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Private investment to become ‘dominant source’ of affordable housing, report predicts
Private sector investment, partly through for-profit providers, could become the “dominant source” of capital for new affordable homes due to the challenges facing traditional housing associations, a new report has predicted.
Private sector investment, partly through for-profit providers, could become the “dominant source” of capital for new affordable homes #UKhousing Writing in this year’s UK Housing Review, finance expert Steve Partridge said there was “massive interest” from investors worldwide in UK affordable housing, particularly in England.
The annual review, now in its 31st year, was launched at the House of Lords on Tuesday.
In the report, Mr Partridge pointed to the fast-growing for-profit sector, which has seen investment giants Man Group, M&G and Legal & General register entities with the Regulator of Social Housing.
US investment behemoths BlackRock and Blackstone have also invested in for-profit providers, namely Heylo and Sage Homes.
Currently there are 69 for-profits registered with the English regulator, as well as a significant number in the pipeline.
The growth comes against the backdrop of severe financial challenges facing not-for-profit operators.
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Mr Partridge, director at Savills Housing Consultancy, said: “Given the prevailing economic and inflationary context, and pressures on the existing asset base through building safety and preparing for net zero, it is possible that equity investment will, over time, become the dominant source of capital for new affordable housing development.”
Investors and for-profits are expecting to deliver around 25,000 new homes year by 2027, which will be nearly half of all affordable homes delivery by that time, according to Mr Partridge.
He added: “While we are definitely still in the early stages, there are plentiful reasons for thinking that this is the general, long-term trend.”
Bond issuances and bank lending is also now making a “very significant contribution” to the sector, with £8bn deployed over the past 10 years, the review said.
Mr Partridge said private finance “dominates the funding of affordable housing” in England, being much more significant than grant.
On social landlords striking partnerships with investors, Mr Partridge said despite “initial scepticism” from housing associations and local authorities, there are signs they are “responding positively to the opportunities that this scale of funding potentially brings”.
Among the most high-profile tie-ups has been G15 landlord Hyde agreeing a joint venture deal with French insurance giant AXA to operate for-profit provider Halesworth.
Mr Partridge concluded: “Far from seeing the growth of equity investment as, somehow, a separate sector, it is far more likely that such investors and the established sector will become important partners in addressing the supply and delivery of affordable housing for decades to come.”
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