Risk, return and social impact: Creating investable propositions to deliver social housing

This blog is our summary and key takeaways from  Session 11 from the New Homes in New Ways Summit, hosted by KPMG. Watch the Summit on our YouTube channel.

The UK is facing a pressing need to deliver new homes, many of which need to be at social rent. The good news - the UK social housing sector is an attractive sector for investors, with stable returns and strong ESG credentials. The challenge – how do we unlock this investment to accelerate the delivery of new social rent homes at scale?

This panel, chaired by Teagan Hallgath, a Director at KPMG, explored the role of both the private and public sector in creating investable propositions to deliver social housing and how impact investment could unlock the delivery of new social rent homes at scale. Teagan was joined by Andy Smith, Head of Impact Services at the Good Economy, to represent the private sector, and Urban Regeneration Specialist Caroline Pillay, who is currently supporting the London Borough of Newham, offering a public sector perspective. The question posed was “what does each party need from each other to increase delivery?”

Teagan began by pointing out that private finance into the social rent sector is not a new idea, and much social housing is already privately financed. The challenge is that the way in which this has typically been done cannot support the scale that is needed to meet the skyrocketing demand, and innovative models are therefore needed to see the public and private sector work together to increase delivery. 

A public sector perspective

Caroline brought the public sector perspective, and described Newham as ‘the epicentre’ of housing need. She agreed that there is a role for the private sector to play in increasing social rent housing delivery and noted the projects in Newham that are receiving private investment. However, Caroline called for increased investment, particularly in the social rent tenure. She recognised that other tenures, such as shared ownership, are often more desirable as they pose less of a viability challenge, but argued that as this is a humanitarian crisis, we must see people come together to support those in most dire need. Teagan added that if we consider the money spent on housing benefit and expensive Temporary Accommodation, there is an opportunity to rethink spending to best support increased supply and attract the private sector.

A private sector perspective 

Andy, who currently works with several impact investment and housing associations, acknowledged that the challenges Caroline mentions are similar across the board. He agreed that shared ownership is a more popular tenure for investors, as well as some affordable rent made possible through a combination of grant and section 106 obligations from developers.

The importance of aligned values and the right partner

Andy also talked about the importance of place-based investment, which means you understand the area and the specific needs of that community and seek to meet those needs. He stressed that impact tends to be maximised when the needs of the place, the investor, the developer and the wider stakeholders are aligned. If this is the case, you can develop outcomes, measurement strategies and a shared understanding of what success looks like. Caroline added that for investors to understand the need in a place, they should use their R&D budgets to do this research.

Standardisation and private finance

The good thing about housing is that in general, it’s a low-risk investment. However, the more innovative or new the project is, the riskier it becomes. Andy therefore suggested that where possible, when things work, repeat them! Innovation is important, but institutional capital will follow once its established. Teagan agreed that if we’re ever going to get to the scale we need to, we must find what works and get going with it!

Our takeaway – this was an important and helpful conversation, that underscored the magnitude of the challenge and went into the on-the-ground specifics of why it’s imperative to find smarter ways to see private funding injected into this space to ensure its meeting the goal of increasing supply.