Long-term investors can help tackle 60,000 annual affordable homes shortfall

New report says for-profit registered providers can take on development risk to help housing associations and councils unlock schemes.

Toy house on a pile of pound coins

New investor-backed housing providers have the potential to make a “real impact”, bringing extra financial capacity to help deliver some of the additional 60,000 affordable homes needed each year, a report reveals.

Residential research released by Savills at the Social Housing Annual Conference today (4th Dec) highlights that, although many homes currently owned by for-profit registered providers (FPRPs) are Section 106 purchases, there are signs of an increasing focus on building additional affordable homes.

The analysis shows that, to date, new investors have generally used three main approaches: those buying solely shared ownership homes, those building mixed-tenure portfolios, and those seeking lease-based investments.

“Not for-profit housing associations remain the major players in affordable housing provision, with local authorities starting to make more of a contribution in recent years – albeit from a low base,” said Helen Collins, head of Savills Affordable Housing Consultancy.

“Landlords will face rising investment requirements in existing homes in coming years due to updated safety and carbon regulations.

“As a result, they will have to balance building new affordable homes, with increased investment in existing stock – this presents a clear opportunity for new money to enter the sector.

“The growth we have seen to date in FPRPs is funded by patient investors – principally pension funds.

“Their requirements for ethical, long-term, low-risk investments exactly match the profile of affordable housing.

“However, the challenge and opportunity for FPRPs is to evolve the business model from Section 106 and converting open-market sale homes, to delivering truly additional homes through land-led development,” she said.

The report – Private money and affordable housing –  also found that since 2013 an average of 46,000 affordable homes have been built each year in England in total, with the vast majority delivered by traditional housing associations.

Yet, Savills estimates there is a need for an additional 60,000 a year.

The research concludes that long-term institutional and other private investment into FPRPs is “gathering momentum”.

This, the report says, means FPRPs are now well placed to work in partnership with local authorities and housing associations and take on development risk. This could help unlock opportunities for building additional new affordable homes.

Josh Rose-Nokes, associate director at Savills Research, said: “Investors increasingly want to see their money delivering a social or ethical return. As a result, sectors such as affordable housing which help achieve this result are now attractive long-term investments.”

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