This blog, written by Shadi Brazell, our programme manager for place-based impact investing, first appeared in the March edition of the National Housing Federation’s newsletter.
I often describe the place-based impact investing programme at the Impact Investing Institute as the meeting of two worlds – finance and regeneration. But clearly we are not the first at this juncture, which is also firmly occupied by Housing Association finance teams.
This audience can therefore be spared both my evangelising about the importance of high-quality places and the reiteration of the desperate need for social and affordable housing in the UK and the challenges of delivering it, and move straight into an analysis of the potential that genuine long-term and mission-aligned private investors have to contribute answers to this need through direct investment in housing associations.
Research published in October 2021 by the Impact Investing Institute, in partnership with Property Funds Research and supported by Homes England and the Investment Property Forum, demonstrates through thorough and well-evidenced financial analysis that debt and equity investment in social and affordable housing in the UK should become an increasing proportion of institutional investment portfolios.
This analysis is supported by all the features that social and affordable housing experts take as given – from resilient and diversified cashflows thanks to low and stable void levels to high rent collection rates and rents which are generally not driven by market forces and are therefore less sensitive than, for example, commercial rents. And that’s without considering the potential positive impact of these investments, given both the overall need and the impressive stewardship and support role that many housing associations play in their local communities.
Our research was aimed at institutional investors and analyses the implications of introducing social and affordable housing investments on a portfolio’s performance. But we know that taking on private investment will not be an appropriate option for all housing associations. Where it is a prudent step, however, the report makes clear that the nature of the private investor is critical. In order to be attractive and credible partners to housing associations, any private investor must be prepared to apportion risk fairly across stakeholders and aim to achieve a fair, long-term risk-adjusted return within a robust framework covering financial, impact and governance factors.
Any investor in this position should be able to demonstrate mission alignment and commitment to the overarching purpose of housing associations – to provide safe, stable accommodation for many of the most vulnerable in our society – and consider this of equivalent importance to their fiduciary duty to their clients or members.
There are several tangible actions to be taken which can remove barriers to investment by making an organisation’s intentions clear and verifiable from the beginning of a relationship. The first is widespread adoption and implementation of the Sustainability Reporting Standard for Social Housing (SRS), launched in 2020, which already has 100 signatories (35 of which are the major lenders to housing associations). Adoption of the SRS by both providers of finance and housing associations also ensures that housing associations are not disproportionately burdened by additional or varying requests from investors.
Alongside the SRS, there interest in creating a Code of Practise for investors and potential investors in social and affordable housing. This Code would build on work already published by Big Society Capital and the Good Economy on ensuring private capital is a force for good in tackling the housing crisis.
If such an approach is adopted, the Institute’s position is that there is a role for private capital in financing the delivery of social and affordable homes in the UK, and indeed in wider regional regeneration and economic development efforts. We would welcome further discussion on this – if you are interested, please do get in touch.
Shadi Brazell is the programme manager for place-based impact investing at the Impact Investing Institute, and can be reached via shadi.brazell@impactinvest.org.uk