Scotland is facing a housing emergency, and, in the Highlands, it is becoming a clear constraint on economic growth. More than 18,000 long-term operational jobs are expected to be created across the Highlands and Islands by 20401, but without enough homes, businesses are increasingly struggling to recruit and retain the workforce needed to realise that opportunity. Recognising the scale of the challenge, The Highland Council is surveying employers to measure the extent to which the housing shortage is holding back recruitment, investment and business growth across the region.

The Highland Council estimates that around 24,000 new homes will be needed by 2035 to meet demand. Meeting that need is now central not only to housing policy, but to Scotland’s wider economic ambitions. Whilst rightly a lot of focus is on the increased delivery of social housing, mid-market rent (MMR) has an important role to play in responding to that challenge.

MMR provides high-quality, affordable homes over longer terms for people who are struggling to find suitable homes on the open market, whether through purchase or private rent, and who are unable to access social housing. These are the people who keep communities and local economies running – nurses, teachers, hospitality workers, construction workers, engineers, care workers, those supporting major infrastructure projects and young families.

At HHA, we see this need every day. Working in partnership with private developers, we deliver homes as mid-market rent, including by acquiring completed homes as developments finish.

For developers, the ability to sell completed homes provides certainty and improves cashflow. For communities, it means additional homes are delivered quickly. For government, it supports increased housing supply and stronger local labour markets. It is a practical delivery model that is already working, but parts of the current tax system make this difficult to maximise opportunities.

When MMR providers purchase homes, they are generally required to pay both Land and Buildings Transaction Tax (LBTT) and the Additional Dwelling Supplement (ADS). These taxes become a significant additional cost that can undermine the financial viability of acquisitions.

The challenge is not the principle of the tax system, but how it fits with how homes are delivered. For example, ADS relief applies when six or more homes are purchased in a single transaction. In practice, windfall homes become available as single properties and as a result, organisations buying homes for MMR often miss out on reliefs simply because the timing and scale of delivery do not match how the system is designed.

Other reliefs also do not always reflect the role of MMR providers, even though their purpose is to increase the supply of affordable housing rather than operate as commercial investors.

By their nature, these are opportunistic purchases: homes come to market only as developments complete or the opportunity arises, so HHA must move quickly to bring them into use as mid-market rent. Each acquisition is an opportunity to deliver additional homes beyond our planned development programme. Although these purchases represent a relatively small part of our overall activity, every home contributes to meeting local housing need.

HHA analysis suggests that ADS alone can reduce investment yields by around 0.2% and adds up to £20,000 plus on homes sold at £250,000 and upwards. In a market where viability is already finely balanced, that additional cost can be enough to prevent a purchase from going ahead.

There are straightforward ways to address this. Existing reliefs could be extended to recognised MMR providers. Alternatively, ADS could be adjusted so it better reflects phased acquisitions from a single development. Both approaches would keep the tax system intact while removing an unintended barrier to affordable housing delivery.

MMR is an essential part of the housing mix and has a vital role to play in helping deliver The Highland Council’s housing ambitions. HHA has already demonstrated what the model can achieve, providing affordable homes for key workers and local people across the Highlands, and stands ready to deliver more.

The opportunity now is to remove the unintended barriers that are holding the sector back and unlock the full potential of mid-market rent to meet growing housing need.