9th November 2021
We’re quite passionate about the benefits of investing in property in the social housing sector – stable, low risk, inflation linked income and capital appreciation plus the opportunity to do some good with your money. However, it is a new market for many and can be confusing at times.
As with any lending based investment, it’s important to understand how income from property works in this sector and the factors you’ll need to look at to weigh up the level of risk of each individual investment proposition. Here are answers to some of the most frequently asked questions we get:
Why is investing in social housing becoming popular?
Social housing is a term used to describe a variety of accommodation provision for those that need it. This includes low income housing, housing for those with learning, physical or other disabilities, housing for the homeless, those escaping domestic abuse, asylum seekers or any other group requiring safe and secure accommodation. Big Society Capital’s latest market data showed that investment in social housing is by far the largest segment of a £6.4 billion social impact investment market. Private investment in the social housing sector has been steadily growing for several years now and is one of the areas they highlight for future growth.
This investment trend is on the rise, partly because there is a great need to plug the gap between demand and supply of social housing, but it also offers unique qualities for property investors – rent is usually backed by central or local government schemes with voids in rent usually covered by the housing association. As tenancy contracts are not with the property occupants but with an organisation such as a charity or care provider they also hold more qualities of a commercial real estate contract, often with repair and maintenance clauses and longer lease terms. In addition, investment in social housing property offers investors the opportunity to make a real difference with their money whilst still earning decent yields and stable income.
How can I invest in social housing?
As an individual investor, there are only a couple of ways to currently invest in social housing. Social Housing Real Estate Investment Trusts currently hold around £2 billion in social housing assets and consequently provide the lion’s share of growth in the market to date. However, the modus operandi of the biggest player in this sector, Civitas Social Housing (ticker CSH), has recently come under scrutiny due to a short position undertaken by the fund ShadowFall Capital & Research. These concerns led to a 30% fall in Civitas’ share price and the negative sentiment has weighed on the share price of the second biggest REIT in the sector, Triple Point Social housing (SOHO) which has fallen over 15% in the same period. Not only has this raised questions about the over reliance of the social housing sector on these funds, but has come as a blow to investors banking on steady and stable returns from the REITs.
Up until recently, becoming a private landlord, with all the hassle that entails, or tracking down access to social housing based institutional equity were the only other ways of benefiting from investment in this market.
However, Assetz Exchange is now providing an alternative route into this market, creating a transparent and flexible way to support the social housing sector. (For further information on our social housing investments and to register on our platform click here.)
What is the difference between social housing and supported living accommodation?
Supported housing or supported living accommodation is a specific type of social housing for individuals that need extra support to go alongside housing provision. For example, those with learning difficulties may need live-in carers or those with addiction may require extra guidance and help to live independently. It is becoming increasingly popular in a range of settings as an alternative to residential care, with a focus on providing independent living and better care outcomes.
The importance of investors understanding this distinction is that supported living accommodation is funded in full, that is both accommodation and additional care needs, through the welfare system. As such, it can attract higher rent allowances than other forms of social housing.
What is a registered provider of social housing and why are some housing providers charities and others public or private limited companies?
The Housing and Regeneration Act 2008 established the Regulator of Social Housing (RSH). Providers of social housing registered with the regulator are known as ‘registered providers’ and have certain regulation criteria to meet and are exposed to the scrutiny of this public body. This then enables them to access funding and grants for social housing as well as other benefits. Not all providers of social housing and supported living accommodation are registered providers though, and investors need to be aware that registration of a provider does not act as an absolute form of assurance or quality of the counterparty. Rather it provides an element of transparency. For example, the regulator, the RSH, publishes regulatory judgements of each registered provider looking at their governance and viability and these can and do find providers acting outside of the regulatory framework or not meeting its standards.
Equally, not being a registered provider does not infer that the organisation provides any less quality provision. There are many sound reasons why a provider of social housing may wish to operate outside of this regulatory framework. For example the cost of registration might be a factor for smaller players in the market.
Registered and non registered providers of housing can also have different organisational entities. They can be a charity, a housing association, a public limited company or a private limited company or a combination of those, with consequent regulatory frameworks and public information available for scrutiny. This requires investors to understand the specific make up of each individual housing provider and make their own judgement of the risks associated with them.
What are other key factors to evaluate risk in this market?
There are few other differences in this market that are worthy of note for potential investors:
Changes to government policy and funding – although the government can be seen as a relatively secure provider of rental income, it goes without saying that they can change policy and funding streams over time (although we would hope it is unlikely they would switch to a policy that would see vulnerable people being made homeless). Understanding when these policy reviews and changes to policies might take place, and considering a diversified portfolio of social housing dependent on different funding streams and projects, mitigate these risks.
Requirements for refurbishment and facilities – whilst supported living accommodation can attract higher rental income, the properties often also require improvements to deal with the specific care needs of residents or criteria stipulated by the government scheme supporting the rent. Equally, as we should expect from an impact point of view, the quality standards for accommodation are often higher than in the general housing market. For example, a government contract might stipulate a brand new kitchen be installed, where a private landlord may decide that the existing one would suffice. As long as these requirements are carefully costed and added to the initial capital sum required when evaluating yield from the investment, these issues are not generally prohibitive.
Assessment of resale back into the mainstream housing market – although the majority of property investments in this sector are intended to be held in the long term, it is vital that an assessment of the resale of the property be undertaken. Each individual property should therefore be evaluated on the basis of its resale value back into the mainstream market.
Loss of registered provider status affecting ability to claim exempt rents – there has recently been concern (due to ShadowFall’s short position, see above) that if the Regulator of Social Housing were to use the full scope of its power and take away a provider’s status and ability to claim rents, this would affect investments associated with that particular provider. The likelihood of this actually happening is a risk factor, but it can also again be mitigated by ensuring that investment is spread across a variety of types of housing provider both inside and outside of this regulatory framework and by investors researching the regulatory judgements of registered providers before investing.
In summary, when making an investment yield is always a key consideration. It is however important to consider other factors, such as those outlined above before committing to invest.
If this blog has sparked your interest in this investment area or raised any further questions for you, please do get in touch at firstname.lastname@example.org or click here to receive regular updates of our social housing investments.
Your capital is at risk and is not covered by the Financial Services Compensation Scheme (FSCS).
Click here to read more blogs...