Gary Ferris

Scotland’s housebuilding industry stands at a critical crossroads. Years of chronic undersupply have deepened the housing crisis, and while housebuilders across the country are eager to grow and build more homes, they are hampered by a regulatory environment that has undermined investor confidence and stifled much-needed investment in the Scottish market.

A key reason for this situation was the emergency rent caps introduced in 2022, limiting rent increases to 3% annually. Whilst the ambition to protect tenants is well-meaning, these measures have had severe unintended consequences. They stalled new supply, inadvertently pushing up house prices and rents, making both renting and homeownership increasingly unaffordable. This is precisely the opposite outcome of what the Government set out to achieve.

Recent data from Homes for Scotland shows that new house starts have dropped by over a quarter (27%) since 2024 when compared to 2022. This marks the lowest rate of private sector housebuilding in a decade. Equally concerning is data from the Directorate for Local Government and Housing which reveals that local development applications fell to just 22,565 last year, the lowest in five years. These pressures led First Minister John Swinney to declare a national housing crisis, as reduced supply drove up homelessness and record use of temporary accommodation. While the Scottish Government has invested in affordable housing, it has done little over the past year to support private housebuilding – crucial for boosting overall supply.

The decline in housing starts and planning applications highlights how regulatory uncertainty has made the Public Rented Sector (PRS) less attractive to investors. Since the Government announced it would raise the Additional Dwelling Supplement (ADS) rate from 6% to 8% Scotland has become the most expensive part of the UK to be a landlord. The increased tax burden, exemplified by the ADS, has caused many buy to let investors to exit the market. At the same time housebuilders and investors are thinking twice about progressing with rental-led housing schemes, in spite of the clear demand and need for such homes due largely to the reduced financial viability caused by rent controls. Fewer homes are being built, tightening supply and worsening the crisis. With Scottish Property Federation figures showing 693,000 households in housing need, it’s clear that urgent supply-side reform is essential.

Although the 2022 rent controls were phased out earlier this year, relief for housebuilders and investors remains limited. The Scottish Government’s plans to introduce permanent rent regulation via the Housing (Scotland) Bill, expected to take effect in 2027. This would cap rent increases at the Consumer Price Index plus 1%, with an absolute maximum of 6%. While implementation depends on the next Parliament, the mere prospect is already eroding investor confidence.

To encourage long-term investment and ensure a steady development pipeline, housebuilders need a stable environment that supports growth rather than short-term politics. At Close Brothers Property Finance, we are committed to supporting Scotland’s housebuilders in building quality homes throughout the country but access to finance is just one part of the equation.

If the Government is serious about increasing housing supply it needs to work in partnership with the private sector to create a healthy, functioning market that encourages innovation and long-term investment. That means reconsidering the plans to reintroduce rent caps.

I frequently speak to developers who want to build more but are being prevented from doing so due to regulatory overreach. One of our customers, Dr Ali Afshar, co-founder/MD of AMA New Town, said: “We’re ready to build and invest in Scotland’s future, but the viability of new housing is increasingly at risk.

“Burdening housebuilders, particularly SMEs, with onerous regulations means that margins are becoming increasingly squeezed to the extent that houses aren’t being built. This is exactly the opposite of what the government set out to achieve.”

Another developer, Andrew Rennick, managing director of Rennick Property, added: “It is key as a developer focused on urban sites in Edinburgh, that we have a regulatory platform that promotes development, especially in a city with a housing crisis.

“Right now, policy uncertainty – particularly around the Additional Dwellings Supplement, rent control and Section 75 Agreements – is undermining project viability.”

Scotland can address its housing shortage and expand rental supply, but only with a fair and consistent regulatory framework. Developers are ready to deliver – but in order to do so they need a policy environment that works with them, not against them.