A steady new build market drives land demand, but planning constraints and costs limit supply. Easing policy and SME support could stimulate activity and help tackle Scotland's housing emergency
A cautiously optimistic new homes market
Scotland’s new homes market remains cautiously optimistic, with an improvement in site visitors and stable sales rates compared to the end of last year.
Meanwhile, the number of net agreed sales across the wider Scottish market increased by 4% from January to May 2025 compared to last year, according to data provider TwentyCi.
Steady mortgage rates enabled this uptick, with the Aberdeen area and commuter areas in the Central Belt outperforming the Scotland figure.
Mortgage lending challenges
Despite stable rates, challenges around mortgage lending are a major constraint on new build demand, where customer sentiment is fragile and is often impacted by the navigation of the mortgage application process and the sale of a dependent property.
Indeed, some of the main challenges facing new build buyers are mortgage terms as well as delays and chains, according to NHBC statistics. Moreover, a high level of available second hand stock presents additional competition to the new build market.
Incentives remain essential
A significant rise in lending rates following the September 2022 mini budget led to a wide range of incentives being offered (mainly from volume housebuilders) to support new build sales rates. However, small and medium-sized developers (SMEs) have struggled to match similar levels of incentives, due to limited profit margins.
Whilst the use of sales incentives has eased in recent months, according to NHBC statistics, behind the scenes, they are an essential tool to facilitate deals, especially for completed homes.
Buyers generally expect to have specification upgrades included in the overall purchase price, rather than being an additional cost, due to mortgage affordability. This includes flooring, appliances and incentives, such as contribution towards Land and Buildings Transaction Tax.
Evolving priorities
Our most recent client survey shows that the commitment to move home has picked up, however personal income is a dominant concern. According to the survey, gardens are a major priority for those looking to move home.
Interestingly, there is less demand for a study or place to work as employees return to the office. Such rooms are typically part of a new build home with a detached garage. However, there is now a preference for homes with an internal garage, providing an option to convert. Our survey also shows buyers prioritising kitchens and nearby amenities, with demand for turn-key properties. This bodes well for the new build market.
Demand for family home sites
A steady, albeit sensitive, new build market has supported confidence among land buyers, led by volume housebuilders for two-storey family home sites in commuter locations surrounding the main cities.
Residential developments are currently facing significant viability challenges, with many consented sites unable to proceed
Faisal Choudhry, Director, Residential Research
Constraints and costs squeeze supply
Efforts to increase supply and meet new build demand continue to be hindered by planning delays and build costs, according to NHBC statistics.
Planning constraints
Scotland’s National Planning Framework 4 (NPF4) has had a profound impact on housing delivery. NPF4 Policy 16(f) states that only applications on land allocated for housing will be supported, except in some very limited circumstances. We are now in a period of flux where new NPF4-compliant local plans are a few years away but existing local plans are outdated, with a limited supply of deliverable sites.
The Court of Session’s decision relating to an unallocated greenfield site in West Lothian (which dealt with appeal decisions of windfall sites on the basis of a lack of deliverable housing land supply) sided with NPF4, further constraining future supply. However, we are starting to see a few planning approvals from local authorities in Falkirk and West Lothian for windfall sites, due to recognition of Scotland’s housing emergency that was declared in May 2024.
Further delays in the planning process relate to NPF4’s ‘Town Centre First’ principle. This means that developers are expected to demonstrate that a building’s existing use is no longer viable and a change of use, such as residential, would add to the viability and vitality of the area.
Cost of delivery
Residential developments, especially flatted developments in parts of Edinburgh and Glasgow, are currently facing significant viability challenges, with many consented sites unable to proceed. This is largely due to construction and labour costs, planning gain requirements and development finance. Whilst Scottish house prices have risen by 4% in the last three years, build costs have increased by 14% over the same period, according to the BCIS All-in Tender Price Index. Further cuts in interest rates have the potential to improve viability, although recent cuts were largely absorbed with ever-increasing costs.
Policy uncertainty
A year on from the announcement of the housing emergency, recent signals from the Scottish Government are encouraging. This includes the appointment of 18 new Scottish Government planners, assistance to local authorities with additional capacity and expertise, further consultations on mechanisms to accelerate house building and removing barriers on stalled housing sites to deliver up to 20,000 new homes.
However, the introduction of a new Building Safety Levy has the potential to exacerbate development viability. Meanwhile, a consultation on how powers within the Housing (Scotland) Bill could be used to exempt certain types of properties, such as the emerging Build to Rent (BTR) sector, from rent control is currently underway. However, a Scottish Parliament committee decision to extend rent control powers to include Purpose-Built Student Accommodation has further serious implications for investment in Scotland’s housing sector.
Targets under pressures
Planning applications and completions of new homes have fallen for a second year in a row as a consequence of supply constraints.
Fewer planning applications
In the financial year 2023/24, there were 77 major housing development applications determined in Scotland, compared to 97 in 2022/23 and 175 in 2019/20. The average time to determine applications that were not subject to processing agreements was almost 60 weeks in 2023/2024. Only a half of applications that were subject to processing agreements were determined within agreed timescales.
There are, however, signs of improvement, with 58 applications determined between April and September 2024, compared to 41 from April 2023 to September 2023, as well as a reduction in the average time to determine applications by 24 weeks.
Housing completions drop
The total number of Scottish housing completions fell by -7% from 2023 to 2024. Social sector completions fell by -22%, following an almost equal cut in the Scottish Government’s Affordable Housing budget in 2024/25. Private sector completions fell marginally by -1%, with an uptick in Edinburgh and Glasgow. However, 20 of Scotland’s 32 local authority areas saw an annual drop.
Target shortfalls
Housing completions across Scotland and Glasgow City over the last two years are 5% and 4% ahead of NPF4’s Minimum All-Tenure Housing Land Requirement (MATHLR), respectively. However, 11 local authorities are behind their targets, with a -39% shortfall in Edinburgh City and a -50% shortfall in Stirling.
Support for SMEs
SMEs have the potential to drive innovation and support the delivery of a broader range of properties whilst complementing the vital work of volume housebuilders in their delivery of homes at scale and pace. According to our analysis, large housebuilders accounted for 70% of registered new build transactions in the 12 months ending March 2025, compared to 42% ten years ago.
A ‘pro-planning’ approach, especially for brownfield sites and listed buildings, would encourage more SMEs to enter (or re-enter) Scotland’s residential development market, attracting investment and accelerating regeneration into urban areas. This could include a proactive approach at pre-application stage to ensure a successful outcome and incentives, such as tax breaks and grants to assist the conversion of listed buildings.
Scarcity of sites driving values
With limited options to secure new consents in the short term, sites with an allocation or planning permission are rare and scarcity is driving value. According to the Savills Development Land Index, values per acre for Scottish greenfield land increased by 5.9% in the 12 months to March 2025. For context, the greenfield land value is the headline price, before deductions for planning gain and abnormal costs.
Edinburgh’s peripheries continue to obtain the highest values, with a 7% annual uplift. The peripheries of Glasgow saw an increase of 12%, with larger sites outperforming. In Glasgow, values offered at recent closing dates have been particularly strong due to limited opportunities. Transactions in the periphery of Aberdeen have been limited, but sentiment has improved and values are holding steady.
Higher costs impacting net land values
Despite positive figures, in reality, net land receipts are under pressure due to the impact of higher costs and increasing planning gain requirements from local authorities. This is especially the case for urban sites, where values fell by -8.4% in the 12 months to March 2025.
Conclusions and recommendations
Scotland's new homes market stands at a critical juncture. The commitment to move to a modern home that offers outdoor space and access to amenities has improved. However, economic uncertainty is likely to mean the continuation of a price-sensitive market, with activity dominated by needs-based buyers and sellers. The prospect of future base rate cuts points to a more competitive mortgage market, which should support activity over the medium term.
Competition for suitable sites
Demand for development land is also strong, yet supply constraints and financial pressures continue to stall progress. Competition and values will continue to be underpinned by a shortage of deliverable, allocated and consented sites, with housebuilders prepared to consider secondary locations and even sites with technical challenges.
More clarity required
Given a housing shortfall in many areas, clarity from the Scottish Government to make the housing emergency a material consideration in planning decisions, until such a time that Local Authorities have their new Local Development Plans in place, would help unlock much-needed housing land.
A pragmatic view
Scotland’s Local Authorities can further support the viability of future housing developments by taking a more realistic and pragmatic view of planning gain contributions. While infrastructure and community benefits are essential, rigid financial demands risk, making many projects unfeasible. A balanced approach that aligns contributions with economic realities can enable developers to play their part in delivering the essential new homes Scotland needs.
Tackling the housing emergency
Volume housebuilders will continue to be the most active players in the land market. However, more certainty and financial support for SMEs and an easing in policy constraints, particularly around site viability and rent controls, would have the potential to stimulate more activity from SMEs, investors and BTR developers to help tackle Scotland’s housing emergency.