Social Housing Speed Read – £250m social housing fund for debut impact investor

After last week’s Speed Read discussed the Social Housing Commission’s recommendation that 3.1m new social homes should be built in the next two decades, this news provides an interesting development in the way that the market will meet the demand for new houses.

The call for an increase in the amount of adequate social housing being built in the UK is recognised across party lines as a major issue. CBRE Global Investors seems set on being part of the solution.

Aims

Whilst it will come as little surprise that CBRE hope to turn a sizeable profit for its 13 investors, profit is certainly not the only the only driver behind CBRE’s fund. The fund also wishes to make a serious social impact. This is typified in the approach taken by one of the investors Big Society Capital, a social investment institution which aims to achieve both a social and financial return from its money.

The fund is targeting a 6% total return which Hannah Marshall, head of UK funds, promised would meet the requirements of investors.

The fund will be investing in affordable rented housing, shared-ownership properties, hostels for the homeless and homes for so-called ‘key workers’, such as nurses. This will aim to help groups of renters deemed as vulnerable by the Social Housing Commission’s January report.

It is expected that 2,000 properties will be acquired by the fund over the next two years, through forward-funding deals and acquisitions of standing assets.

As well as aiming for a social impact, The fund also hopes to help its investors reach their environmental, social and governance (ESG) impact targets. Ms Marshall notes “Institutional investors are placing increasing importance on the ESG impacts of their investment strategies. Our strategy contributes towards our investors’ ESG targets.”

Impact

As well as its inevitable social impact, CBRE’s fund is good news for registered providers as the fund currently has no plans to launch its own for-profit registered provider (RP).

Instead, it will follow a lease-based model where it owns stock and leases this to existing registered RPs. ‘We’re seeking to support the organisations that already exist in this sector; they have the specialist skills in terms of managing the housing’, says Marshall.

However, there is ambiguity surrounding the fund’s future. The fund is open-ended and Marshall emphasises that the fund does not have the long term in its sights. Nonetheless, it appears that impact investing may be gaining favour as a method of realising long-term returns.

Impact investing – the future?

Impact investing provides funding to particular causes that ‘generate positive, measurable social and environmental impact alongside a financial return’.

CBRE’s impact investing is just the latest in a trend that is gaining traction in England. Late last year, the Co-op pension scheme gave a £50m mandate to PGIM Real Estate to invest in social and affordable housing. Similarly, in November a fund was launched by the social impact investment company Resonance in partnership with Real Lettings and the charity St Mungo’s. Susan Fallis, director of Real Lettings, said: “Since the fund launched, we’ve been able to house hundreds of people who otherwise would have been in temporary accommodation or hostels.”

Analysis done by private equity and principal investment firm McKinsey suggests that the stereotype of impact investing as an unstable, low-return option is an outdated one, given the real possibility of profit that will interest an increasing number of mainstream investors, and the constant demand for affordable housing. This begs the question whether the housebuilding market in general will tend towards building lower-cost homes. Indeed, RPs stand to benefit regardless of whether investors such as CBRE or traditional housebuilders produce the stock they manage. The uncertain conditions produced by Brexit may continue to see a rise in housebuilders bulk-selling affordable homes to RPs should customer-confidence take a hit. Between this approach and more traditional methods, the market still appears to be strong, with the Ministry of Housing, Communities & Local Government announcing on Tuesday an increase of 12% of new build dwelling starts in England on a year earlier.

If you have any questions on the above and how it will affect social housing providers, or any other questions as a social housing provider, please do not hesitate to contact John Murray or a member of our expert Social Housing Team.