Stable, long-term, inflation linked rents
The affordable housing sector has long-term structural demand drivers, liability matching return characteristics, potential for growth and insulation from volatility, resulting in stable inflation linked income. It offers the best opportunity for social impact for long-term investors looking for responsible investment opportunities.
Rent payments rise each year, typically in line with inflation, offering a secure income stream and potential growth in the assets’ value over time, in exchange for an upfront capital amount.
Diversified and diversifying income stream
Affordable residential rents offer a diversified counterparty risk, through large numbers of residents and shared owners, resulting in lower overall counterparty risk compared to other real estate investments such as commercial real estate. Given the essential nature of the service being offered to residents and shared owners, the risk of rent arrears is comparatively low. An investment in affordable residential real estate also diversifies the investor risk when combined with existing real estate investments.
Reducing development appetite from competitors
94% of affordable housing is currently delivered by not-for-profit housing associations. As financial pressures build on these associations due to the increasing cost burden of energy efficiency initiatives, health and safety and fire safety, new sources of funding are required to deliver affordable housing. The sector needs new sources of capital and more developers and providers of good quality affordable housing. The UK has been delivering around 46,000 new affordable homes per year since 2013 but this is significantly short of need, particularly in some parts of the country. Savills analysis suggests that a further 60,000 new affordable homes are needed per year, with significant shortfalls in London and the South East (Affordable Housing – Building Through Cycles, Savills, 2018).
Below market rents ensuring ongoing demand
While the UK does not build enough homes to meet rising demand, the homes that are built are increasingly out of reach for ordinary owners. The 2018 Letwin review concluded that this is a result of the high price of land making it impossible to meet the need for housing through market delivery alone. In Letwin’s draft analysis papers, he refers to finding that the need for social rented housing is ‘virtually unlimited’, concluding that the market for social rented property is separate from the price-constrained market for open market sales. The solution to this problem is to ensure that new housing provides a wider range of tenures and includes more social and affordable housing for high levels of demand that cannot be met by the market.
ReSI’s Core Drivers
Wholly owned Registered Provider of social housing
Investing via a Registered Provider (ReSI Housing Limited), allows ReSI plc to hold and manage regulated affordable housing assets. These include grant-supported and Section 106 schemes.
The key benefits of investing via a Registered Provider include access to a larger universe of attractive investment opportunities available to ReSI, including:
access to government grant funding averaging £30,000 per new affordable home built with the added benefit of no stamp duty land tax; and
access to discounted Section 106 properties which are c.20% of all new homes that must be rented at a rent below market and as such are sold for lower prices by developers.
Long-term investment grade equivalent debt
ReSI has long-term debt with a weighted average life of 23 years and a weighted average cost of this debt of 2.6%. ReSI uses this debt to provide higher leveraged returns for investors while avoiding or mitigating the traditional risks of real estate debt – i.e. refinancing, valuation covenants and interest rate exposure. This is a debt strategy used most commonly by infrastructure funds and other secure income sectors.
The recently secured £300m ultra long-term facility with the Universities Superannuation Scheme (USS) is an innovative new agreement, which provides a benchmark that could unlock the development of much needed shared ownership homes.
Sustainable investment approach maximises social impact
ReSI and Gresham House are early adopters of The Good Economy’s Sustainable Reporting standard for social housing and have implemented a Housing Sustainable Investment framework to enforce sustainable investment goals.
ReSI’s shared ownership Customer Charter and Environmental Charter drive best practice for the shared ownership sector.
20 year proven track record financing and advising social housing
The fund manager’s direct parent company, TradeRisks Limited, has been active within the social housing sector for over 19 years as a funding arranger and advisor and, over the last three years, as an investor through ReSI.
The fund manager and its parent, TradeRisks, were acquired by Gresham House in March 2020, further increasing the investment expertise available to ReSI. The housing investment team at Gresham House has 15 members and growing, with an average of 20 years’ relevant experience, covering fund management, housing investment, social housing management and financial and risk expertise.
Secure rents underpinned by pensions, housing welfare or shared owner stakes
ReSI’s residents pay their rents from secure income sources. Retirement rentals residents pay from pensions and savings, the local authority housing portfolio is leased to Luton Borough Council and shared owners have ownership stakes in their homes. ReSI’s rental income stream is therefore significantly more secure than those from the private rental sector (PRS) or commercial real estate.