New funding solution needed for UK affordable housing

The UK affordable housing sector offers an opportunity for investors to close a funding gap, a new report says.

Octopus Real Estate’s Closing the gap: Unlocking investment to address the UK's affordable housing challenge report found that UK housing associations expect the number of affordable homes built in the UK to fall by 22%, despite being already below target.

Factors identified by providers of affordable housing include the rising cost of labour and materials, as well as the cost of new debt. 

The pressures of decarbonising the sector, particularly bringing existing social housing to meet energy performance standards, also weighs heavily on providers. However, addressing this would help institutional investors meet their ESG goals.

The British Property Federation and Legal & General last year produced research which concluded that, without a new funding structure, there will be a shortfall of 95,000 affordable homes each year.

Jack Burnham, head of affordable housing at Octopus Real Estate, said: "Registered providers have historically relied on private finance to support their development ambitions. But changing economic conditions mean that the cost of debt has soared and social landlords must now pay more to access the finance they need to build new homes. 

“We believe equity partnerships represent the next wave of innovation in the sector.”

He suggested for-profit providers of social housing and institutional equity partners could work with Housing Associations to deliver more high-quality affordable housing. 

Octopus plans to invest £1 billion ($1.27 billion) in UK social housing and has created a for-profit provider NewArch Homes to operate new assets.