What can we learn from the social housing REITs?


Written by

Gemma Bourne, Managing Director

There has recently been a lot of press attention on a set of housing funds collectively known as the social housing Real Estate Investment Trusts (REITs). Listed on the London Stock Exchange, these funds presented an opportunity for investors to have genuine, real world social impact by providing affordable homes to people who need them, particularly the most vulnerable, alongside generating good quality cashflows and risk adjusted returns.

Unfortunately, there have been public reports and media attention on a selection of these funds for unpaid rent, regulatory issues, poor quality housing and insufficient care and support for tenants; with share prices being affected as a result.

The learning from these cases is simple and sounds obvious: when impact is not placed at the heart of these models, financial performance will suffer and tenant wellbeing will be at risk.

At Big Society Capital we have been investing in social and affordable housing for the last decade and, fortunately, these cases are atypical. Here are three characteristics we have noted in some of the market’s most successful impact funds:

1.High-quality housing partners: 

Our experience shows that working with high-quality housing partners (charities or housing associations) is critical to a fund’s success. These partners will be genuinely experienced in the challenges faced by their tenants. They will be experts on providing wraparound support on issues ranging from mental health to drug misuse; and in sourcing homes in areas that are appropriate for their tenants.  And they will be able to hire and retain enough staff to provide that support.

Notting Hill Genesis is a brilliant example in practice. The housing association has provided care, support and shelter for people at risk of homelessness since the 1960s. It operates 675,000 houses in London and the southeast of England and has demonstratable experience making a genuine difference to the lives of thousands of vulnerable people. This year, it partnered with social impact property fund manager Resonance where it will manage almost 600 properties aimed at supporting families in the highest need.

2. Fund management teams demonstrate a deep knowledge of a social issue and can combine that with real estate know how: 

This is something that we test substantially during our due diligence stage with fund managers and Boards. Alongside real estate experience we focus on –do fund teams also understand the social issue? Have they designed the fund so that it is financially sustainable for the housing partners? Do they attract quality housing partners as a result?

For example, one of the key reasons we invested into the Man GPM RI Community Housing Fund in 2021 was because several of its fund management team had previously spent many years working for Housing Associations in the affordable and social housing sector, they understood what type of solutions worked for all stakeholders. The fund – which aims to provide high quality new build homes in desirable areas for key workers such as nurses, teachers and bus drivers – is set to deliver 1,295 new homes by 2026 and is currently surpassing its targets through delivering over 90% as affordable (social rent, affordable rent, key worker and shared ownership).

3. Impact performance is monitored alongside financial performance: 

A rigorous approach to assessing impact risks and opportunities, in addition to well-established reporting methods can help provide transparency and accountability at every stage of the investment process.

We work with the funds that we invest with to develop something that we call the Impact Canvas. The Impact Canvas sets out the impact objectives, metrics and management plan for the fund and we use it regularly as a tool to check in on performance.

We also think that it’s important to annually monitor indicators such as an organisation’s age to understand their depth of experience; the number of staff they hire to reflect the amount of care that can be provided.  These, along with the Impact Canvas provide powerful information on the overall health of the housing partners. In the Big Society Capital portfolio, we have 64 housing partners, on a portfolio weighted average basis they have 31 years of experience, 1,205 staff, and £167.5m in net assets.  We don’t set targets based on these metrics, instead they are the product of the good impact intent and management of the funds.

To help measure these factors, fund managers can use the Equity Impact Project, which we developed to provide a transparent and consistent impact measurement framework.

The growth of private capital supporting social and affordable housing is positive. But we believe it can only continue to be transformative when every pound of investment flowing into the market understands its true impact on tenants.

Learn more

Do you have more questions about how the social property market works for investors, fund managers or housing providers? Our ‘Mapping the Market’ document explains more: