Winter is coming for the Scottish social and affordable housing movement in more ways than one.

There are multiple head-winds currently facing the sector. These include financing cost uncertainty and a potential squeeze on the availability of finance, inflation costs impacting on supply chain risk and, most recently, a rent freeze. All these impact on the ability of housing providers to budget and business plan which in turn is bound to impact on the ability and appetite to undertake new build development.

It is worth perhaps saying a few words on each.

Financing cost pressure

The recent jump in base rate, and general finance market volatility, has already pushed up short and long-term borrowing costs. There is no indication that this will not continue in the short to medium term. This will put pressure on housing providers either looking for new finance or refinancing/rolling over existing debt on its maturity. What is clear is that the cost of such debt is likely to increase.

Credit decisions are also likely to be tougher making the availability of debt more difficult to source and, what is available, is likely to be more expensive.

Of course, many housing providers hedge their interest positions which may help counter-balance the increase in debt cost but for many developer led housing providers, there is likely to be a significant floating rate element and associated challenges around maturing hedging positions that need to be renewed.

It may be that we will see new entrants coming into the sector looking for a relatively safe haven for their debt finance, but this is uncertain and any associated finance is likely to have at much higher rates than the sector has been traditionally used to seeing.

Further pressure on the sector may come in the form of English providers struggling due to pressure associated with reliance on market sales. Pressure on sector credit ratings will be likely to impact generally on funders' and investors' view of the sector and again impact negatively on the cost and availability of finance.

Inflation costs

The sector has already been struggling with high construction cost inflation. The increase in general inflation and likely continuance of higher rates into next year and potentially beyond will exacerbate the position. Housing providers not only need to be looking at their own position but also the potential impact on their development supply chain, with increased risk of contractor and sub-contractor default. Managing and spreading this risk is likely to be a key focus for many housing providers.

For housing providers reliant on section 75 social/affordable housing supply, the risk will be enhanced as the development pipeline for such providers will depend on the solvency and continued appetite of private developers to deliver new developments. In turn that will depend on the demand for private housing and the availability and affordability of mortgage finance for owner occupiers.

Rent freezes

Topping off other pressures facing the sector we also now have the impact of what will become The Cost of Living (Tenant Protection) (Scotland) Act 2022, applying a 0% rent cap until end March 2023 and no indication as to what is to apply thereafter. In practice, this will make budgeting for business planning purposes extremely difficult, and, logically, this is bound to impact negatively on the ability to deliver new housing development.

A new approach

This of course all comes at a time when the sector is facing numerous other issues including addressing the cost-of-living and fuel poverty pressures on their communities, the continued focus on safety and the long-term decarbonisation of existing stock. Helping to address homelessness of course is also still a huge issue for many housing providers.

The urgent demographic demand for new housing has not gone away. If however there is not to be a very significant impact on the delivery of new housing, we need to be urgently seeking alternative approaches to its delivery and it would be hoped that a joined up approach between the private sector, the social housing movement and government could be developed for the purpose of its delivery in the current economic climate.


Chris Dun