In recent years buy-to-let social housing (or social housing owned by private landlords and investors) has been a focus area for addressing the worsening symptoms of the UK’s housing crisis. Though social housing has traditionally been handled by local councils and not-for-profit housing associations, the scope for private investment in the area has grown to meet extreme demand.
According to a 2017 report by the Local Government Association, an estimated 300,000 – 340,000 new homes are needed per year to meet the demand for housing in England, with 150,000 of those homes needing to be affordable or social housing. Despite this, only 50,000 new affordable homes were delivered in 2020/21, representing a capital shortfall of around £16.9 billion. In other words, local councils have historically lacked the funding necessary to meet their new homes targets fully, and the resulting impact on their communities has left many renters in the lurch.
A press release by the anti-homelessness charity Shelter revealed that 1.2 million UK households were on waiting lists for social housing in January 2023. The same press release also announced a total loss of 165,000 social houses in the past decade. For those seeking to balance social impact that supports local communities with consistent returns in a market where demand far outweighs supply, investing in social housing could be an ideal opportunity to turn traditional buy-to-lets into a more affordable and accessible answer to the country’s housing crisis.
Despite a gradual decline in the number of individual social housing units since 2012/13, social housing development still holds significant potential for private property investors.
According to a 2020 report released by the Ministry of Housing, Communities and Local Government (MHCLG), 17% of English households lived in social housing owned by a local authority or housing association between 2016-2018, numbering approximately 3.9 million households.
The size of this market has not been lost on savvy investors, with many flocking to support its continued growth. The international social impact investment firm Big Society Capital (BSC) recently published a report showing that social and affordable housing accounts for as much as 48% of the social impact investment market, with investment funding increasing by 30% between 2020 and 2021 to reach an estimated £3.8 billion in value. This growth has been attributed to:
The relatively high returns of 5-10% offered by social and affordable housing investment when weighed against its few risk factors also add to its growing appeal among property investors. BSC claims that the potential of the market to deliver “long-dated, stable income that is inflation-linked and lowly correlated with other real estate income” makes the area particularly attractive to certain investors, especially those seeking to diversify their existing portfolios. Likewise, the obstacles faced by most social housing renters and the government regulation surrounding the market means that it is often safeguarded against the price fluctuations affecting the privately-owned property market.
A social rented sector report released by the MHCLG also revealed that social housing is typically more energy efficient than private housing with 61% of social homes sitting in the A-C EPC bands compared with 38% of private homes and 36% of owner-occupied homes. Similarly, the average cost to elevate a social home to at least EPC Band C was £5,979, which was lower than the cost for private homes (£7,646) and owner-occupied homes (£8,579). As such, Social housing may even minimise initial buy-in and maintenance costs for property investors seeking a quicker, heftier turnover and return on investment.
The unique combination of consistency, tangibility and opportunity that exists within the current buy-to-let social housing market makes it an increasingly popular investment option and one that should not be overlooked by those who want to develop a future-proofed portfolio.
The obvious benefits of social housing investment for local communities may start with increased affordability and accessibility to housing on a regional level, but that is far from where they end.
Shelter revealed that a total of 17.5 million people are living in overcrowded, dangerous, unstable or unaffordable housing in the UK, highlighting the level of dissatisfaction many are experiencing with the current housing market. With monthly rental costs and rough sleeping on the rise, the number of renters who will look to affordable and social housing as a solution will likely increase in the next few years.
The MHCLG also reported that a greater number of social homes met the Decent Homes Standard in 2019 than other homes, with only 12% falling short compared to 23% of private homes and 16% of owner-occupied homes. Considering the fact that vulnerable people are overrepresented in social housing, the consistency of quality may be especially appealing. At the very least, it should be a factor in the positive impact social housing investment can have on local communities.
The same MHCLG report also showed that renters in social housing typically rent their homes for longer periods of time. The average length of residence for a social renter is 12.2 years, which is significantly higher than the 4.3 years averaged by private renters. This not only suggests that investors in the space are more likely to enjoy consistent monthly returns with fewer vacant periods, but also that social housing can provide local communities with long-term housing solutions that give the most vulnerable members of the population some much-needed security.
Outside of the direct impact social housing investment can have on renters and their communities, it also supports housing associations and local governments in developing a housing stock that keeps up with population growth. By easing the burden of providing social and affordable housing, investors free up resources for other government projects and initiatives that better local communities.
There are a number of routes to getting involved in buy-to-let social housing. Property developers are constantly working to meet the new home targets laid out by the UK government, and even existing properties are being converted into social homes by housing associations and local councils.
For an easy, cost-effective entry into the world of buy-to-let social housing, Concept Capital Group is here to help. We build affordably priced modular homes that meet the British Standard Institute’s BS3632 specification to guarantee that they are qualified for year-round residential use.
Our tenancy and property management teams handle the more troublesome and time-consuming aspects of renting out a home. We even use government partnerships to source vulnerable and low-income tenants so our investors can comfortably collect a guaranteed monthly rental income with minimal hassle.
The self-contained construction process behind modular homes also means clients avoid the development risks and property fees associated with an investment in a brick-and-mortar social home, all for a single upfront cost of £42,999.
To find out more about how Concept Capital Group makes social housing investment simple, contact us today. We’ll put you in touch with a member of the team who will happily explain everything.