Affordable Housing: Investing with Impact
CBRE, St Martin’s Court, 10 Paternoster Row, London, EC4, 15 October 2019

The UK has a housing crisis, and one of the main reasons is the lack of affordable homes.  A shortage of funding for development has led to chronic undersupply in this part of the residential market, with consequences that are all too familiar:  In England, 8.4 million people live in unaffordable, insecure or unsuitable homes, while across the UK 2.5 million people in the UK cannot afford their rent or mortgage.

This SPR seminar laid bare the problem and set out some ways that private investment is starting to make inroads into what was until recently considered a largely public concern.  Housing associations such as the Hyde Group are on the front line of the housing crisis, and Stephen McGowan explained how they are forming strategic partnerships with public and private sector partners to attract investment, principally to buy land and build new homes.  This is proving feasible given the negative real yields investors now receive from gilts and the affordable housing sector’s relatively stable and inflation-resistant returns, which are underpinned by investors’ increasing commitment to ESG objectives.  Further impetus has been gained by the entry of investment managers to provide access for smaller institutions using pooled vehicles.

CBRE Global Investors are one such manager, having recently created the CBRE Affordable Housing Fund.  DJ Dhananjai suggested that the relative lack of affordable housing supply is providing an opportunity for private investors.  He echoed McGowan, highlighting the secure income streams, diversified occupier demand, attractive risk/reward dynamics and positive social impact of investing.  He also noted the profitability of managing the assets of registered providers in their operational phases.  And with the increasing participation of institutional capital, liquidity is proving to be less of a challenge than it once was.  However, he also hinted at the complexity of this part of the residential landscape, with its huge variety of tenure and regulatory risk – rent levels are in many cases still subject to government control.

     

Impact investing is also starting to focus on affordable housing as an area that meets its criteria of potentially generating a positive, measurable social and environmental impact, together with a financial return, as Anna Shiel of Big Society Capital explained.  Her organisation has already invested in the Real Lettings Property Fund, which provides housing for people at risk of homelessness, and the Cheyne Social Property Fund, which builds and invests in a mix of supported and affordable housing.  Shiel sees possible future directions for impact investing to include making the private rented sector work better for people on lower incomes and a range of social investment tools that could help regenerate places and build stronger communities.

In the subsequent Q&A, led by David Inskip of CBRE Global Investors, the audience asked about how local authorities view affordable housing and how they could help stimulate greater supply. Stephen McGowan said that many local authorities are reluctant to see change, but that housing associations such as the Hyde Group can help act as a friendly intermediary between local authorities and the private sector. He said that private capital was needed in the sector, but that such investors also need to have trust in public sector partners, making a common alignment of interests essential. 

David Inskip finished by asking the panellists if they thought the 12% of impact investing currently represented by the property sector would increase. Anna Shiel believed that it would and said that there would be lots of future opportunities for property investors to get involved in addressing social issues such as the housing crisis and the ageing population, driving change via forward-thinking developments and partnerships with the public sector.

Tim Horsey