Convention of Highlands and Islands
Housing and Infrastructure: Policy
Introduction
The issue of housing and infrastructure and its impact on the economy have been a core challenge to all the
Highland and Island local authorities for decades. The benefits of building new homes to sustain and
enhance communities whilst creating new jobs, sustaining employment and training opportunities are
essential in many rural communities
Scottish Government research indicates that the construction industry contributes 10% of the Scottish GDP
and employs 5.4% of the Scottish workforce. The majority of construction projects in the Highlands and
Islands are housing and infrastructure related. It is estimated that every 100 new houses creates 80 new jobs
directly and 40 new jobs indirectly.
The Highlands and Islands need high quality housing to retain its existing families in the area and attract new
ones from elsewhere to enable local authorities to sustain schools and other local services in the rural areas.
The overall level of housing investment in the Highland Council local authority area alone over the last 10
years is estimated to be in the region of £1.56 billion. Confederation of British Industry’s report on
Unfreezing The Housing Market details that every £1 invested in construction creates a total economic
activity of nearly £3 for the local economy. Furthermore, there is significant evidence from businesses that a
lack of high quality housing acts as a barrier to economic investment in the area.
Based on National Records of Scotland projections around 450,000 extra homes will be need in Scotland by
2033.From Local authority housing need analysis there is an overall requirement to build over 3700 new
homes annually in the Highlands and Islands based on population projections. In the Highland council area
there is need for 1600 new homes per annum whilst the annual build rate is on average under 1000.
Constraints
There are many reasons for the difference in supply and demand and these vary between local authorities
and individual towns and villages.
Due to the large geographical area of the Highlands and Islands and its topography, the transport
infrastructure is a significant constraint to new housing development. For the Island Authorities in particular,
transport costs are a major issue (both surface and air travel) for bringing materials from the Mainland to the
island areas. Inter-island travel is also a constraining factor resulting in higher development costs for remote
islands.
The difficulty of servicing potential sites also presents significant challenges. Water supplies are at capacity
in many rural areas or require substantial investment, whilst ensuring an adequate, safe sustainable
sewerage system can prove difficult, particularly in rural areas where the numbers of new homes will be low
compared to the investment in infrastructure required. Any new housing development must offset potential
flooding risks rather than adding to the problem.
Many urban and rural areas require significant levels of regeneration funding to attract new businesses to
the area. In The Highland Council area the use of Vacant and Derelict funding from the Scottish Government
has been successful in regenerating Lower Pultneytown in Wick, creating new business units in the deprived
area of Merkinch in Inverness and tackling excessive infrastructure costs on redeveloping brown field sites
for housing.
The high cost of delivering new housing in the Highlands and Islands due to the infrastructure costs, site
conditions, rurality and small nature of many developments make investment in housing unattractive to
many developers, particularly in rural areas and due to the relatively low value of housing in the Highlands
and Islands. There is little or no speculative housing demand in the Outer Hebrides, the West Coast of the
Highlands and other rural areas.
Despite having the lowest housing density levels in the whole of Britain and amongst the lowest in Europe,
there is a lack of economically deliverable land in the Highland and Island area. Mainly for the reasons listed
above and also due to the nature of the ground; for example ground conditions in Lochaber are either rock
or peat or both. A recent social housing development on the Isle of Harris had substantial build costs due to
the site requiring blasting through rock, but was the only suitable site in the area that could be developed to
meet the housing need.
The lack of available finance, both public and private has had a significant impact on house building.
Speculative house building has reduced even in areas of significant high demand.
Traditionally self-build and bespoke individual house build in the Highlands and Islands has accounted for up
to 50% of all new builds. One of the biggest impacts has been the lack of development funding for self-build
projects. Mortgages are now only available once the building is practically complete.
The National Parks, both Cairngorm and Loch Lomond, have specific issues in delivering new housing which
are often in conflict with their overall aims to conserve and enhance the natural and cultural heritage of the
area. Developers find it more difficult and have to allow for longer timescales to obtain planning permission
inside the Parks than other areas.
Housing associations have delivered the majority of new affordable housing over the last ten years.
However; they have limited their development programmes due to the difficulties in raising private finance
set against lower grant rates, limited reserves and issues of risk. Nevertheless, more housing could be
delivered through organisational efficiencies, cross-subsidy and reassessment of rents, coupled with a more
flexible approach by the Scottish Housing Regulator.
Current Actions
The Highland and Island authorities are trying to tackle the housing shortages in their areas. The ethos is
based on partnership working with the Scottish Government; local housing associations and trusts, the
private sector; and statutory authorities, working together to identify housing need, potential sites,
constraints and solutions.
The Highland Council has prioritised all surplus land for affordable housing in areas of housing need, whilst its
affordable housing planning policy has delivered over 1000 new homes. Comhairle Nan Eilean Siar offers
surplus land and property in the first instance to the local RSL and has transferred sites at nominal values as a
contribution towards development costs.
The use of a revolving land bank facility has enabled the Highland Council to acquire and develop in urban
and rural areas. For example; the Council has forward funded a large mixed tenure development in
Inverness delivering 90 new houses comprising of social rent, NHT and private housing. It has also purchased
two former derelict hotel sites in Ullapool whilst part funding other high cost rural projects.
The Landbank Fund is also used to part fund community led housing projects, such as Helmsdale and
Lochaline where the communities have come forward with specific proposals to deliver bespoke solutions.
The Highlands Small Community Housing Trust is exploring a revolving loan fund from the Scottish
Government to tackle the issue of lack of development finance for rural self-build projects. Under this
proposal individuals would obtain development loan finance repaid when the houses are complete and bale
to obtain mortgage finance. Currently with Scottish government support HSCHT operate a Rural rent to buy
model where individual properties are built and let for 5 years with an option to purchase at the end of the
period. This has been successful in meeting rural housing need. Comhairle Nan Eilean Siar is also currently
considering a Rural Rent to Buy scheme. Orkney Council is supporting island development trusts and
considering building serviced house shells foe onward sale to self builders.
The Highland Council is working with CITB and local developers to create a shared apprentice scheme
whereby a not for profit company is set up to employ apprentices who would be allocated to individual
contracts ,let by the Council and others. This takes the employment risk from the contractor and enables full
training to modern apprenticeship standard to be achieved.
Using funding from the Scottish Government and the Private Sector Housing Grant, local authorities are
bringing key empty properties back into use in town centre locations – e.g. the former Royal Bank of
Scotland’s offices in Inverness, which has recently been converted to three 2 bedroom flats. Where empty
properties are derelict and in areas of high demand and the offer of grants and loans does not entice owners
to bring properties back into use, then if empty properties are derelict and in areas of high demand, The
Highland Council has recently made the decision to use its CPO powers to buy the premises and bring them
back into use.
The Highland Council has also used the National Housing Trust guarantee to deliver over 150 new houses in
the Highlands and uniquely by funding the equity share ensures that any surplus at point of sale is reinvested
to create new affordable housing.
From a planning perspective, local authorities in the Highlands and Islands are working closely to ensure that
up to date local development plans are based on generous land supply and ensuring effective pre-application
advice, including early consultation with all the statutory consultees to make sure applicants are aware of
issues as early as possible. The development of local Housing Land Audits are also identifying potential
housing sites to help inform Development Plans and Local Housing Strategies.
Infrastructure loan Funds to local authorities
The biggest single obstacle to deliver new housing in the Highlands and Islands is the cost and ability to
obtain finance for infrastructure to open up major strategic sites.
Developers are still finding it difficult to obtain bank finance for infrastructure works and so the Scottish
Government’s Infrastructure Loan Fund is a welcome innovative approach to try and assist housing
developers overcome this issue. However, developers have been reluctant to use this facility due to either
particular site issues or lack of confidence of when the loan finance, which is at commercial rates, would
have be repaid due to uncertainty over sale forecasts. Whilst the Help to Buy initiatives have helped install a
certain level of confidence in the market, there is still nervousness on the part of private developers of
entering into substantial loan finance for sites which may not be fully sold for several years.
The Scottish Government sought initial expressions of interest from developers for accelerating housing
building in pressured market areas and The Highland Council arranged an informal meeting with developers
to discuss the initiative. There was interest from developers for up-front funding for small and medium size
schemes such as city centre developments. However, there was a reluctance to use the opportunity of loan
finance to fund the necessary major infrastructure costs associated with the major strategic sites in the area.
The main reason for this uncertainty was the length of time the developers would face before they could
repay the loans; again due to the commercial terms of such loans and uncertainty over repayment
timescales.
An alternative solution could be to allow local authorities to bid for loan finance to open up strategic sites in
their area and the Highland Council is very keen to explore the following approach with the Scottish
Government:
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Local authorities would identify the strategic sites in their areas that are currently constrained due
to significant infrastructure costs, such as roads, drainage or flood alleviation. These strategic sites
should be key to the economic expansion of the area.
Loans would be interest free to ensure total infrastructure costs are fixed. Since the loans would be
to meet strategic economic priorities for the area and to the local authority and not the private
sector, it is thought that this would not be in breach of state aid rules, though this would require
formal confirmation.
The infrastructure would enable strategic sites to be opened up and give the private sector the
confidence to deliver the sites. The local authority would set, through Section 75 agreements, fixed
developer contributions for repayment of the infrastructure costs which would be repaid on
completion of the units as they are developed.
The loan fund is subsequently repaid and could be recycled for future strategic sites.
For example: The Highland Council identifies a zoned expansion area of 1000 units in Inverness. The site
cannot currently be developed due to £5million infrastructure works being required. The Council obtains
loan finance and the debt is repaid over five years with a £5,000 infrastructure developer contribution on
each unit completed. Several developers could be involved on a project of this size and nature.
This proposal would require further discussions with the Treasury, as originally the loan finance was to be
targeted to the private sector but, given that the loans could be repaid quicker than those under the Help to
Buy initiative, this obstacle may be overcome.
Housing Debt
The Highland and Island authorities welcome the decision to contribute funding to tackle Shetland’s housing
debt due to the historical national economic nature of the investment. Comhairle Nan Eilean Siar has already
had its total Housing Debt written off as part of its Stock Transfer initiative, and the freeing up from this
constraint has had a positive impact on the local housing system of the Outer Hebrides. Highland Council
looks forward to positive discussions with other local authorities who have invested in council housing for
similar reasons. For example; The Highland Council house building in Easter Ross associated with the Nigg
Fabrication Yard and in Lochaber, housing associated with the aluminium and hydro–electricity industries.
Any funding could be used for infrastructure funding for strategic sites.
Other solutions
Working with HIE, local authorities could identify priority areas for economic investment and build new
houses ahead of demand to attract new businesses. Whilst they would have to accept initial higher void
periods, this could stimulate economic activity in the priority areas.
The Highland Council and Orkney council like many local authorities, are investigating sustainable off-site
fabrication to speed up construction, reduce energy bills, carbon footprint and capital costs. The Council is
commissioning a prototype with JNE to build one and two bed POD housing which will provide new energy
efficient homes at 10% below traditional costs with greatly reduced build periods and running costs. If
successful, this could result in a new factory being opened in the Highlands.
Housing investment needs to be closer linked to economic strategies and priorities through closer and better
working with HIE and the private sector, including the building of working from home flexible units and
tackling the improved broadband fibre to premises as standard throughout the Highland and Islands for
improved connectivity.
The proactive use of CPOs to bring more empty properties back into use should be promoted once all other
avenues have failed.
Local authorities should consider lending to RSLs who have proved to be maximising their resources in order
to increase the overall delivery of housing.
From a planning perspective, local authorities need to continue to improve their enabling role to attract
developers to take risks. We need to be proportionate in developer requirement by offsetting or delaying
payment of developer contributions and consider accepting more impact on existing infrastructure. Local
authorities and developers also need to work together to speed up the planning process. This is difficult due
to the number of statutory consultees and legislative process but local authorities can work jointly to
benchmark/share expertise and services. Too much zoned housing land is currently inactive due to either
landowner over expectations or being held for balance sheet purposes and local authorities need to be more
proactive in the de-zoning of land if land is not being developed..
Summary Recommendations
Sustained Housing Investment is essential to the economic growth of the Highlands and Islands and housing
Investment has to be tied into economic, training and transport strategies. To improve investment and
supply, the following approaches should be actively considered:
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The use of infrastructure loan funds direct to local authorities to open up strategic sites ;
Housing debt contributions related to national economic expansion should be considered for other
local authorities;
Jointly promote pilot off-site fabrication projects which can reduce costs and carbon footprint.
Work with the private sector and partners (National Park Authorities, Housing Associations, HIE,
Scottish Government) - to identify priorities, streamline processes and maximise opportunities