUSING TENURE IN ALL PARTS OF SCOTLAND

1. SET A TARGET TO BUILD A TOTAL OF 200,000 NEW HOUSES IN SCOTLAND OVER THE NEXT FIVE YEARS, BACKED BY A DETAILED PLAN TO MAKE IT HAPPEN

The existing Scottish Government target for new housebuilding in Scotland set in 2021 is to build a total of 110,000 new houses for rent over a 10-year period, i.e., an average of just 11,000 new houses per year.

There are two problems with this target. Firstly, it comes nowhere near to meeting Scotland’s housing needs. Secondly, there isn’t a realistic chance of achieving it given the cuts made in the Scottish Government’s housing budget in the last few years coupled with the recent increase in construction costs and rising land prices in many parts of Scotland.

The average cost of building a new house in Scotland is now nudging towards £200,000, which is much higher than the estimated costs on which the SG’s target was based.

There isn’t a cat-in-hell’s chance of the SG’s Affordable Housing Programme being able to build 11,000 houses per year as things stand.

The 110,000 target has been overtaken by events. It is time for a radically different and much more imaginative approach to be taken to addressing Scotland’s housing needs.

The Scottish Government needs to set a much more ambitious target for new housebuilding in Scotland. The new target must take account of the total number of new houses Scotland needs for rent and sale and be based on a realistic assessment of the available capacity and resources to achieve it.

Building 200,000 new houses over the next five years represents a doubling of the existing Scottish Government target. It is an ambitious but realistic aim. The proposals made in this paper recognise the time it will take to ramp up housebuilding rates to this extent and to mobilise the resources needed to make it happen. It is achievable if the right leadership is provided to make it happen.

The Scottish Government, in partnership with all the private and public sector organisations involved in the housebuilding industry in Scotland, must urgently put a detailed plan in place to achieve this new target.

If all the proposals made in this paper are implemented, then at least 15,000 houses per year will be built by the private sector and at least 5,000 houses per year will be built by councils and housing associations between them. That adds up to a total of at least 100,000 houses over five years.

The other 100,000 houses needed to meet the 200,000 target would be built using £20 billion of completely new funding from institutional funders, primarily pension funds, as outlined in Section 3 below.

2. IMMEDIATELY REVERSE THE £200 MILLION CUT IN THE SCOTTISH GOVERNMENT’S HOUSING BUDGET ANNOUNCED IN ITS DECEMBER 2023 BUDGET

The £200 million cut to the Scottish Government’s housing budget made in its December 2023 Budget plus the additional cuts announced previously has resulted in a reduction from £800 million to about £525 million a year. This represents a total cut of over a third in the SG’s housing budget.

While the Scottish Government is right to deplore the 10% cut in its capital budget enforced by the UK Government, this does not provide justification for a cut of over three times this figure (33% against 10%) in the SG’s housing budget.

This is especially the case as the December 2023 Budget prioritised a budget of nearly £200 million for “Active Travel” (much of which is spent on providing new cycle lanes, etc) over Housing. This is unacceptable. By any measurement housing is a much higher spending priority than Active Travel. That is not to deride investment in the latter but when times are hard choices must be made. The SG’s three key priorities are economic growth, eradicating child poverty and tackling climate change. None of these policy objectives can come close to being achieved without maximising investment in new housebuilding.

The Scottish Government should immediately reverse its £275 million annual cut to the housing budget by re-allocating resources from lower priority budgets, including the Active Travel budget. That would bring its annual housing budget back to £800 million a year, thus allowing both local councils and the housing associations to significantly increase the number of houses they build.

Furthermore, that annual investment of £800 million would leverage in about another £1.6 billion of housing investment from the Public Works Loans Board for councils and the private sector lenders used by the housing associations which fund about two-thirds of the cost of new social houses in Scotland, thus bringing the total investment in SG-funded new-build housing back to £2.4 billion per year.

In addition, the Scottish Government should authorise and encourage local councils and housing associations to build new houses for sale as well as for rent. The surplus income they make from building houses for sale should then be used to subsidise the costs of building new houses for social rent.

This measure could add significantly to the number of new houses being built for rent under the SG’s Affordable Housing Programme.

The New Town Development Corporations set up after the second world war adopted this approach very successfully, allowing them to build many more new houses than otherwise would have been the case had they relied totally on government subsidies.

There is no logical reason why the Scottish Government should not get our local councils and housing associations to repeat the housing successes of Scotland’s new towns.

This level of investment is essential if we are to successfully tackle our national housing emergency. But even with the implementation of all the measures proposed here, it still won’t be nearly enough to solve Scotland’s national housing emergency. Much more money will have to be raised to do that.

3. INVEST £20 BILLION OF AVAILABLE PENSION FUNDS’ MONEY IN BUILDING AT LEAST 100,000 HOUSES FOR RENT

The target of 200,000 new houses to be built within the next five years cannot be met without a huge injection of investment capital from out-with the public purse, even with the implementation of all the proposals made in Section 2 above.

The lack of enough houses for rent is the biggest challenge facing the housing industry in Scotland. After 14 years of austerity, a cost-of-living crisis, the long-term stagnation in wage levels and the recent huge increases in mortgage interest rates, most people who don’t already own their home cannot afford to do so. Many of these people may never be financially well-off enough to be able to afford to buy a house.

There are also many thousands of people in Scotland who do own their home but are struggling to find enough money to pay their higher mortgage rates. Some of these people may be forced by circumstances to sell up and find a home to rent instead.

It’s largely because of these issues that Scotland faces a housing emergency. The other major cause is the huge number of existing houses in Scotland which are no longer fit for purpose and need to be replaced or renovated.

We can only solve the mismatch between the supply of and demand for rented housing in Scotland by accessing the billions of pounds needed from institutional funders such as pension funds. 

The Scottish Government has previously sourced this type of funding, albeit on a modest scale, to finance housebuilding projects. For example, when I was the Minister for Housing, we sourced the funding for a housing development in Falkirk from a local authority pension fund.

In other parts of the UK, local councils are using pension fund resources to finance large housebuilding projects. Indeed, some institutional funders have their own construction companies which are actively involved in urban regeneration and development projects.

It is estimated that there is currently about £250 billion of investment funding available from institutional investors in the UK for investment in new housing. The terms and conditions of this type of funding is very similar than that which local councils can access from the Public Works Loans Board (PWLB).

The funds are typically channelled through a special purpose investment vehicle set up jointly by the Scottish Government and/or local councils and the pension fund. The investment funds are borrowed over a 50/60-year period. The interest rates charged are broadly similar, and sometimes lower, than that from the PWLB.

At the end of the borrowing period, the ownership of the houses revert to the government or local authority without the need for any additional payment.

The monies borrowed do not add to the level of public sector borrowing and the Scottish Government and local councils retain full control over all aspects of the design and management of the new houses being built.

The only way Scotland can obtain the £20 billion of funding needed to build the 100,000 additional houses for rent we need over the next five years is from these pension funds or similar institutional investors.

We must do so and do so urgently.

To maximise the chances of success, the Scottish Government should set up a dedicated Scottish National Housebuilding Agency to deliver the additional 100,000 houses for rent to be funded by the pension funds over the next five years.

4. IMPLEMENT A CRASH TRAINING PROGRAMME TO SOLVE THE SKILLS SHORTAGES WHICH ACT AS A BARRIER TO NEW HOUSEBUILDING

On 17^th May 2024, the Construction Industry Training Board (CITB) in Scotland published a report highlighting the “persistent gap between what Scotland needs to keep up with demand and the workforce available to meet the challenge.”

It stated that an extra 26,100 workers – 5,220 a year – will be needed to meet the continued construction growth expected over the next five years. For almost a third (31%) of construction employers finding suitably skilled staff remains a key challenge, particularly with more older workers retiring and not being replaced.

These forecasts assume that in Scotland construction output is set to rise by 2.1% annually between now and 2028.

A commitment to build an additional 100,000 new houses in Scotland over the next five years will drastically increase construction output by much more than 2.1% annually.  It will also drastically increase the skills shortage identified by the CITB.

It therefore must become a top priority of the Scottish Government, working with the CITB, to take the urgent measures needed to deal with the staffing crisis in Scotland’s construction industry. Failure to do so would destroy any chance of reaching the new housebuilding targets proposed in this paper.

5. APPOINT A DEDICATED CABINET SECRETARY FOR HOUSING TO IMPLEMENT THIS ACTION PLAN AT THE HIGHEST LEVEL OF GOVERNMENT

At present the Scottish Government’s Housing Minister is not a member of the Scottish Cabinet. His boss is the Cabinet Secretary for Social Justice, who has a wide range of portfolio responsibilities including Social Security.

Given that both the Scottish Government and the Scottish Parliament have declared a national housing emergency in Scotland, it is essential that a dedicated Cabinet Secretary for Housing be appointed to turbo charge the action needed to solve this crisis at the highest level of government.

Such an appointment isn’t only necessary to solve the housing problem. Failure to deliver an ambitious housebuilding programme will lead to other policy failures.

The First Minister’s aim of eradicating child poverty cannot be achieved whilst tens of thousands of children in Scotland are living in inadequate housing or have no house at all they can call “home”.

The chances of reaching net zero by 2045 will be much diminished if many more houses aren’t built to replace the hundreds of thousands of houses in Scotland which are no longer fit for purpose, many of which have high rates of carbon emissions.

Tackling the housing emergency is a full-time task. We need a full-time Cabinet Secretary for Housing to make sure the job is done and done well.

6. ADDITIONAL MEASURES

The above plan isn’t an exhaustive list of everything the Scottish Government needs to do to solve Scotland’s housing emergency. There is a broad range of other measures which it needs to take including: re-writing its proposed new Housing Bill so that it incentivises, not penalises, investment in new housebuilding in the private rented sector (PRS) whilst protecting tenants from unreasonable or excessive unwarranted increases in rents; speeding up and simplifying the compulsory purchase system for acquiring land needed for new housing developments; speeding up and simplifying the planning system to facilitate new housebuilding projects; and taking urgent steps to stop landowners charging grossly over-inflated prices for land needed for new housing developments.

AN AMBITIOUS HOUSEBUILDING PROGRAMME WILL BOOST SCOTTISH ECONOMIC GROWTH

The Scottish Government’s top priority is, rightly, to increase the growth rate of the Scottish economy. Implementing a massively expanded housebuilding programme is the most effective policy lever the devolved government must achieve this aim.

According to research conducted by CEBR for Shelter and the National Housing Federation for England published in March 2024 entitled “The Economic Impact of Building Social Housing”, £51.2 billion could be added to the UK economy by building 90,000 social homes a year.

From these figures, it is reasonable to assume that if Scotland builds an extra 20,000 new homes for rent every year that will add over £11 billion to the Scottish economy.

Given that Scotland’s GDP was estimated to be at £212 billion in 2023, that £11 billion equates to over 5% of Scotland’s economic output.

Basing estimates on this report, other benefits would accrue to Scotland form building an extra 20,000 houses a year in addition to the impact on GDP. These include:

• Over 30,000 new jobs

• Over £500 million additional income from construction taxes

• Over £1 billion savings to the NHS in Scotland

• £1 billion savings from the reduction in homelessness

More importantly, building an extra 100,000 homes in Scotland will mean far fewer people, including thousands fewer children, will be living with the misery of being without an affordable, decent, warm home.