Private capital to account for one in five new affordable homes

New partnerships between institutional investors and housing associations will provide over 30,000 affordable homes over the next three years, accounting for 19% of new affordable homes, according to JLL.

Private institutions are set to double their portfolios during this period. At the end of 2022, investors owned 26,400 affordable homes. However, increases in private capital commitments deployed through for-profit registered providers will see this market grow 120%, reaching 58,100 homes within three years.

The rises come alongside JLL broader forecast of a 10% fall in new housing supply in England.

Housing associations are dealing with high costs to maintain large their portfolios, alongside rising construction costs to build new homes. As a result, the G15 group of London housing association said rising inflation and interest rates had caused some members to scale back development plans by as much as a third (1).

If new supply were to fall by a third, the private investment pipeline would rise to account for one in four new affordable homes (24%).

Institutional investors experienced in other living asset classes, such as multifamily flats, are increasingly adding affordable housing to diversified strategies. Rapid expansion of affordable housing portfolios will see the sector grow at twice the pace of multifamily, rising to make up 23% of some 258,100 rental homes owned by institutions in 2025.

However, it is still a small proportion of the total affordable supply – accounting for 0.7% of 4m affordable homes in England, and set to rise to just 1.4% by 2025. This is an even smaller proportion of the total market demand.

JLL’s Affordable Housing 2023 report estimates a potential market of 6.2m households in need of social rented housing. Of these, only two-thirds are currently in social rented housing, pointing to total unmet demand of 2.2m – significantly higher than the 1.2m households on local housing registers.

Those unable to access housing have become reliant on other accommodation, sharing or seeking homes in temporary accommodation and private rented housing, where rents have risen significantly.

The current Affordable Homes Programme 21-26 provides £11.5bn in grant funding to deliver 180,000 homes. At this rate per home, it would require £139bn to meet this 2.2m homes shortfall.

This is less than the £160bn paid in housing support to social and private landlords over the past decade (2). The funding need is a call to action to government and private investors.

Richard Petty, head of affordable housing at JLL, said: “Institutional capital has a growing part to play in affordable housing delivery. We have seen a significant increase in institutional investment across all the living sectors, spanning PRS, multi-family, single family, specialist supported and mainstream affordable.

“The sector needs to embrace that and make the most of investors’ willingness to work in partnership.    Together, we cannot let the possible imbalance of supply and demand go on much longer without making the sort of changes to the model that will be necessary to deliver real increases in supply.”

Emma Rosser, director of living research at JLL, said: “Investors are diversifying from city centre flats to a range of tenures and housing types. While there are challenges to entry, the scale of demand is higher than any other living sector, and the current pressure on household finances will only increase this.

“Institutions are responding and have laid the foundations for long-term investment at scale, supporting their broader social impact goals.”

(1)     In evidence to the Department of Levelling Up, Housing and Communities’ inquiry into the finances and sustainability of the social housing sector in May 2023.

(2)     JLL analysis of housing support paid to tenants, reported annually in the English Housing Survey