At its financial core, affordable housing just makes sense for property investors.

During an economic downturn especially, affordable housing will always be a necessary and potentially lucrative resource. According to a 2023 UK Real Estate Market Outlook by CBRE, the affordable housing sector has not only remained strong despite recent financial uncertainty but is also likely to see an increased amount of partnerships between housing developers and private capital due to the growing gap between sector demand and government supply.

Though 2019 saw the Conservative government establish a target of 300,000 homes a year by the mid-2020s, in its manifesto, current evidence suggests that it is not on track to meet that goal. Moreover, housing affordability has remained a problem, with only 5% of private rentals affordable on the country’s frozen housing benefits. This obstacle to affordable housing has only been compounded by a decades-long fall in social housebuilding leading to an ongoing social housing deficit.

The road for those seeking affordable housing and rents during this housing crisis is a rocky one, but private investors have the potential to help address some of the persistent issues holding the affordable housing sector back while netting a healthy profit in the process.

Interested in building more affordable housing into your portfolio but not sure if it’s the right move for you? Here are three reasons affordable housing is a worthy investment in today’s housing market.

What is Affordable Housing?

According to the property website Zoopla, affordable housing is residential property that is available to buy or to rent specifically for people whose needs are not met by the housing market. The official UK Government definition suggests that affordable housing must be provided at a level at which mortgage payments are greater than the amount that would be paid in rent on council housing while remaining below market levels.

Affordable housing encompasses a number of individual schemes, including

  • Shared Ownership
  • Rent to Buy
  • Social Rent
  • Affordable Rent

Affordable housing schemes are typically funded and subsidised by the government to help offset the cost of private sector housing and maintain a decent standard in the housing market.

Reasons to Invest in Affordable Housing

1. Major Demand Means Major Returns

According to the Office for National Statistics (ONS), 59,175 affordable homes were completed in England between 2021 and 2022. While this marked an increase of 13% since 2019-20, a recent report by the National Housing Federation (NHF) tells a different story, with an estimated 8.5 million people in England unable to access the housing they need. Whatever housebuilding metrics might say, the unfortunate truth is that demand for affordable housing is outpacing supply by a significant margin and forcing an overreliance on suboptimal temporary or private-sector alternatives.

Evidence for the growing unmet demand for affordable housing can be found everywhere. According to the NHF, 1.88 million people on the social housing waiting list are there due to affordability problems. A further 3.4 million people reported being pushed not poverty by their housing costs and a recent BBC News report has suggested that demand has risen so much that modern renters are competing with 20 others to view a single home, almost triple the number of viewing requests in 2019. The need for affordable housing, however, is a systemic one that can only be lessened by a real commitment to meeting, or even exceeding housebuilding targets.

That is where property investors and landlords who branch into affordable housing projects stand to make consistent, recession-proof profits.

2023 report on closing the gap in the affordable housing market by Octopus Real Estate suggests that registered providers of social housing can expect a 22% reduction in their development pipelines due to rising construction costs and interest rates. As landlords and property investors are forced to tackle net zero targets and disrepair by retrofitting their existing homes, however, equity partnerships between registered providers and private investors are expected to introduce new opportunities for innovation and construction growth.  

According to a survey by Inside Housing, 49% of property investors were more likely to work with For-Profit Registered Providers (FPRPs) and equity partners than 12 months ago. Considering FPRPs currently own more than 28,000 affordable homes in England, representing a disproportionate 35% increase since 2022, it stands to reason that interest in government and private sector partnerships to meet affordable housing demand will only increase in time.

2. The Private Rented Sector Falls Short

In the private rented sector, those searching for affordable housing and rent schemes are often disappointed by what they find. This can often mean landlords using inflated rent costs to cover rising mortgage interest rates, but a more harmful obstacle renters have had to contend with in recent years is inadequate housing quality.

According to a recent article from the Guardian, a quarter of UK private renters have become “overburdened” by their housing costs, with over 40% spending half of their income on them. Were this not enough, the share of people living in poor-quality housing is significantly higher in the UK than the EU average, effectively making England the worst place in the developed world to find good-quality housing.

Despite their poorer quality, ONS data has shown that affordable properties in the private rented sector also have heating and water costs that are 19% higher than the national average, with 25% failing the Decent Homes Standard laid out in the upcoming Renters Reform Bill. The declining share of affordable social housing has also been shown to have a direct impact on the relative quality of available private rentals. Considering the associated costs of having to scale those properties to meet transformative legislation like the Renters Reform Bill and compete with new builds that follow 2025’s Future Homes Standard, it seems increasingly likely that landlords operating in the private affordable home sector will be in for a rude financial awakening that will further impact low-income tenants.

For current and future property investors, new affordable housing initiatives can not only fill a core market gap by compensating for the lack of quality in the sector but also serve as a form of futureproofing against future legislation.

3. It’s Easier Than Ever!

The affordable housing market stands at something of a turning point.

The recent introduction of a larger Affordable Homes Programme for 2021-26 means that developers building social rent and supported housing with modern methods of construction will benefit from £11.5bn in increased government funding. This has allowed the previous grant of £31,000 per home to more than double to an impressive £64,000 per home.

Upcoming changes to minimum EPC standards and the aforementioned legislation being passed to ensure a superior standard of quality and energy efficiency in new homes means savvy investors could seize one or more of the many opportunities to buy into affordable housing as more financial and political attention is turned to it.

And, with an NHF poll recently showing strong support for affordable social housebuilding from the UK’s main political parties, it seems the future of an affordable housing investment could easily survive a political shakeup.

How to Invest in Affordable Housing

Private investment in affordable housing has been increasingly relevant in recent years due to the UK Government’s inability to meet social and affordable housebuilding targets.

According to research on equity investment in affordable housing by Savills, the current need for investor capital among for-profit registered providers (FPRPs) is on the rise. Ownership of affordable homes by FPRPs rose by 35% in 2023, with investor appetite for affordable homes forecasting continued growth this year. In fact, JLL research forecasts that private capital will account for one in five new affordable homes by 2026.

While there are many FPRPs and real estate companies that offer social and affordable housing investment opportunities, these can often be inaccessible due to heavy competition, extreme demand and a persistent shortfall in supply.

Concept Capital Group offers an affordable, readily accessible alternative to affordable housing investment built to demand. Our properties actively contribute to the affordable housebuilding with a streamlined process that minimises the cost for investors and the wait time for tenants.

What Impact Can Investing in Affordable Housing Have?

The positive effects of investing in affordable housing extend beyond providing stable and secure housing for some of the UK’s most vulnerable renters and homebuyers.

A 2023 study carried out by the Greater London Authority (GLA) shows that increases in the supply of affordable housing can not only lower general housing costs in the long term, but also increase the affordability of other housing in the short term. This indirectly makes homes in the surrounding area more available, especially to low-income households.

Further research by the housing charity Shelter reinforces the importance of affordable housing with a host of findings, including:

  • 21% of 18 to 44-year-olds without children are delaying starting a family due to a lack of affordable housing
  • 28% of people in the UK have reduced their spend on food to cover their rising housing costs
  • 5.6 million people in the UK have claimed that high housing costs affect their ability to move for employment
  • 50% of renters do not believe that they will ever be able to afford a home in their local area
  • 44% of people in the UK think the next Government should prioritise the supply of affordable homes.

This not only suggests that affordable housing has an impact on the general affordability and quality of life experienced by people in the UK, but also that impact investing in affordable housing could drastically improve lives while meeting heavy market demand.

Affordable Housing with Concept Capital Group

At Concept Capital Group, we build affordable housing for a pre-approved list of vulnerable tenants using one of the most cost-effective and energy-efficient approaches to building modern homes: modular construction. Our properties are built to the British Standards Institution’s exacting BS3632 specifications, ensuring that they are suitable for year-round residency that meets contemporary requirements for energy efficiency, heat insulation and comfort.

We make investing in affordable housing simple through our all-inclusive property and tenancy management services, tackling the day-to-day responsibilities of owning a buy-to-let property so you can enjoy your passive income with less unnecessary activity. And, with each of our homes being manufactured, dispatched and placed at one of 126 sites across England and Wales entirely by our team, you can rest assured that disrepair and poor housing quality will never be an issue.   

For more on what investing in affordable modular homes can bring to your portfolio, contact our team today.

Concept Capital Group

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