The average cost of building a new home in Scotland has increased by up to 21% since 2016, research by the Scottish Federation of Housing Associations (SFHA) has found.
A report from the trade body, titled The Cost of Compliance, found that the average works cost per new housing unit in 2020/21 was £134,000 to 138,000, compared with £114,000 in 2016/17.
The research was commissioned by the SFHA ahead of a meeting between the Scottish government and a review group led by the Convention of Scottish Local Authorities to determine whether adjustments are required to the grant rates available under the Affordable Housing Supply Programme.
A number of factors were found to be responsible for the rising cost of development, including the cost of materials and new environmental standards.
For example, the report found that initiatives such as the Glasgow Standard, a design standard introduced for all homes grant-funded by Glasgow Council, is increasing costs by between 5% to 10% and 13% to 15%.
Meanwhile, building to the Passivhaus Standard can add 17.3% to the cost of a typical two-bedroom property.
There is also evidence that the combined impact of COVID-19 and Brexit is putting further pressure on labour and materials costs, the report found.
In addition to the rising cost of development, the report also explored other costs being faced by housing associations, such as investment in existing stock and new regulatory requirements, which are having an impact on the levels of investment available for new builds.
This includes the cost implications of the Scottish government’s Energy Efficiency Standard for Social Housing 2 (EESSH2), which will require social landlords to retrofit all homes to a minimum of energy performance certificate (EPC) of B by 2032.
Landlords that have analysed the cost of EESSH2 estimate that it could add between £7,000 to £10,000 per unit to capital investment programmes, excluding replacement heating systems.
New fire safety requirements for existing homes are also expected to lead to increased costs for housing associations, again impacting the amount of money available for development.
The report comes shortly after the Scottish government published its Housing to 2040 strategy, which included a commitment to develop 100,000 affordable homes over the next 100 years.
Following the publishing of Housing to 2040, Scottish communities and local government secretary Aileen Campbell told Inside Housing that the government “needs to continue to work with the sector around reviewing whether there’s any adjustments required for the current subsidy benchmark levels”.
The grant rate refers to the amount of funding able to be used for each new social home built through government programmes.
Sally Thomas, chief executive of the SFHA, said: “It is clearly right that the Scottish government has introduced higher standards in pursuit of Scotland’s targets for net zero and of course to ensure the safety of tenants, which remains of paramount importance to SFHA’s members.
“However, it is also clear that the grant benchmarks system must be reviewed in order to reflect the additional costs set out in our report, to ensure [housing associations] are able to continue to deliver the safe, warm and affordable homes the Scottish government describes in its Housing to 2040 strategy.
“Grant is an investment in affordable housing, not a subsidy. We do not highlight increasing costs simply to ask for more money, what we are doing is making the case for sufficient investment to allow our members to deliver the affordable housing required to address the backlog of need in Scotland.”
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