Low-risk investment in social housing

There is a very interesting article by James Johnsen published on the civil society website which gives a great insight into investment in social housing and how it may fit into the future property market. This is an area of the market which is often dismissed as a low margin but the fact that these assets are backed by housing associations/local authorities, with rents guaranteed, offers an interesting opportunity.

Housing shortage

It is common knowledge that the UK has a rising population and a new build housing deficit in the region of 200,000 units per year. This should come as no surprise when you learn that in 2009 the UK government, under Gordon Brown, injected £11.4 billion into the cost of building new homes in the UK. Fast forward to 2015 and under David Cameron’s coalition government this investment had fallen to £5.3 billion. There is an argument to suggest we are not comparing like for like because of the change in economic environment but it does give an example of the reduced investment in the new build housing sector. To perhaps put this into better perspective, this has fallen from 0.7% of GDP to 0.2%.

Reduced investment and increased housing benefit

One thing very striking about this particular subject is the fact that over the last 20 years, up to the 2015/16 tax year, housing benefit payments in the UK have increased by 50% having reached £25.1 billion. When you compare the reduced investment in new builds against the increase in housing benefit it becomes obvious that there would have been better returns, both financially and socially in the long term, at least sustaining new build financial support. We are now in a situation where rents continue to rise, the cost of property is often out of the reach of new buyers and so demand for rental property continues. A stereotypical vicious circle!

Land banking

Despite political “pressure” we have yet to see any real meaningful regulations introduced with regards to underutilised land banks. There has been talk of additional taxes, compulsory purchases and other “solutions” but so far nothing has been written in stone. We know that the U.K.’s largest housebuilding companies own significant land banks. These non-income producing assets are an investment for the future so perhaps it is a little unfair to criticise companies who plan for the future and build up their land banks? Or should there be more of a balance?

Investing in social housing

Over the last couple of years we have seen a number of social housing real estate investment trusts raising money on the stock market. They have been acquiring assets where rent is guaranteed by the local authority and linked to inflation. This ensures that the vast majority of social housing in the UK, now standing at around 4.1 million units, is affordable with a mix of tenant/government assistance. In theory these property should not be at the beck and call of the often volatile private rental market and therefore offer a relatively low-risk long-term income stream.

While the philosophy of ethical investment is perhaps not as strong today as it was 20 years ago, the ability to lock in long-term low-risk rental income streams and offer some assistance to the U.K.’s housing market troubles does have its attractions.

Reference: James Johnsen: Should you invest in social housing?

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