A possibility overlooked in the UK: Affordable housing at a premium?
In the UK, the demand for affordable housing is high and the income from rental payments is diversified, yet there is a chronic undersupply of housing of all kinds, especially affordable homes. This shortage has caught the attention of institutional investors, who are increasingly viewing affordable housing as a growing and sustainable sector.
Recent commitments exemplify this growing interest. For instance, UK pension funds have pledged £118 million to the Octopus Affordable Housing Fund, a fund aiming to raise £1 billion by 2026 to address the housing shortage. The UK government, too, has committed £39 billion over the next decade through its Social and Affordable Homes Programme, targeting the delivery of around 300,000 new social and affordable homes.
These government commitments provide certainty and tools that align with the priorities of long-term institutional investors, facilitating partnerships among local authorities, housing associations, developers, and investors. Local initiatives, such as Tower Hamlets’ ambitious affordable housing programme, also demonstrate active public sector involvement and readiness to collaborate with institutional investors to scale delivery.
The urgent housing need in the UK is high. Over 1.3 million people are on social housing waiting lists, 165,000 children are in temporary accommodation, and there has been a collapse in home ownership among young adults. These factors underpin the demand for affordable housing.
Investment interest is not limited to traditional affordable housing models. Innovative housing solutions, such as co-living, are also attracting significant capital. For example, over £1.1 billion has been invested in London's co-living sector over the past five years.
Planning reforms and financial support for Small and Medium Enterprises (SMEs) in construction, including interest-only loans and accelerated planning decisions, indicate a broader effort to enhance housing delivery infrastructure, indirectly supporting institutional investment viability.
However, challenges remain. Gaining planning permission is a significant obstacle in the development of affordable homes. Strong operations capability is essential for success in the residential real estate sector, including property maintenance, management, leasing, and customer relations. Local councils can override nationally-set priorities, which can have serious knock-on effects.
Despite these challenges, institutional investment is viewed as providing at least part of the solution required in the UK to address the affordable housing shortage. Funds like the Women in Safe Homes fund, a joint venture between Patron and Resonance, aim to provide around 150 safe and affordable homes across the UK and to house around 350 women and their children over its lifetime. This fund provides support to women in insecure situations, with a holistic approach that includes safe and stable housing, as well as support to empower them to create lives of their choosing.
Abrdn, a financial services company, is also interested in the build-to-rent residential sector and has a £500m joint venture with retailer John Lewis. Impact investment is a pre-requisite for most investors to consider a fund strategy, and access to independent impact monitoring is assuming growing importance for investors in affordable housing.
In conclusion, the combination of substantial government backing, critical unmet demand, and evolving supportive policy frameworks creates a positive environment for scaling affordable housing investment in the UK over the next decade. Institutional investment in affordable housing is currently growing strongly and has clear potential for further growth.
Affordable housing, a growing and sustainable sector, has caught the attention of institutional investors, such as UK pension funds, who have pledged £118 million to the Octopus Affordable Housing Fund. The UK government, through its Social and Affordable Homes Programme, has committed £39 billion over the next decade to deliver around 300,000 new social and affordable homes. Investment interest is not limited to traditional models; innovative housing solutions, like co-living, are also attracting significant capital. Abrdn, a financial services company, is interested in the build-to-rent residential sector. Institutional investment in affordable housing is deemed as providing at least part of the solution required in the UK to address the affordable housing shortage.
