1. A GROWING HOUSING CHALLENGE
DEMAND FOR HOUSING IN THE UK IS INCREASING RAPIDLY
The population of the UK has grown from 56 Million at the
start of the 1980s to 67 million in 2019. Growth has been
most rapid in recent history, at almost 5 million over the last
decade alone, driven by string rates of natural change and
net migration to the UK. Growth is expected to slow from this
point but remain robust.
Falling household sizes have caused household formation to
outpace population growth. There are many factors driving
this change, increased life expectancy, greater migration,
and falling fertility rates have all contributed. This trend is
expected to continue over the coming decades which will
support household formation rates.
It is estimated that there are currently 28.3 million
households in the UK, an increase of 2.4 million or almost
10% from 10 years ago. Over the coming 20 years an
average of 240,000 new households are expected to form
each year. These projections combined with an existing
backlog of housing need means estimates of an additional
housing requirement of 240,000 to 340,000 dwelling units
per annum.
The government has now set a target of delivering 300,000 new
homes per year, which assumes that this level of
housebuilding is actually deliverable. Given estimates
mentioned above, even meeting this target may not be
sufficient to meet future housing need.
UK AFFORDABLE HOUSING
THE INVESTMENT OPPORTUNITY
In the UK there is a structural mismatch between the demand for, and the supply of housing. Consequently, the cost of housing
has increased rapidly, in excess of both earnings growth and wider inflation. This deterioration in affordability has led to a shift
in tenure mix towards rental accommodation and increased demand for affordable housing. In the face of this pressure there are
a number of significant obstacles keeping supply from responding. These include a lack of adequate funding for provision of
affordable housing, supply chain dynamics and ownership stock. This presents an opportunity to private investors to step in and
fill the funding gap.

2. Key Investment Features
3-YEAR SOCIALLY RESPONSIBLE INVESTMENT WITH AN 8% GOVERNMENT BACKED
RENT PAID TO INVESTORS ON A BI-YEARLY BASIS
Conclusions
Investment in the affordable housing sector is underpinned by a persistent demand-supply mismatch in the UK housing market
short-term. The very significant requirement for new affordable housing requires funding as traditional forms of government
funding have been removed, and presents an opportunity to private investors.
For the investor, the sector offers secure, predictable income predominantly supported by the UK government, and (typically
uncapped) index-linked rental growth. As such it is particularly well aligned with the objectives of liability-matching investors.
As well as the attractive risk-adjusted return profile, investment in the sector has the potential to be an effective diversifier in a
real estate portfolio, proven resilient through difficult economic conditions whilst making a significant contribution to social
objectives. These things mean that it is likely to be a sector that sees rapid growth.
RESILIENT TO ECONOMIC SHOCKS
Unlike other property sectors where property rental growth is
typically strongly correlated to economic growth, affordable
housing has almost no correlation because of the structural
undersupply of affordable housing and the regulated nature of
the sector and a cash-flow based valuation methodology. The
affordable housing sector is therefore relatively resilient to
economic shocks. In the same way, the affordable housing
sector is insulated from sharp price movements in the private
housing market.
Housebuilding has historically been curtailed during economic
downturns, which has led to less affordable housing delivery.
This provides support to the sector in more difficult times
since household formation does not slow to the same extent.
In fact, during economic downturns the number of households
eligible for and requiring affordable housing is likely to rise.
INVESTMENT ACHIEVES HIGH SOCIAL IMPACT
Institutional investors are placing increasing importance on
Environmental, Social and Governance (ESG) impacts of
their investment strategies. This is more broadly described as
‘Impact Investing’. Impact investments are investments made
into companies, organisations, and funds with the intention to
generate positive social and environmental impact alongside
a financial return. It was investors in equities that led this
trend, where the ESG characteristics of individual
investments would be more quantifiable than in other asset
classes. However, investors in real estate are now following
with initial emphasis on environmental and governance
impacts.
Investment in social and affordable housing provides the
capital needed for projects that support the social goal of
providing homes to the households in greatest need. This
strategy helps some of the most vulnerable in society and
assists towards alleviating the wider housing shortage. In
doing so it is a strategy that contributes towards investors’
ESG targets with a high social impact.
In order for the above points to be valid however, it is essential
that investments are made for the long-term, rather than
quickly attempting to realise capital gains through a sales
strategy. Only in this way is long-term security provided to the
Registered Providers and so also to the individual tenants.
It is likely that impact investing will continue to gain traction
with a wide range of investor groups, which should mean a
growing investor base and consequently increased liquidity in
the sector.
A SOCIALLY RESPONSIBLE & ETHICAL INVESTMENT
A 3-year fixed term with annual income payments of 8% plus a
16% maturity bonus
Average annualised returns of +13.33%