There is an urgent need to increase the level of quality, affordable housing across the UK. Currently nearly 8 million people are in housing need, ranging from people who are homeless to those unable to afford to buy or rent in the private market. Hence, we see investing in affordable housing as a core PBII pillar.
There has been a rapid rise in institutional investment in social and affordable housing over the last few years bringing equity into the sector. Recent research commissioned by the Impact Investing Institute found that the social housing sector provides attractive riskadjusted opportunities for both equity and debt investors. Social-rented property generates cashflows that can provide investors with effective risk diversification that is decorrelated from wider economic trends, especially compared to commercial property trends. Occupancy rates are high with less than 1.5% of stock vacant over the last five years which underpins stable income streams and high quality cashflow fundamentals.
Specific LGPS investments in social and affordable housing include:
- In November 2020, Teesside Pension Fund committed £5 million to the Ethical Housing Company, which operates in the Tees Valley, and provides affordable homes to families in need. That is both a place-based investment and an impact housing investment.
- In December 2020, Greater Manchester Pension Fund committed £10 million to the National Homelessness Property Fund, managed by Resonance. That fund will also focus on Greater Manchester, at least initially.
LGPS funds have also invested in social and affordable housing funds including CBRE UK Affordable Housing Fund which invests in a range of tenure types and Civitas Social Housing and Triple Point Social Housing REITs which invest in specialist supported housing. While these are national funds, there is engagement with local authorities from identifying sites to participating in Section 106 bids. Also most funds have lease agreements with local housing associations who manage the properties and provide tenant services.
Homes England takes a place-based approach and is an important partner to institutional investors. It helps unlock land, funds infrastructure and invests in new investment products that can raise institutional capital at scale.