Homes Fit for the 21st Century: the Scottish Government's strategy and action plan for housing in the next decade 2011-2020

Part 1 New Supply

Summary

1 Scotland needs more homes. Our population is growing, the average household size continues to fall, and as always there will be some old housing that needs to be demolished and replaced. The overwhelming view of respondents to the housing discussion was to emphasise the importance of new supply to meet the needs of our people.

2 We need to increase supply right across the housing system. We need more homes in each of the established tenures: owner occupation, private rent and social rent. But there are growing numbers of people whose needs aren't met by any of these established tenures - people who can't access home ownership and are struggling to afford private rents, yet are unlikely to get a social let. To provide new options for this group, we will require a substantial expansion of mid-range housing products. We will continue to support shared equity, and in particular will expand provision of homes for intermediate rent ⁵ .

3 Therefore, our first strategic objective is:

To build the new, high quality, affordable homes (including social housing) to meet current need and the demand arising from our growing and ageing population.

New ways of financing housebuilding

4 The challenge is how to achieve this expansion in the difficult economic circumstances that we face. Private sector housebuilding has fallen dramatically as a consequence of the credit crunch. And public funding will also be reduced: the UK Government has made it clear that it will continue to reduce the funds available to the Scottish Government, especially for capital spending. With such significantly restricted finance for housing, we cannot rely on the traditional methods used to finance new homes.

5 We will therefore implement a radically different and innovative approach. Across Scotland, we have seen new ideas emerging on how this can be done, from councils, housing associations, developers and investors. A selection of these ideas is highlighted in this document. We welcome them all, and intend to pilot as many new methods as possible. Some require no Government support, while others can proceed only if there is financial or other input from Government. We will assess each proposal on its merits.

6 Examples of this new approach will include:

• allowing housing associations to channel receipts into new build through models in which the Scottish Government's right to reclaim Housing Association Grant is waived;
• encouraging multi-tenure housing developments with developments for private sale or rent cross-subsidising the social rented sector;
• exploring the potential for shared funding of developments, with contributions from land-owners/ developers, housing associations/ co-operatives and central or local Government; and
• widening the sources of funding for investment in affordable housing.

7 The scope for Government investment is limited by the budget made available to us by Westminster, so we must change the way we invest. In future, our policy will be to invest in ways which lever in far more resources from elsewhere, in order to maximise the supply of affordable homes. At the same time we will ensure that the developments we support meet a range of needs across the whole of the country. We will:

• expand and develop the National Housing Trust model to deliver a major increase in the number of homes for intermediate rent;
• continue to invest in shared equity schemes, especially the New Supply Shared Equity scheme with private sector developers; and
• support development through an Innovation and Investment Fund, inviting bids from councils, housing associations and private bodies. In 2011-12 we will invest £50m through this Fund.

8 The Innovation and Investment Fund will be used to support developments of new social housing by councils and housing associations and also to support innovative schemes of any type from both the social sector and private bodies, provided that they increase the provision of affordable housing. Successful bids will be those which meet priority needs, secure quality, and achieve an optimal return for the Government's investment. Including the New Supply Shared Equity scheme, the National Housing Trust and the Innovation and Investment Fund, we aim to deliver 18,000 new affordable homes over the next three years.

9 A key aspect of innovation will be to find new sources of finance for housing:

• In the housing association sector, we are already seeing the benefits of investment from the European Investment Bank, and we are working with the sector to identify further funding opportunities such as a Scottish Housing Bond and access to pension fund and other institutional investment.
• We will consult on legislation to allow councils to levy additional council tax from long-term empty homes, with the additional income to be earmarked for investment in affordable housing.
• In the longer term, we will establish an Infrastructure Investment Loan Fund and a National Housing Investment Bank, to mobilise all possible sources of funding for housing investment.
• We will also use our new powers to reform Stamp Duty to encourage and incentivise new investment in the private rented sector.

Quality and fitness for purpose

10 The increase in supply must not be achieved by compromising on quality. Excellence in design will ensure that the homes that we build today, and the places that we create, will meet the needs of our people and stand the test of time.

11 A further key requirement is that we produce enough specialist or adapted housing for older people and disabled people. Later this year we will publish a national strategy on housing for older people.

Introduction

12 Increasing the supply of housing across all tenures is key to our ambition to provide housing options for all, particularly given the need to:

• meet housing needs that are currently not being met;
• replace old stock which has reached the end of its usable life;
• allow for geographical mobility; and
• cater for a rise in the number of households.

13 The last of these factors is currently the most significant, because population projections suggest a net increase of over 200,000 households in Scotland over the decade to 2020. ⁶ Therefore, without taking account of the backlog of housing need or the impact of demolitions or internal migration, we need to be building in excess of 20,000 homes each year just to accommodate household growth. Those homes will be needed across the board, not just in the owner-occupied, private and social rented sectors, but also in the emerging tenures such as intermediate rent, which will play an increasing role in the future. The work being done by local authorities to develop their local housing strategies plays a vital role in shaping an understanding of what is needed and where.

We believe that to meet the housing needs of people now and in the future, new houses will need to be built across all tenures.
East Ayrshire Tenants and Residents Federation

The key to facilitating more effective rental and low cost home ownership options is to produce increased supply across the board, rather than to focus solely on one tenure or another.
Joseph Rowntree Foundation

14 Given currently diminished levels of private construction, and significantly restricted availability of finance, increasing supply represents a substantial challenge for the decade ahead. But it is one which everyone with an interest in housing must face up to.

15 The Scottish Government's role is to set the overall framework, to use our resources to maximise the supply of new affordable housing; to support and enable a recovery in the private sector as quickly as possible; and to uphold standards of quality and design needed to build sustainable communities. But delivery of the objectives will of course depend on everyone pulling together. We need housing associations, councils, developers, lenders, private landlords and others to come together to shape the models of supply for the future, by developing innovative models and identifying new sources of finance.

Housebuilding for the private sector

16 The credit crunch, collapse of the wholesale lending market and new capital adequacy rules for lending institutions have dramatically reduced the availability of mortgage finance. This has made it much more difficult, for first time buyers in particular, to obtain loans without large deposits, and this has had knock-on impacts throughout the market. Demand for new-build homes has dropped significantly ⁷ , with private sector building now at very low levels and widespread job losses and company closures as a consequence.

17 While there are recent signs of a slight increase in mortgage products, the imminent withdrawal of the Special Liquidity Scheme this year ⁸ , coupled with revised capital adequacy rules for lending institutions, suggests that there is little prospect of a return to the easy availability of 95% or 100% mortgages which fuelled the earlier boom. The Financial Service Authority's ( FSA) proposals on responsible lending are also likely to have an impact on lending, both for first time buyers and those looking to remortgage (see paragraph 116).

Continuing problems with mortgage lending remain the single biggest threat to the survival of Scotland's home building industry.
Homes for Scotland

18 Nevertheless, the underlying need for homes for our growing population has not diminished, so it is imperative that we take action, within the limits of our powers and financial constraints, to support recovery in the sector. The Scottish Government has a keen interest in a healthy private housebuilding sector, which is a vital industry in the Scottish economy. Private housing supply helps the housing system to function effectively, improves affordability, and reduces the pressure on social lets. A strong housebuilding sector can also work with social landlords to develop mixed tenure communities.

19 There is no silver bullet. Instead, a combination of initiatives and action by a wide range of organisations will be necessary to tackle this critical problem:

• We will continue to engage with lenders, both to encourage new providers into the market and to encourage new forms of mortgage product to meet current needs. We say more about this in Part 2.
• We will work with the private sector to develop new options for first time buyers. We will fund the New Supply Shared Equity with Developers scheme; support the establishment of rent-to-buy schemes; and implement a self-build initiative to maximise investment potential in this sector.
• We will follow through our recent reforms to the planning system to ensure a generous supply of land for housing.
• We will improve the arrangements for the funding of infrastructure.

Shared Equity, Rent-to-Buy and Self-Build

20 Private housebuilders and lenders will need to adapt their long-term business model in response to the fundamental shift in mortgage availability. Some are already developing shared equity and rent-to-buy products which help individuals to access home ownership and these should become much more common in future. Given the current pressures on developers and our ambition to support economic growth, there is a clear rationale for government to encourage these developments, in particular by subsidising shared equity products.

Like some countries in Europe, a more diverse housing market would help. Households could build up to ownership through savings or shared ownership, with a range of transitional or intermediate tenures … as an alternative to the risky drive to ownership or social renting.
Grampian Housing Association

21 Independent research confirms that our shared equity schemes within the Low-cost Initiative for First Time Buyers offer an effective means of supporting first time buyers. ⁹ We want this option to be widely available to first time buyers including those currently renting in the social sector. We will make shared equity a permanent feature of housing policy, with continued investment, building particularly on the successful pilot New Supply Shared Equity with Developers scheme. In 2011-12 we will invest £5m in a second phase to subsidise a further 220-250 new properties for shared equity.

22 We will explore alternative funding sources for shared equity, including from councils. Aberdeenshire Council, for example, has put in place its own shared equity scheme, working with developers, which we welcome.

23 House-builders throughout Scotland have also developed rent-to-buy options which allow individuals and households to rent a home whilst also saving the deposit they need to purchase it. Whilst the specifics vary, individuals in such schemes will receive a proportion of the rent they have paid to the house-builder as a contribution to the deposit they need to secure a mortgage.

24 Such schemes are small scale and help to bring existing supply or mothballed sites into active use, rather than facilitating the development of entirely new supply. They do however add to people's housing options in the short to medium term and therefore we welcome this example of private sector innovation. We will work with private sector developers, lenders, and local authorities to develop best practice for rent-to-buy schemes across Scotland and encourage their wider use where appropriate.

25 In addition, we will look to build on innovations such as the package of tailored solutions being piloted by Cruden Homes, in partnership with the Glasgow and NHS Credit Unions, the Co-operative Bank and Glasgow City Council, to help credit-worthy first time buyers into home ownership in Govan. This initiative provides an excellent example of partnership working, and we will work with Homes for Scotland, credit unions and other organisations to encourage the development of similar approaches more widely across Scotland.

26 Self-build housing also contributes to the supply of new housing, particularly in the more remote parts of rural Scotland. Over the coming decade, we expect growth in this sector, as has happened in many European countries, with people taking advantage of new technologies which make self-build more accessible. We will establish a self-build initiative for Scotland, by developing a package of advice and support for those considering this option. We will also continue to engage with lenders to ensure there are self-build mortgage products available to credit-worthy borrowers, and we have already pressed the UK Government to ensure that any changes in the regulation of the mortgage market do not result in excessive barriers being put in the way of those who wish to build their own home.

27 Councils can play a key role in supporting and enabling self-build, and some may wish to provide loans for self-build, drawing on council tax income from second homes and long-term empty properties.

The planning system

28 In 2007, we set out in Scottish planning policy and in Firm Foundations ¹⁰ a series of comprehensive reforms to address how the planning system should identify and meet housing need and demand. We will work with planning authorities to ensure that they maintain a generous supply of effective housing land in the right places. In the current economic climate, they may need to take a more flexible and responsive approach to the identification of housing sites ¹¹ (without undermining the principles of sustainable placemaking covered later in this paper). Land which was developable before the downturn may have to be reappraised and other sites identified. We will continue to monitor the implementation of our policy, and will actively engage in the development planning process to ensure that plans provide a generous supply of effective housing land.

…land availability remains a huge issue and, increasingly, developers are citing the current economic climate as a reason for not being in a position to provide the percentage of affordable homes requested by local authorities.
COSLA/ ALACHO

29 Planning conditions and agreements play a major role in securing the delivery of infrastructure and of affordable housing. But they must be realistic, balancing the interests of the developer and the community. We will review and update the regulations and guidance on these, to ensure that they remain fair and effective, and that they support the development of infrastructure without penalising developers. We have also commissioned research to identify alternative methods of applying development charges, and will progress appropriate action after the report is received. ¹²

The continued uncertainty surrounding developer contributions has serious long-term detrimental effects on the home building industry. There must be clarity on the total sums involved and a properly consulted upon, simple trigger mechanism, which details the complete list of issues being addressed.
Homes for Scotland

30 In summer 2011 we will issue new guidance for local authorities on the appropriate and effective use of compulsory purchase, to free up blocked land to encourage investment, and to facilitate housing and other projects.

Infrastructure funding

31 While we acknowledge the financial pressures faced by local authorities, we also welcome the initiative shown by those who are already looking at innovative ways to fund infrastructure (including considering their capacity to provide loans). For example, at Heartlands, as part of a major regeneration project on a former colliery site, which includes a business park and a large residential area, West Lothian Council has transferred land to Tesco, with the council deferring the receipt for several years. The deferral will facilitate the funding of a new motorway junction, without which the next phase of the business park and the major residential expansion would be impossible.

32 This is a clear example of how councils can enable essential infrastructure even in times of scarce public resources. Similarly, the excellent work of the Highland Housing Alliance on land assembly and infrastructure provision, and the use of council tax receipts from second homes and long-term empty properties to fund housing and infrastructure in Argyll and Bute, are further examples of innovation at work.

33 We will continue to investigate the scale of developments with planning permission which have stalled, and to consider alternative options for funding infrastructure. In the medium term we will establish an Infrastructure Investment Loan Fund to provide loans to unblock projects which might not otherwise be able to proceed.

The private rented sector ( PRS)

34 We will take steps to generate new growth within the PRS. As noted in Part 2, we will support housing associations which wish to provide market rental homes as well as intermediate and social lets, where necessary through a subsidiary. By 2014, we want to see many more housing associations and co-operatives involved in this way.

35 We will also develop new incentives to improve private rented housing such as innovative arrangements where private landlords lease properties to social landlords. ¹³ This approach can be an effective way to increase the supply of affordable housing, while improving standards and security for tenants and providing a secure rental stream for good quality private landlords. We will do as much as we can to help the PRS develop, and where funding is required to stimulate growth in leasing arrangements or other innovative activity, we will consider making new catalyst investment available.

The development of a formal private sector leasing scheme should provide the stable and professional platform necessary to encourage development.
Angus Council

36 In addition, we have called on the UK Government to amend Stamp Duty Land Tax ( SDLT) rules so that charges for bulk purchases are based on the applicable rate for each property, rather than for the combined price of all the properties purchased. If the UK Government does not make this change then we will do so once SDLT policy is devolved to the Scottish Parliament, to open the way for more large-scale investment in the private rented sector. We will also redesign the tax to make it fairer.

37 We are committed to enabling the introduction of new approaches in Scotland that can re-invigorate private sector investment in housing. Institutional investors seek long-term, steady returns, and we will work with pension funds and life assurance companies to bring more investment into the private rented sector.

38 One of the existing options for such investment is the system of Real Estate Investment Trusts ( REITs). However, the rules governing residential REITs have been made overly complex by the UK Government, with significant entry costs and onerous listing requirements making it difficult to set one up. If the Scottish Parliament had the power to change these rules we would propose the legislation to do so. In the meantime, we have made the case to the UK Government that they should work with the property industry to look at a restructuring and simplification of residential REITs.

Intermediate renting and the National Housing Trust

39 In recent years we have seen a marked increase in the number of people who are unable either to buy their own home or to secure a social housing let. The average age of unassisted first time buyers has risen to 37, with mortgage deposits now averaging 23%. ¹⁴ At the same time new social lets have become more concentrated on the poor, with 63% of new lets now going to people in the poorest 10% of the population.

40 Although it will remain our top priority to support housing options for the poorest, we also recognise the role of government to help address housing issues for those on low to moderate incomes, who might otherwise find themselves without viable choices. An expansion of shared equity provision is part of our response to improve the choices available to this group. In addition, we will support a substantial expansion of intermediate rental properties to complement social rented housing and ease the pressures on it.

It is important that some resources continue to be directed at tenures such as intermediate renting, shared ownership and shared equity, especially when those on low or middle incomes experience limited liquidity within mortgage markets allied to a shortage of active lenders within Scotland, which precludes many from home ownership.
Clyde Valley Housing Association

The growing problem of the excluded middle in the housing market - those who can work but can't buy - does merit some policy focus as it is to be hoped that relieving pressure in the middle of the market would ease the pressure on social housing and housing need.
Joseph Rowntree Foundation

41 We have worked with councils, the Scottish Futures Trust, house builders and lenders to develop the National Housing Trust initiative ( NHT) - a ground breaking innovation to generate a major expansion in the provision of homes for intermediate rent across the country. The NHT will deliver increased housing choice for potential tenants on low to moderate incomes, providing homes at below-market rent and offering tenants an opportunity to purchase their home when it is due to be sold. The first phase of procurement is well underway across several local authority areas.

42 The NHT demonstrates how new approaches to affordable housing delivery can be designed to provide maximum value for money at a time when resources are becoming increasingly constrained. Rather than following the traditional grant-based model of investment, the Government's financial contribution to NHT is in the form of a guarantee, at an estimated average cost of around £2,500 per unit. The first phase is expected to lever in around £100m in additional housing investment for a guarantee cost to Government of only £2m-£3m.

43 The initial phases of the NHT will help kickstart construction on sites which, in the current economic climate, may otherwise remain stalled for some time. The injection of investment in affordable homes delivered through this first phase alone will provide the Scottish construction industry with a much needed boost. 160 jobs are estimated to be supported for every 100 additional new homes built through the NHT. ¹⁵

44 Building on the strong response from both local authorities and developers to Phase 1, a second phase of NHT has now been announced for 2011-12. An encouraging number of local authorities have already indicated an intention to participate in a second round of procurement based on the existing model. A further phase will also see the development of variants of NHT designed specifically for the housing association sector, recognising the vital role this sector plays in the delivery of affordable housing across Scotland. Expanding NHT through these routes will help maximise the number of homes that can be delivered, whilst also providing local authorities, housing associations and potential development partners with further opportunities to take part.

Innovation and Investment Fund

45 We remain committed to providing grant funding for new social housing. The traditional method of subsidising new social housing has been the provision of Housing Association Grant, paying roughly two thirds of the cost of each new home. However, the capital funds available to the Scottish Government are set to be severely constrained for at least the next ten years. If we are to build anything like the number of affordable homes that we need, this will need to be done with far less government subsidy per house.

… subsidy levels need to be re-examined to ensure efficiencies. Over-reliance on models to meet limited or niche markets or groups can detract from solving deep-rooted, longer term issues of supply.
COSLA/ ALACHO

46 Recent research by Heriot-Watt and York Universities ¹⁶ confirms that there is scope for councils and housing associations to develop with much lower levels of subsidy. The study concluded that, over a 20-year period, local authorities and housing associations have the potential capacity to develop around 5,300 new social homes a year at a common grant rate of 25% and a total cost to Government of around £190m per year.

47 There are many avenues open to housing associations to make grant funding go further, with a similar range of opportunities available to councils who develop new council housing. These include:

• contributions from their own financial resources or borrowing capacity;
• extending financial planning beyond 30 years;
• exploiting innovative sources of private finance including pension funds, bond finance and institutional investment;
• including a proportion of intermediate rent or low-cost home ownership within a predominantly social housing development;
• cross-subsidising development costs with income-generating activities such as the Feed-in Tariff scheme ¹⁷ ;
• making use of joint ventures and special purpose vehicles in order to partner with other bodies and organisations; and
• driving down running costs through efficiency initiatives, such as modern procurement methods ¹⁸ and cost benchmarking.

48 Justifiable increases in rents can also help to generate additional funding for development. This was recognised by a number of responses to the discussion. However, respondents also emphasised the importance of affordability, and we are committed to social rents at levels that are affordable for those on low incomes. It is up to individual landlords to strike the best balance between rent levels and meeting the housing needs of the local communities, but rents should not be increased without regard for the importance of affordability for tenants.

We discussed if it was fair to use tenants' rent money to pay for new build housing in terms of the Council's prudential borrowing and loan repayments. There was general support for this in recognition of the number of new homes that are required.
West Dunbartonshire Tenants and Residents Organisation

49 We will introduce a new Innovation and Investment Fund, to provide subsidy for the development of new affordable housing in ways which lever in the maximum possible amount of funding from elsewhere. In future we will award funding to those projects which represent the best quality, mix and value for money, taking into account key criteria such as affordability to tenants and fit with the council's Local Housing Strategy. We will make specific allowance for more expensive developments such as housing in remote rural areas and for those with special needs.

50 Initially, we will operate the Innovation and Investment Fund in three streams: one open to councils, on similar lines to our recent Council House Building incentive schemes; one open to housing associations operated in a similar manner; and a third for innovative schemes, which will be open to all sectors, including the private sector, for all types and tenures of affordable housing. In 2011-12, we will invest around £50m through the Fund, and expect to award at least £20m to councils, at least £20m to housing associations, and up to £10m to innovative projects by all sectors, including the private sector.

51 Including the New Supply Shared Equity scheme, the National Housing Trust and the Innovation and Investment Fund, we aim to deliver 18,000 new affordable homes over the next three years.

Further initiatives to support new supply

Empty Homes

52 In 2009, we estimated that there were around 25,000 long-tem empty dwellings across all tenures. Even bringing a proportion of these back into active use would represent an important contribution to effective new supply.

53 Most empty housing is in the private sector and we are funding an empty homes co-ordinator, managed by Shelter Scotland, to run the Scottish Empty Homes Partnership. This aims to help build capacity within local authorities, in their strategic housing role, to bring private sector empty homes back into use. In partnership with Shelter and members of the Scottish Empty Homes Partnership, we will examine the potential for new investment to return empty homes to use as affordable rented accommodation.

54 Our pilot initiative with North Glasgow Housing Association (see paragraph 57) will bring further empty homes back into use, and we plan to roll this approach out to other landlords too, as part of a Scotland-wide strategy. We would encourage other organisations - both private and public - to consider their own approaches to any empty homes they own.

Council Tax Flexibility

55 In addition, we will consult on legislation to allow councils increased flexibility in the amount of council tax they can charge on long-term empty ( LTE) properties. This will encourage owners to bring empty properties back into use, with any additional resources raised as a result of these measures to be invested directly in affordable housing, providing much needed funding for developments, particularly in pressured areas (e.g. Aberdeenshire, Edinburgh, Fife, Highland and Scottish Borders).

56 We estimate that if councils could apply an excess charge on LTE properties, up to £30 million ¹⁹ could be raised annually. Along with the additional resources that these funds could lever in, this could make a significant contribution to affordable housing supply - and support jobs in the construction sector and economy more widely. We expect this to play an important role in supporting a wide range of local authority-led initiatives, including: bringing empty properties back into use; supporting self-build; rural housing enablers; innovative land acquisition models; and new affordable housing provision.

The importance of innovation

57 Successful delivery of the new homes that we need will depend on innovation by housing associations, councils and private sector bodies. We are promoting and supporting a wide range of pilots to demonstrate and test new methods. This paper has already mentioned new supply shared equity supported by central or local Government; rent-to-buy schemes; leasing schemes between social landlords and the private rented sector; and the variants of the National Housing Trust. Among a range of other pilots currently being developed, the following are of particular note:

• Later in 2011 we will launch a pilot for recycling former Housing Association Grant ( HAG). A number of housing associations in Glasgow and Edinburgh have already said they would wish to participate. We will waive the right to recover HAG when surplus properties are sold, allowing the associations to reinvest in new supply instead.
• We will also launch a pilot empty homes initiative with North Glasgow Housing Association. The association will refurbish properties in Possilpark and then either sell them to people wishing to move into home ownership or convert them to intermediate rental properties. Again, we will waive the right to recover HAG when the homes are sold or converted.
• We will also waive the HAG repayment requirement from Hillcrest Housing Association, where social houses will be converted to intermediate rental homes to meet local needs in Dundee. The additional rental income will enhance the association's borrowing capacity, allowing it to invest in new social housing.
• The Clyde Valley Group is developing a proposal which will use equity investment and cross-subsidy between different housing tenures, over the medium term, within a Special Purpose Vehicle. The Vehicle will provide a mix of homes, some for social rent by Clyde Valley as well as homes for intermediate and market rent and properties for outright sale. Equity investment will be required which will be repaid through the sale of some of the properties. The proposal should be suitable to bid for government subsidy.
• The Scottish Borders Council will draw on second homes council tax receipts to fund new developments for social rent by Eildon Housing Association, at Stichill and Newcastleton. To supplement the council's funding package, a small amount of Scottish Government funding has been agreed of around £5,000 per unit. This means that a total Scottish Government contribution of £80,000 will support 16 new affordable homes in areas of high housing need.
• Grampian Housing Association (see page 20) is developing homes for intermediate tenures, without requiring any subsidy.

58 We will work to support these and other pilots, and to roll them out across Scotland once the methods have proven successful.

New sources of funding

59 One way for the sector to minimise its subsidy requirements is to identify more competitive sources of long-term loan finance. We have already secured £70 million in loans to Scottish housing associations from the European Investment Bank. Opportunities for bond investment have also been opened up, as the recent Glen Oaks Housing Association deal illustrates ²⁰ . The very competitive rates on which these funds are provided offer alternatives to conventional bank lending. This demonstrates that capital markets can be accessed with relative ease and without great expense by using a housing finance specialist. We are now working with the sector to identify further funding opportunities such as a Scottish Housing Bond, through which a number of Scottish landlords would jointly access bond finance. We are also encouraging the sector to source alternative funding partners as part of the new approach to investment.

60 To assist with the introduction of new funding options and enable private finance to go further we have amended the 20-year lease and standard security rules. The changes we have made mean that housing associations, local authorities and rural housing bodies are now exempt from the 20-year limits when leasing residential property, and they can opt out of the right to pay back long-term borrowing early if that's what they wish to do. Both of these amendments make innovative leasing arrangements and the provision of long-term bond finance and pension fund or institutional investment real options for the sector.

61 Our next aim is to open avenues for large-scale pension fund investment in affordable housing. Social housing offers a long-term, low-risk secure investment, generating a predictable and rising flow of income from well-regulated landlords. This presents an ideal opportunity for pension fund and institutional investors to enter into the social housing sector using index-linked investments or more traditional bond finance.

Affordable homes without subsidy - Grampian Housing Association

Grampian HA has been providing high quality homes for rent and owner occupation across the Grampian area for 35 years. Having developed a sound understanding of the local market, the association concluded that it was possible to develop a financial model that could fund the building of new housing without additional Scottish Government subsidy.

In November 2009 the association opened its first private finance project in Stoneywood, Aberdeen. The development provides 42 homes, 35 on a shared ownership basis and seven for intermediate rent, two of which are adapted for wheelchair use.

Grampian HA believes that there is potential to fund more housing in this way and cites the following guiding principles:

• recognising the need to develop a profit or equity surplus on the building of the new houses;
• harnessing the real growth in property values over a 20-30 year period through equity release;
• taking a long-term view on viability and return so that short-term revenue deficits are offset against longer term surpluses; and
• recognising the value and role that different housing tenures can take in different people's lives and at different life stages.

62 Our discussions with pension funds, to encourage them to invest in social and affordable housing in Scotland, are progressing well, and by 2013 we expect to establish one or more pilots involving the use of pension fund investment. Initially it is likely that this will be in the form of loans through bonds, but there is also a strong case for equity funding from pensions through special purpose vehicles, and we will continue to pursue this option too.

63 Together with traditional loans, these new approaches will provide a menu of alternative sources of finance, but the competitiveness of all these approaches remains dependent on market fluctuations. A national Housing Investment Bank would provide a further alternative and help protect the flow of funding for affordable housing from any future difficulties with lending markets. We intend to establish a Housing Investment Bank within this decade.

64 The UK Government has committed to give the Scottish Government borrowing powers by 2015, and this will provide new opportunities for supporting capital developments, whether in housing, infrastructure or other projects.

Building sustainable places and neighbourhoods

65 Delivering quality homes and neighbourhoods supports long-term economic prosperity. The quality of our everyday environment is determined not just by the individual buildings that we occupy, but by the spaces and streets that link them together. The success or failure of housing developments often depends on whether a neighbourhood feels like a "place" rather than simply a collection of roads and buildings. Compact, well-designed and well-connected neighbourhoods can provide opportunities for healthy, sustainable lifestyles, where we can access our daily amenities and contribute positively to a vibrant and active community.

66 The principles of placemaking are set out in our design policy documents Designing Places ²¹ and Designing Streets ²² . Designing Streets represents a fundamental shift in approach, away from car-based layouts towards more connected and sustainable street patterns. This shift has the potential to deliver benefits for health, carbon reduction, local and regional economies and social capital as well as providing a positive sense of place and attractive environments. To support the creation of good places, we will engage with and support local authorities and industry on key issues such as the Designing Streets policy and the creation of sustainable communities through a broad place-making agenda. In addition, from 2011, we will introduce a new category for innovation in the annual Saltire Society Housing Design Awards, to recognise and promote new thinking in design.

67 As we know from past experience, compromising on quality can lead to future failures and the high cost of correcting defects in design, construction or layout. We must create places which will stand the test of time and provide attractive and successful neighbourhoods for generations to come. Programmes such as the Scottish Sustainable Communities Initiative ( SSCI) and last year's Housing Expo in Inverness have provided good examples of new and regenerated development (see page 23). Much of the new housing and neighbourhood design in the Urban Regeneration Companies ( URCs) demonstrates the value of investing in quality places.

More energy efficient new housing

68 Over half a million new dwellings could be constructed between now and 2050, making up 20% of all homes in 2050. These homes need to be as energy efficient and low carbon as practical. Our strategy for progressive enhancements of energy standards in Scottish building regulations is based on the Sullivan Report (2007) ²³ . New standards came into force in October 2010, and new homes need to be more energy efficient and emit around 70% less carbon dioxide than those built to the standards that existed in 1990. We will carry out technical reviews and further research on the cost of improving standards, as further enhancements are proposed for both 2013 and 2016.

69 More innovative approaches and solutions are now emerging. Techniques for achieving highly efficient or carbon-neutral homes were well demonstrated at Scotland's Housing Expo which emphasised a way forward based jointly on master planning, lifestyle, passive energy techniques, and new building technology, pointing the way to improvements in quality without increases in life-time costs. In addition, many housing associations and house-builders are already beginning to explore the use of the more advanced construction approaches, materials and technologies which will deliver significant environmental benefits. Such approaches will become more widespread over the coming years, delivering benefits for individuals and businesses, and helping to realise our ambitions to tackle climate change. We will carry out an evaluation of Scotland's Housing Expo, in order to extract maximum value and learning from the project, including an investigation into the potential for a further housing expo in the future.

Tenants should be involved in consultations on the input and design of homes. It will be important that the homes fall in line with the Climate Change (Scotland) Act 2009. The homes should be fit for the 21 ^st century and beyond. Homes should have a lifespan of more than 60 years.
Edinburgh Tenants Federation

Regeneration

70 We will continue to support our Urban Regeneration Companies, with priority investment in the Clyde Gateway, given its importance to the delivery of a successful Commonwealth Games. And we have established a £50m JESSICA (Joint European Support for Sustainable Investment in City Areas) Holding Fund in Scotland. The Holding Fund has been jointly financed by the Scottish Government and the European Commission and will provide repayable investment to revenue generating projects within eligible areas. The JESSICA fund is expected to lever in significant co-financing from both public and private partners.

Scotland's Housing Expo - Inverness

Scotland's Housing Expo, which took place in August 2010, was the first event of its kind in the UK. Based on a successful Finnish model, the event showcased over 50 architect-designed homes, set in four unique zones featuring innovative construction and cutting edge sustainable systems.

The master plan for the Milton of Leys site on the edge of Inverness breaks the mould of the cul-de-sac sprawl of the typical housing estate. The streets of the Expo site are a focus of activity - well used and pleasant spaces which suit 21 ^st century living where many people will be working from home, where health and fitness are integral and the varying needs of families are taken into account.

The Expo has been a notable success in raising awareness of innovative housing design and encouraging new thinking around construction techniques, supply chains, low energy design and layouts. The houses on display have demonstrated the effectiveness of passive energy measures (high thermal mass, form and orientation), with predicted annual heating costs as low as £73 for a 2 bedroom semi-detached house.

71 We are working with the Commonwealth Games Organising Committee and Glasgow City Council to deliver a high quality sustainable neighbourhood in the East End of Glasgow - initially to provide the Commonwealth Games Athletes Village, but subsequently to become an exemplar new community of 300 homes for social rent, 100 for intermediate tenure and 300 houses for sale. This development will bring about the transformation of one of the most deprived areas of Glasgow.

72 With Glasgow Housing Association and Glasgow City Council, we will support the transformational regeneration of key areas of the city, building on the experience of successful partnerships between public and private sectors such as the Crown Street Regeneration project in New Gorbals. Working with the private sector, the Transformational Regeneration Areas partnership will seek to maximise the value that can be realised through an integrated and long-term approach to development and regeneration, and will aim to deliver high quality neighbourhoods together with opportunities for economic and community development.

73 Funding regeneration in the future will be challenging, and we will need to make some tough choices. We are keen to hear about new ideas and approaches, and we will shortly be launching a national discussion about regeneration policy. This will generate debate and innovation and help inform the future direction of regeneration initiatives.

Independent living

74 We want to ensure that older people and disabled people can live independently in their homes safely and securely, and lead fulfilling lives, with the same sort of opportunities as everyone else.

75 A focus on individual needs matters but targets can still be helpful locally. Glasgow City Council, for example, has adopted a target for 10% of all new build homes to be fully accessible. We will encourage all local authorities to set similar local targets, based against the assessment of need and demand in their area, and to ensure through their Local Housing Strategies that sufficient fully accessible properties are built to allow disabled people more freedom and choice over where they want to live.

76 It is unacceptable that one in five disabled people or people with long-term health problems who require an adapted house lives in a house that is "not at all" or "not very suitable" to their needs. ²⁴

77 In 2007, revisions to Scottish building regulations introduced a range of measures to improve accessibility and ease of use in new homes. As the building regulations apply to all new domestic buildings, across both public and private sectors and all tenures, this will significantly increase the rate at which housing is delivered that is both more immediately accessible and better suited to adaptation to address the varying needs of householders. In this respect, Scottish building regulations are considered the most demanding in the UK.

78 Even in these challenging financial times we must do more to ensure that everyone can live in accommodation that meets their basic physical needs, and to prepare for the demographic challenges ahead.

79 That is why we are introducing a new Change Fund (of £70m in the first year, within the NHS budget), to promote a shift in the balance of care for older people from institutional to community settings. This is a powerful signal of our intention to encourage Community Planning Partnerships to make the most effective use of combined resources for the care and support of older people. We expect the role of housing-related services to be considered carefully when Partnerships decide how to make best use of the new Change Fund. Extra care housing, sheltered housing, housing support, care and repair and housing adaptations can play a vital role in helping to sustain independent living, and can reduce the risk of avoidable hospital admissions or delayed discharge.

The group agreed that spend in relation to housing could provide a big saving in community care. [In the case study discussed] a disabled woman would not need 35 hours of care if her house was adapted for her to live independently.

The Scottish Government should explore the centralisation of budgets in relation to housing, social work and community care so that spending can be co-ordinated to ensure the best result for the disabled person and the most effective use of funds.
Housing Discussion seminars hosted by Capability Scotland

80 We will also build quickly on the foundations laid in our Wider Planning for an Ageing Population report ²⁵ . In addition to taking forward the many practical measures recommended in the report, we will:

• publish a national strategy on housing for older people in 2011;
• develop a national register of accessible housing for disabled people;
• simplify arrangements for the public and housing providers to access funding for adaptations;
• ensure the needs of disabled people and older people are better reflected within national and local planning and housing investment processes; and
• build on the introduction of the new Change Fund and work with local authorities and the NHS to ensure that the housing, health and social care needs of individuals are addressed more holistically..

81 In ten years time we expect to see a Scotland where:

• the proportion of housing which is accessible for disabled people has increased significantly, giving more choice about where to live;
• every older person and disabled person can easily get adaptations made to their homes when they need it, without being subjected to excessive waiting times;
• every older person and disabled person has the opportunity of a housing "health check" at key stages of their lives, offering good personalised advice on the housing options and opportunities available and practical help with securing appropriate services or, if necessary, moving to more appropriate accommodation; and
• anyone who needs support to maintain independent living receives it, so that Scotland is recognised as a world leader in integrating telecare alongside more traditional housing support, care and repair and home care services, which will remain vital in easing social isolation as well as offering practical support.

Actions

We will make shared equity a permanent feature of housing policy, with continued investment, building particularly on the New Supply Shared Equity with Developers scheme. In 2011-12 we will invest £5m in a second phase to subsidise a further 220-250 new properties for shared equity. We will explore alternative funding sources for shared equity, including from councils.

We will work with private sector developers, lenders and local authorities to develop best practice for rent-to-buy schemes across Scotland.

In addition, we will look to build on innovations such as the package of tailored solutions to support home ownership which is being piloted in the Govan regeneration area, working with Homes for Scotland, credit unions and other organisations to encourage the development of similar approaches more widely across Scotland.

We will establish a self-build initiative for Scotland, by developing a package of advice and support for those considering this option. We will also continue to engage with lenders to ensure there are self-build mortgage products available.

We will work with planning authorities to ensure that they maintain a generous supply of effective housing land in the right places. We will continue to monitor the implementation of our policy, and will actively engage in the development planning process to ensure that plans provide a generous supply of effective housing land.

We will review and update the regulations and guidance on planning conditions and agreements, to ensure that they remain fair and effective, and that they support the development of infrastructure without penalising developers. We have also commissioned research to identify alternative methods of applying development charges, and will progress appropriate action after the report is received.

In summer 2011 we will issue new guidance for local authorities on the appropriate and effective use of compulsory purchase, to free up blocked land to encourage investment, and to facilitate housing and other projects.

We will continue to investigate the scale of developments with planning permission which have stalled, and to consider alternative options for funding infrastructure. In the medium term we will establish an Infrastructure Investment Loan Fund to provide loans to unblock projects which might not otherwise be able to proceed.

We will support housing associations which wish to provide market rental homes as well as intermediate and social lets. By 2014, we want to see many more housing associations and co-operatives involved in this way.

We will help the private rented sector develop, and where funding is required to stimulate growth in leasing arrangements or other innovative activity, we will consider making new catalyst investment available.

Once Stamp Duty Land Tax policy is devolved to the Scottish Parliament, we will change the rules about tax on bulk purchases, to open the way for more large-scale investment in the private rented sector. We will also redesign the tax to make it fairer.

We will work with pension funds and life assurance companies to bring more investment into the private rented sector.

We will support a substantial expansion of intermediate rental properties to complement social rented housing and ease the pressures on it.

We will expand the National Housing Trust through further phases, to help maximise the number of homes that can be delivered.

We will introduce a new Innovation and Investment Fund, to provide subsidy for the development of new affordable housing in ways which lever in the maximum possible amount of funding from elsewhere. In 2011-12, we will invest around £50m through the Fund, and expect to award at least £20m to councils, at least £20m to housing associations, and up to £10m to innovative projects by all sectors, including the private sector.

Including the New Supply Shared Equity scheme, the National Housing Trust and the Innovation and Investment Fund, we aim to deliver 18,000 new affordable homes over the next three years.

In partnership with Shelter Scotland and members of the Scottish Empty Homes Partnership, we will examine the potential for new investment to return empty homes to use as affordable rented accommodation.

We will consult on legislation to allow councils increased flexibility in the amount of council tax they can charge on long-term empty properties.

In 2011 we will launch a pilot for recycling former Housing Association Grant with a number of housing associations in Glasgow and Edinburgh.

We will launch a pilot empty homes initiative with North Glasgow Housing Association.

We will also waive the HAG repayment requirement from Hillcrest Housing Association, where social houses will be converted to intermediate rental homes to meet local needs in Dundee.

We will work to support these and other pilots, and to roll them out across Scotland once the methods have proven successful.

We are now working with the sector to identify further funding opportunities such as a Scottish Housing Bond, through which a number of Scottish landlords would jointly access bond finance. We are also encouraging the sector to source alternative funding partners as part of the new approach to investment.

Our next aim is to open avenues for large-scale pension fund investment in affordable housing. By 2013 we expect to establish one or more pilots involving the use of pension fund investment.

We intend to establish a Housing Investment Bank within this decade.

To support the creation of good places, we will engage with and support local authorities and industry on key issues such as the Designing Streets policy and the creation of sustainable communities through a broad place-making agenda.From 2011, we will introduce a new category for innovation in the annual Saltire Society Housing Design Awards, to recognise and promote new thinking in design.

We will carry out technical reviews and further research on the cost of improving requirements for energy efficiency in the building standards for new housing.

We will carry out an evaluation of Scotland's Housing Expo, in order to extract maximum value and learning from the project, including an investigation into the potential for a further housing expo in the future.

We will continue to support our Urban Regeneration Companies, with priority investment in the Clyde Gateway, given its importance to the delivery of a successful Commonwealth Games. We are working with the Commonwealth Games Organising Committee and Glasgow City Council to deliver a high quality sustainable neighbourhood in the East End of Glasgow.

With Glasgow Housing Association and Glasgow City Council, we will support the transformational regeneration of key areas of the city.

We will shortly be launching a national discussion about regeneration policy.

We will also build quickly on the foundations laid in our Wider Planning for an Ageing Population report. In addition to taking forward the many practical measures recommended in the report, we will:

• publish a national strategy on housing for older people in 2011;
• develop a national register of accessible housing for disabled people;
• simplify arrangements for the public and housing providers to access funding for adaptations;
• ensure the needs of disabled people and older people are better reflected within national and local planning and housing investment processes;
• build on the introduction of the new £70m Change Fund and work with local authorities and the NHS to ensure that the housing, health and social care needs of individuals are addressed more holistically.