The UK continues to experience significant shortages of affordable housing and yet the role of private finance in contributing answers to this need has been under-examined. Currently around 70% of capital raised by Private Registered Providers to invest in social and affordable housing is from private (predominantly debt) financing sources, up from 30-40% in the 2000s. This authoritative report analyses this investment, and investigates the merits or otherwise of including social and affordable housing assets within institutional investment portfolios.
The report was launched at our event which took place virtually on Tuesday 12th October, 10:00-11:00 BST. The event was moderated by Jamie Broderick, Director and Lead Expert at the Impact Investing Institute and featured Nick Colley, Former Director at Property Funds Research who gave an overview of the research findings, followed by a panel discussion from the speakers below and audience questions.
Here are the key messages and action points mentioned during the discussion:
- The supply of social housing has not kept pace with demand historically, and new demands on housing associations for safety remediation and decarbonisation will make the sector increasingly reliant on additional capital from the market, particularly equity capital.
- As this market grows, pension funds are increasingly turning their attention to the social housing sector as a source of index-linked income streams, alongside the more familiar sectors of infrastructure and commercial real estate. The entry of recognised asset managers into the sector, and the expansion of available options, are likely to increase pension fund confidence in the investment viability of the asset class.
- Collaborations between non-profit Registered Providers and for-profit asset managers are very promising, but need to be constructed with full alignment of values, a long-term perspective, and an appropriate allocation of benefit and risk between the parties.
- Social and affordable rents are not driven by market forces as much as by government rent-setting regimes and are typically less sensitive than commercial real estate to changes in the business cycle. The social rented sector in particular shows low and stable vacancy levels and high rent collection rates when compared with retail, office and industrial property assets.
- Debt and/or equity investment in social housing should increase the risk-adjusted return of both multi-asset and real estate portfolios along the efficient frontier, with the greatest impact evident for lower-risk portfolios. Strong credit fundamentals and low correlation with other real estate sectors and the broader economy support an argument that social and affordable housing provides resilient, stable and diversified cashflows and should become an increasing proportion of institutional investment portfolios.
- Social and affordable housing caters for housing need and has the potential to fulfil a key element of the ESG agenda for investors, notwithstanding the possibility of future reforms to regulation of the sector and benefits system.
- As direct equity investment into social and affordable housing grows, there is likely to be significant innovation in operating models, to ensure alignment of interests between operators, investors and tenants.
- Housing associations and asset managers are increasingly focused on explicit delivery of environmental, social and governance benefits, with a particular focus on the welfare of tenants.
You can read the full report here and watch the event recording below.