Investors ‘potentially damaging housing business models’, MOTB attendees told

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Investors looking for “cutting-edge, high-end returns” on social impact funds that target homelessness are “part of the problem” and not helping to address the affordable housing crisis, attendees at the Room151 Monthly Online Treasury Briefing (MOTB) have been told.

John Dunn, property fund development manager at Resonance, a social impact investment company, said that investors looking for an 8% or 9% return on funds addressing homelessness were pressurising housing providers to require CPI+ increases in annual rents.

“You are potentially damaging the business models of those housing providers and are pushing unsustainable rent levels down onto the customers,” he said.

“If you are looking for sustainable returns that contribute to a sustainable housing market, you can do that with social impact investments. If all you have is an eye on the bottom line and the maximum return that you can get on investments, you are going to make mistakes that you will pay for further down the line.”

Housing’s revolving door syndrome

Dunn suggested that if arrangements between fund managers and investors on affordable housing projects are purely financial it could lead to a “revolving door syndrome” – where people are helped off the streets only to end up back there a few months or years later.

“You have to have housing providers that have the space and the financial capacity to deliver the kind of housing management that enables people to stay put – where eviction, for example, isn’t the first port of call when somebody gets in to rent arrears.”

He said investors should look for impact funds that provide metrics that facilitate a long-term, sustainable private rented sector, such as children’s attendance at school and households signing up to local health services.

Omar Al-Hasso, managing director of Phi Capital |Investments, a property investment company that works in partnership with the public sector, said there were different types of funds for different types of investors.

“You can create social impact and financial return together, but it depends where in the journey you are. A fund that is looking to develop and take on development risk, planning risk and build housing is a clearly different profile to the social impact investor that is a long-stay investor providing quality accommodation.”

Risk and return

He pointed out the link between risk and return. “You are not going to be providing a long-hold fund that is going to be creating, 7, 8, 9 or 10% yields. You are going to be at the other end of the spectrum, but you are also playing a different game where you are taking less risk and therefore there is less return required.”

Al-Hasso said that collaboration was needed between the public and private sectors to address the temporary accommodation crisis. Currently, local authorities in England pay close to £1.5bn a year on temporary accommodation, of which 80% is spent in the private rented sector often on substandard housing.

He emphasised the importance of local authority housing teams having a close relationship with their finance teams, but said that this wasn’t always the case.

Cecilie Booth, director of resources and section 151 officer at Peterborough City Council, agreed that senior buy-in from the finance function was essential to addressing homelessness, rough sleeping and affordable housing.

“I am very passionate about housing, but I don’t think that is always the case for accountants. I think we are more interested in making sure we can achieve as much as possible for as little as possible. We are always looking for savings and efficiencies. And it is really difficult to balance the finances and actually deliver what we need to deliver.”

Booth said that CFOs and finance officers were not always aware of how councils dealt with homeless people when they are seeking help. She gave the example of a distressed woman who had presented herself as homeless at the council and been given a phone number to ring to get support – but the number went unanswered.

She admitted this was an “eye-opener” for her and the issue had now been raised with Peterborough’s senior leadership team.

Rural and urban approaches

Steve Mawson, deputy chief executive and executive director of resources for Gloucestershire County Council, emphasised the importance of partnership. Gloucestershire’s Strategic Housing Partnership involves the county council, six district councils, plus police and NHS representation.

“There is a big difference between a rural setting and an urban setting – we try to bring problems to the table and solve them collectively,” he said.

The MOTB session also included an update on the latest economic news and the outlook for inflation and interest rates from Heather Lamont, client investment director at CCLA.

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