Housing policy has been thrown into turmoil after Edinburgh City Council declared an emergency over funding and a court ruled that the Scottish government was acting lawfully in imposing a rent freeze.

Edinburgh council is seeking urgent financial support from ministers to help meet a severe shortage of social rented homes.

It says it can increase the rate of building threefold with a series of “spade ready” projects already lined up.

That translates into more than 11,000 “affordable” homes within five years, either as council homes or housing association properties.

Homes for Scotland (HFS), the body which represents the majority of Scotland’s housebuilders, said it was a “dreadful position” for the city to be in.

Chief Executive Jane Wood said: “The council must look at the consequences of the emerging City Plan 2030, which seeks to deliver fewer affordable homes than the council itself identifies are required.

“This works against the aim of delivering more homes and will actually result in the inequality and affordability issues that are already so prevalent being further exacerbated.”

Scottish Conservative shadow housing secretary Miles Briggs MSP described the situation as “desperate” and said the SNP-Green government need to “wake up”.

In the meantime, in the Court of Session, Lord Harrower ruled that the Scottish Government’s rent freeze was not unlawful and dismissed an appeal by private sector landlords to have it scrapped.

They launched a judicial review claiming they had been “discriminated” against as a result of “unlawful” legislation after rents were initially frozen in September 2022, before a 3% cap was introduced.

The emergency legislation is in place until March 2024, however landlords can apply for an increase of up to 6% in exceptional circumstances.

Lord Harrower ruled the challenge by Lord Neil Davidson KC, acting on behalf of several organisations including the Scottish Association of Landlords, would not be upheld.

Sarah-Jane Laing, chief executive of co-petitioners Scottish Land and Estates, said: “We are understandably disappointed, but, given the negative impact of the legislation on private landlords and the supply of rural homes, we felt that legal challenge was our only option.

“This action was raised in a fast-moving situation amid genuine and widely-held concerns that the Scottish Government was not striking the right balance between the interests of tenants and landlords.”

But the Scottish Greens, whose minister Patrick Harvie brought forward the Cost of Living (Tenant Protection) Act 2022, said families who benefited from the cap will be “breathing a sigh of relief” following the ruling.

Property sector professionals say the rent freeze has imposed severe harm on the sector, leading to £1.5bn of potential investment being lost and forcing developments to be postponed, thereby driving up rents.