Four top housing investment trends to look out for in 2020

Big Society Capital will be joining our panel of speakers at our February Breakfast talk on Financing Homes and Healthy Ageing. Big Society Capital is among the many finance institutions Connected Places Catapult is collaborating with as part of the Future of Housing program focused on many topic areas including retrofitting for net-zero carbon emission homes and homes for healthy ageing. Financing the UK’s Domestic Retrofit will be the first housing breakfast talk of 2020 held on Wednesday 22 January.

The start of a new decade offers the chance to look at old challenges from new angles. To tackle the age-old housing crisis, we can benefit from more innovative housing models.

Big Society Capital is proud to support and invest in such models, and together with other investors, we’ve made more than £600m of social impact investment available for housing providers, enabling them to deliver better outcomes for thousands of households.

Here are some of the top trends we’re keeping an eye on in 2020:

1. More private capital investment in social and affordable housing

Last year, we saw rising interests from commercial investors in social and affordable housing. This interest is driven by the potential returns offered by asset-backed housing investments, and the potential for stable yields which may be less correlated to the overall real estate market.

A couple of good examples from last year came from CBRE Global Investors and Legal & General. CBRE secured £250m to launch its first UK Affordable Housing Fund, while Legal & General announced a £750m plan with 14 housing associations to build 3,500 affordable homes across the UK.

Although the role of private capital in this space is not without its controversies (especially in supported housing), we expect to see more interest from institutional investors in 2020, with mainstream fund managers creating new products to match the demand. We’re hopeful that this increase in competition will be more choices for housing providers, giving them a better chance of finding a financial arrangement suited to their needs.

2. Better solutions for renters

Increasing numbers of low-income households are living in the private rented sector (PRS). This is problematic as an estimated 90% of them are being put at risk by harmful living conditions and being pushed further into poverty. In 2019, we saw calls for innovative solutions from thought leaders such as the Young Foundation and the Joseph Rowntree Foundation, who called on the government to encourage the growth of social lettings agencies as a way to unlock more housing options for low-income and vulnerable people.

In 2020, we expect to see these ideas become reality. This will require greater collaboration between government, housing providers, investors and fund managers to create better solutions for people who are ‘stuck’ in unaffordable and poor quality PRS. Most often these are low-income families, key workers and older people. We should also see existing initiatives continue to grow in 2020, such as the partnership between the Scottish Government and PfP Capital to deliver mid-market rent scheme across Scotland and Bridges Fund Management’s investment into Ethical Housing Company to build up an asset portfolio for a social lettings agency.

3. More innovative repayable finance options for charities

Historically, many charities looking to acquire housing assets have turned to high-street and social banks that provide secured lending. But in 2019, we saw new products being launched, providing charities with additional options. For example, Social and Sustainable Capital launched a housing fund offering up to £5m flexible lending to charities, with a variety of provisions to lower the risk for its lenders. Another great example is the Women in Safe Homes Fund, which will buy and lease suitable accommodation to women’s charities and other providers of services to vulnerable women.

Numerous charities are tackling the multi-headed beast that is the housing crisis, and repayable finance can offer them the opportunity to deliver better housing for vulnerable people while increasing their organisational resilience. We believe we’ll see more innovative models to help charities achieve this in 2020.

4. Emergence of sector-wide ESG standards

Currently, housing providers can adopt various approaches to report on environmental, social and governance (ESG) considerations. Everything from third-party certifications that seek to broaden pools of capital to sustainability-linked loans which links its borrowing costs to tenant outcomes. However, the myriad of different approaches is confusing for both investors and housing providers and a sector-wide approach must be agreed. A common ESG approach should enable housing providers to not just report on their impact more consistently and efficiently, but also to better manage and deliver their impact for their tenants, the environment and other stakeholders.

Thankfully this issue is being picked up by an initiative led by housing association Peabody and other partners in the sector, with the initial findings expected this year. All that will remain is the not undaunting task of ensuring it’s adopted across the sector, but we’re ready for the challenge!

Karen Ng is an Investment Director at Big Society Capital – You can find out more about Big Society Capital’s work in housing on their website here.

Please note that Big Society Capital is an investor in a number of the funds described above, including CBRE UK Affordable Housing Fund, Social and Sustainable Housing Fund and Bridges Evergreen Holdings. It has also agreed to an in-principal commitment to the Women in Safe Homes Fund and is one of the partners in the advisory group for the sector-wide ESG initiative.

Find out more about the work of Connected Places Catapult in the housing space and any future events in this area by visiting our Future of Housing hub.

Are you interested in sharing your insights in this area? If you’d like to let us know about some of the projects you’re working on in this space, please visit our find us page.