Regulator highlights risk of ‘systemic failure’ in Scottish homelessness services

The SHR stressed the importance of social landlords having good-quality data on their performance, their compliance with obligations and the condition of their homes. It continues to find that some landlords have not reported their compliance with the Scottish Housing Quality Standard (SHQS) accurately.

On homelessness and temporary accommodation provision, the report said demand for support “continues to exceed some local authorities’ capacity to respond. Some are already at, or close to, the limits of what they can deliver. This is what we mean by systemic failure.”

The SHR will engage with two local authorities at risk of systemic failure and a further nine that are at “heightened risk of being impacted by systemic failure”.

Its report also highlighted that there has been a “significant rise in both the number and proportion of homes allocated to people experiencing homelessness”, with landlords collectively letting nearly half of all properties to such households in 2024-25.

The risk assessment found that most social landlords “continue to perform well” in either maintaining or improving performance against the Scottish Social Housing Charter, despite “difficult economic conditions”.

But the SHR said the “very recent economic uncertainty and volatility” as a result of conflict in the Middle East risked creating a “more challenging operating context for social landlords, and hardship for some tenants and service users”.

The regulator’s recent analysis of financial statements found that social landlords’ surplus rose 37% in 2024-25, while interest cover recovered to 237% from the previous year’s historic low.

However, the SHR said a number of registered social landlords “continue to face significant financial pressure” due to sustained investment requirements, rising maintenance expenditure and ongoing reductions in cash reserves.

The report said: “Lower interest rates, compared to the 2023 peak of 5.25%, had provided some relief for landlords with variable‑rate borrowing or new financing requirements. 

“However, renewed global financial market volatility linked to the conflict in the Middle East has led lenders to increase private borrowing rates, which is expected to result in higher costs for some landlords.”

The SHR also found that some local authorities do not fully comply with their tenant and resident safety obligations, including fire and smoke detection systems, and certification of electrical systems.

It said it will engage with 10 landlords on compliance with Electrical Installation Condition Reports requirements under the SHQS, all of which are local authorities.

“All non‑compliant local authorities must have urgent and credible plans to achieve full compliance. They must do better. We will monitor progress through ongoing engagement and reflect this in their engagement plans,” the regulator said.

John Jellema, assistant director for risk assessment at the SHR, said: “Social landlords and their tenants have faced significant challenges over the past few years, and while most landlords have continued to perform well despite the pressures, significant risks remain. 

“For example, recent instability in the global geopolitical and economic environment is likely to lead to materially higher inflation, higher interest rates and further cost of living challenges for many tenants and service users.

“At the same time, landlords are having to plan for new costs such as the provision of net zero. These financial pressures mean that some landlords will continue to have less capacity to respond to unforeseen or emerging risks and this emphasises the critical importance of good governance.”

Alison Watson, director of housing charity Shelter Scotland, said the regulator’s annual risk assessment reflected “the reality of the housing emergency”.

She added: “We are not building the social homes we need, and the consequences are clear – more local authorities in failure and more people having their housing rights breached.

“As we look towards the [Scottish parliament] election, we refuse to accept the law being broken every single day. Ending the housing emergency is a political choice. Whoever is in government next must offer a new approach, and the new money to match it.

“They must provide local authorities the resources to uphold people’s rights – otherwise, more money will be poured into temporary accommodation while more families are left without a home. We cannot stand by and let that happen. Change is only possible if people demand it.”