New report from Knight Frank highlights surge of capital into sector to help address supply crisis
Institutional investors and “for-profit” registered providers are set to play an increasingly vital role in tackling the UK’s affordable housing crisis, tripling their portfolios to over 86,000 homes by 2028, according to a new Affordable Housing Market Update report released today by global property consultancy Knight Frank.
According to Knight Frank, data from the Regulator of Social Housing shows the number of for-profit registered providers (FPRPs) has already tripled over the past decade to 69 currently operating in the market. In total, these FPRPs own 29,272 affordable homes with Knight Frank estimating that this figure will have nearly trebled to 86,000 by 2028.
While FPRPs currently own just 0.9% of the overall affordable housing stock, Knight Frank’s latest analysis indicates their market share will continue to grow in the coming years as more institutional capital enters the sector and as existing players seek to grow portfolios. The firm’s survey found 77% of leading affordable housing players plan to increase their investment into the tenure over the next five years.
The surge in institutional capital entering the market comes as the supply of new affordable homes falls far behind demand. Government figures show there are currently 1.2 million households on social housing waiting lists in England, unable to access affordable accommodation. Previous forecasts by the National Housing Federation suggest we need to be building 145,000 new affordable homes annually to keep up with demand.
Oliver Knight, Head of Residential Development Research at Knight Frank, said: “With huge supply and demand imbalances and traditional housing associations facing financial headwinds, institutional investment can play a vital role in plugging the affordable housing gap. Just 63,605 new much-needed affordable homes were build last year in England, chronically behind the estimated 145,000 needed annually.”
Knight Frank has said that in the short-term housing associations have stated their plans to scale back development programmes to focus on investment in existing stock. According to the survey, 50% of respondents identified a lack of subsidy or grant funding as the biggest obstacle to increasing supply. This has forced many to row back on development plans, creating opportunities for FPRPs and investors to increase their market share.
ESG performance is now the top factor drawing investment into affordable housing, with a growing prevalence of sustainable features like air source heat pumps, now required by 43% of providers for new schemes. Nearly 80% of respondents in the survey said they are targeting a minimum EPC rating of B on new affordable housing developments and acquisitions going forward.
Rising partnership models between investors and housing associations are also expected to unlock additional development capacity. The firm’s survey also highlighted a growing reliance on partnership models to boost affordable housing supply. Grant-funded development remains the preferred route, however, 40% of respondents said partnerships have become a more important delivery mechanism over the past year.
Paul Hawkey, Head of Affordable Housing at Knight Frank said: “Over the next five years, the affordable housing sector is poised for a transformative shift as investors aim to expand their market share, driven by long-term secure income streams, inflation hedging capabilities, and the environmental, social, and governance (ESG) benefits of delivering affordable homes, as highlighted in our survey results.
“Looking ahead, innovative partnership models that bring together investors and traditional housing providers will be crucial to unlocking new development and boosting supply to meet the nation’s rising demand for affordable housing.”