RESEARCH • August 2024
UK Affordable Housing
A guide for institutional investors
Today, investors are seeking more than income and capital returns from their real-estate allocations. Investors are under increasing pressure to demonstrate a more sustainable investment approach that helps both the drive to net zero, and has a positive social impact – all whilst delivering attractive, risk-adjusted returns. Strategically, there is also an increasing appetite to diversify away from core commercial property to alternative property sectors.
There are few, if any, investments that can claim to have as great a social impact as Affordable housing. This sector benefits from all of the factors we highlighted in our prior reports Why Living (2022) and Why Living Now (2023), namely:
• Fundamental imbalances of demand over supply;
• Strong and durable income streams;
• High risk-adjusted returns;
• Strong investor appetite and allocations structurally shifting towards Living.
Yet the UK Affordable housing sector also benefits from specific factors and characteristics such as:
• Affordability has become a critical issue;
• Huge demand with c. 1.3 million households on waiting lists;
• Elevated interest rates, increasing private rents and high property prices preventing access to the private sales and rental markets;
• Fiscally-constrained balance sheets limiting the government’s ability to develop more Affordable homes;
• Incumbent providers with limited flexibility due to a perfect storm of pressures.
The sector is therefore in urgent need of private capital to assist with building a pipeline of new Affordable properties, and to help fund improvements to existing stock so that it meets increasingly stringent energy efficiency and fire-safety standards.
These factors have created a compelling and truly impactful investment opportunity for those in search of resilient, index-linked income returns, as well as long-term capital appreciation. Furthermore, the current repricing caused by elevated interest rates and sector dynamics provide a rare opportunity to purchase assets at particularly attractive valuations, potentially enhancing long-term returns. With institutional investment currently standing at circa 1%, the scope of opportunity for institutional investment into UK Affordable housing is considerable.
In this report we explore many of the topics relevant for institutional investors assessing UK Affordable housing. We will provide background on the sector and many of its attributes which might be new for investors (such as different tenure types, subsidies, grants and regulation) and why these are often beneficial to investors. We also look at relevant trends, investment features, mitigating risk and different investment approaches.
