Scottish Budget: £90m increase to affordable housing fund and tax on second homes

John Swinney
John Swinney

The Scottish Government has announced a year-year increase of £90 million to its affordable housing budget to help it achieve its target of delivering 50,000 affordable homes during the next parliament.

Delivering his Draft Budget for 2016-17 yesterday, deputy first minister John Swinney said the government is on track to meet its 30,000 affordable homes target for the current parliament and the total investment in housing supply of around £690 million for 2016/17 will go towards reaching the new target.

The finance secretary also introduced a 3 per cent supplement for second home purchases over £40,000.

To be paid in addition to Land and Building Transaction Tax (LBTT), the supplement brings Scotland in line with recent English changes and will come into effect from April 2016. The move is estimated to raise between £17m and £29m in 2016/17. Individual LBTT rates and bands remained unchanged.

Infrastructure secretary Keith Brown described the Budget as a plan “to improve infrastructure and increase house building”.

He said: “We are committing to an increase of £90 million in affordable housing supply compared to 2015-16 – and a total investment of around £690 million in housing. This will support our overall commitment to delivering 50,000 new affordable homes by 2020-21.

A package of measures was also unveiled to help protect low income households and some of the most vulnerable people in society from the UK government’s austerity agenda.

A total of £35m is planned to fully mitigate Scots against the impact of the ‘bedroom tax’ while the Scottish Welfare Fund was handed a £38m boost to continue given emergency support or helping people stay in and set up their home.

Up to £343m was announced to protect vulnerable households from increased council tax liabilities through the Council Tax Reduction Scheme.

Social justice secretary Alex Neil said against a backdrop of real term cuts from the UK Government, the Draft Budget for 2016-17 will aim to tackle poverty and inequalities and protect family budgets.

The social housing sector was broadly supportive of the announcements.

CIH Scotland policy and practice officer, Ashley Campbell, said: “We welcome the Scottish Government’s commitment to increase the budget for affordable housing by £90m in 2016-17. For the benefits of this increased investment to be fully realised, this will need to be matched with action to address issues around land supply, infrastructure and construction skills.

“We welcome proposals to increase land and buildings transaction tax for second homes and buy to let properties but would like to see more details of where the additional revenue raised will be invested. Our preference would be for these funds to be re-invested towards increasing housing supply.

“Continued funding to the Scottish welfare fund and to offset the impact on housing benefit claimants of the so-called bedroom tax are also welcome. We have consistently highlighted concerns that, until the fiscal framework accompanying the new Scotland Bill has been agreed, it is impossible to judge to what extent more fundamental long term changes to welfare delivery in Scotland will be achievable. We heard those same concerns reflected by the deputy first minister today.”

Ashley Campbell added: “Recent joint research by Shelter, the Scottish Federation of Housing Associations and CIH Scotland has shown we need to deliver 12,000 new affordable homes each year to meet demand. This will require a step change in funding and delivery to be achieved. In the lead-up to next year’s Holyrood elections, we will watch with interest to see to what extent all political parties are able to match their commitments on housing numbers with a similar level of ambition on funding and delivery.”

The Scottish Federation of Housing Associations (SFHA) said the housing grant must be increased in order to realise the government’s ambitious programme of affordable housebuilding.

Mary Taylor, chief executive of the SFHA, said: “The boost in spending on housing for 2016/17 is very welcome. Upping spend on affordable housing by £90m per year within an annual total spend of £690m will help provide construction jobs in the short term and safe, warm, affordable homes in the long-term.

“However, as recommended by an expert group earlier this year, any increase in overall spending on housing must be accompanied by an increase in the rate of grant per home that Scottish Government provides to help housing associations to build new affordable homes. This is essential if the future development potential of the sector is to be unlocked.

“Only an increase in that grant rate will enable housing associations to lever in greater amounts of private finance, thus adding value to the public investment made and easing any further stress on the public purse.

“SFHA is of the view that the grant rise is an essential step in realising the ambitious programme of affordable housebuilding, which all parties across the Scottish Parliament have recognised as essential to Scotland’s future health and well-being.

“We look forward to seeing further detail on this point from the Scottish Government in the New Year.”

Peter Howden, chair of the Glasgow and West of Scotland Forum of Housing Associations (GWSF), said: “It’s good to see the plans for the first year of the significantly increased five-year housing supply programme. At a time of real financial constraint, housing is clearly a very high priority for the Scottish Government and this is to be warmly welcomed.

“A programme of this scale will make a difference to people badly in need of a decent, affordable home, and to people in the construction trade looking for work. Ensuring the right skills are available in the right places will be one of the capacity challenges that needs to be overcome.

“Capacity to deliver now becomes crucial. At this stage the sector isn’t fully in a position to plan ahead as we still await a decision on subsidy rates. Development is a slow process: momentum has to start being generated, and so we look forward to a decision as soon as possible.”

Adam Lang, head of communications and policy at Shelter Scotland, said: “Shelter Scotland has been calling for a step change in affordable homes delivery for many years and today’s announcement would seem a welcome step to making this a reality.

“We welcome the additional investment of £90m for affordable housing in this budget bringing next year’s budget to £690m. This backs up the SNP’s promise to build 50,000 new affordable homes during the lifetime of the next parliament should they be returned to power in next May’s Holyrood elections.

“With independent research recently showing that 12,000 new affordable homes are needed each year for the next five years to bring real hope to the 150,000 families and individuals on waiting lists for a home across Scotland, this is a big step in the right direction.”

Adam Lang added: “The increase in the Land and Building Transaction Tax for second homes is also welcome news, as is the continued commitment to fund mitigation of the bedroom tax.”

Members of the Existing Homes Alliance Scotland voiced disappointment with the Draft Budget for “failing the cold homes challenge”.

Alan Ferguson, chair of The Existing Homes Alliance Scotland, said: “Just a day after we learnt that there has been no progress in reducing the 35 per cent of Scottish households living in fuel poverty, the draft budget for ending cold homes is less than was available this year. This fails to reflect the government’s commitment to a National Infrastructure Priority that will create ‘transformational change’ in improving the energy efficiency of Scotland’s homes – making our housing fit for a low carbon Scotland.

“The evidence is clear – no other investment can do so much, particularly in a tight budget situation, to cut energy bills for the fuel poor, create 8-9000 jobs all over Scotland, reduce climate emissions and improve physical and mental health – a 2:1 benefit to cost ratio.”

Gina Hanrahan, climate and energy policy officer at WWF Scotland, said: “Hot on the heels of a Paris conference that showed increased international commitment to climate action, this draft budget does not deliver on the Scottish Government’s repeated commitment to embed climate change across the budget. In particular, it has not kick started the transformational approach to improving energy efficiency to which the Scottish Government has committed.

“We hope that the Scottish Government will take the opportunity to significantly boost funding for energy efficiency in the final budget and match this with a clear goal for all homes to reach a C energy performance standard by 2025, which is the minimum required if Scotland’s to hit its climate targets. This would help us to create thousands of new jobs, improve health and reduce the scourge of fuel poverty, whilst slashing emissions.”

David Stewart, policy lead at the Scottish Federation of Housing Associations, added: “An ambitious National Infrastructure Priority will make our homes warm, comfortable and affordable to heat – addressing both fuel poverty and climate change. Research shows that no other investment can do so much to cut energy bills for the fuel poor, create 8-9000 jobs all over Scotland, reduce climate emissions and improve physical and mental health – a 2:1 benefit to cost ratio. This would be an important stimulus for the economy.”

Patrick Harvie MSP, finance spokesperson for the Scottish Greens, said the Draft Budget doesn’t go far enough on funding for warm homes or low carbon infrastructure in light of fuel poverty figures and the Paris climate deal.

Despite agreeing that energy efficient housing should be a National Infrastructure Priority, ministers have only proposed increasing spending in this area by £14m to £103m.

Mr Harvie said: “The latest fuel poverty figures are a stark reminder that a transformation in our approach is required, and sadly this budget does not deliver that. It is disappointing that while ministers agree that energy efficient housing should be a National Infrastructure Priority, they are not yet committing to the scale of investment required. This will still take decades to resolve. We need Holyrood to be bolder, and Greens will continue to press the case.

“It’s also a concern that just days after the global deal on climate change in Paris, this budget does not prioritise investment in low carbon infrastructure. The First Minister promised that her Government would be a strong driver of a progressive climate agenda. Today’s draft budget is a world away from that. Engineering, finance and construction experts have already made clear that such investment will make our economy more resilient. Greens will continue to push for the jobs of the future.”

A number of organisations sounded warnings of the potential impact the supplement for second home purchases will have on the Private Rental Sector (PRS), particularly in light of the ongoing reforms from the Private Housing (Tenancies) Bill.

John Blackwood, chief executive of the Scottish Association of Landlords (SAL), said: “Landlords will be disappointed and frustrated by the decision by the Finance Secretary this afternoon to copy the policy of the Conservative Party at Westminster and punish those who choose to invest in the PRS Scotland.”

“The supplementary tax on the purchase of second homes will have a huge impact on the buy-to-let market and exacerbate an already serious shortage of properties in many areas. We firmly believe that the biggest losers from today’s statement will be tenants who will now find it even harder to get the accommodation they want at a price they can afford.

“As laid out by the Commission on Housing and Wellbeing, landlords have a major part to play in solving Scotland’s housing crisis precisely because of the investment they can provide at all levels of the market. The Scottish Government should be encouraging more investment by responsible landlords whilst ensuring the highest standards are met, instead of seemingly doing everything it can to dissuade them.

“Reducing investment will only lead to less being spent on improving housing stock across Scotland and create a space for rogue landlords and letting agents who operate outside of the high standards that the overwhelming majority of the sector are rightly held to.”

Homes For Scotland welcomed the significant increase in affordable housing investment next year but emphasised that delivering the Scottish Government’s ambition in this area was highly dependent on a strong private sector given its direct contribution through planning policy.

Philip Hogg, chief executive, said: “Whilst providing more ‘affordable housing’ is a key element in tackling the country’s chronic undersupply of housing, this alone will not address Scotland’s housing crisis or meet the diverse needs and aspirations of all those living and working in Scotland.

“Scotland needs a balanced housing policy which places equal emphasis on having enough homes of all tenures, recognising the economic and social benefits that this would bring for communities throughout the country. We therefore hope that, like other administrations in the UK, the Scottish Government will allocate sufficient funding for the next phase of the hugely popular Help to Buy scheme and ensure it is as accessible to as many purchasers as possible in order to meet the demand that clearly exists.

“We also hope that the details of the budget will include assistance for SME home builders and action to facilitate the provision of infrastructure for housing.

“In respect of the announcement of a three per cent supplement on Land and Buildings Transaction Tax for additional residential properties such as buy to let properties and second homes over £40,000, we are wary of what impact this may have on the amount of rental stock available to tenants, particularly given the changes already proposed in the Private Tenancy Bill which is currently going through Parliament.”

Ed Monaghan, chief executive of Mactaggart & Mickel Group, added: “The government’s decision not to alter the rates of Land and Buildings Transaction Tax (LBTT) paid on top tier properties is disappointing. The introduction of the new tax system earlier this year, although favourable to first time buyers, has slowed the market for those looking to purchase properties in excess of £325,000.

“Housing has always been an important pillar to encourage positive economic growth and has in the past provided significant revenue. Time will tell if the government’s £381m revenue budget for 2015/16 will be met.

“Although the introduction of new 3 per cent levy on LBTT for second homes has been introduced to make opportunities for first-time buyers to enter the market as strong as possible the lack of initiatives like ‘Help to Buy’ are still being felt. It is once again disappointment that the government have not matched the UK and Welsh governments recent announcement on maintaining Help to Buy, and further reinforces the danger of creating a two speed housing market.

“The Scottish Government increased investment of £90m for affordable housing was welcomed. This will help to drive employment and growth in the construction industry and go part of the way of addressing the nation’s housing shortage.”

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