In partnership with Property Funds Research and supported by Homes England and Investment Property Forum, we have published a ground-breaking and comprehensive report detailing the investment case for UK social housing.
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, while there are increasing levels of equity investment from institutions in the sector. This authoritative report analyses this investment, and investigates the merits or otherwise of including social and affordable housing assets within institutional investment portfolios.
Key findings of the report include:
- Social and affordable rents are not driven by market forces but are subject to government rent-setting regimes and, typically, linked with inflation, thus are less sensitive than commercial real estate to changes in the business cycle. These cashflows provide investors with diversification benefits in both multi-asset and real estate portfolios with attractive inflation hedging characteristics.
- 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. Active dialogue between stakeholders, including government, should help to mitigate the risk of adverse changes.
- 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.