Investment secured by an octopus in low-cost housing projects across the UK by Big Society Capital
In the face of a persistent housing shortage, key players in the UK social investment market are joining forces to address the issue. This collaborative effort, which grew out of a government-backed initiative to invest money from dormant UK bank accounts, is making a significant impact.
One of the notable players is Octopus Capital, managing over £360 million and owning around 500 affordable homes across the UK. Octopus Capital focuses on delivering high-quality, energy-efficient homes through patient, long-term capital, while maintaining a focus on sustainability and community needs.
UK pension funds have also shown their commitment to the cause, recently pledging an additional £118 million to Octopus Capital's Affordable Housing Fund, which aims to raise £1 billion by 2026. This fund is specifically designed to tackle the chronic shortage of social and affordable housing by leveraging long-term institutional investment aligned with government priorities.
The UK government is providing substantial underpinning for investment in affordable housing. A £39 billion commitment over the next decade under the Social and Affordable Homes Programme aims to deliver about 300,000 social and affordable homes, with at least 60% being social rented homes, six times the previous decade’s output.
Local councils and housing associations play a crucial role, leasing social housing properties long-term to offer secured rental income that attracts private investors. Given the high demand—over 1.3 million people on social housing registers and 1.2 million households waiting—local authorities are actively seeking private capital partnerships to rapidly increase housing stock.
Charitable and impact-focused investors, such as the Joseph Rowntree Foundation, also contribute to the cause by supporting temporary and supported accommodation, helping to address the rise in long-term renters and wealth inequality in access to housing.
Recently, Octopus Investments, a part of Octopus Group which also includes UK sustainable energy provider Octopus Energy, raised an additional £10m for its Affordable Housing Fund from social impact investor Big Society Capital (BSC). The Affordable Housing Fund aims to finance thousands of new homes in the UK, built to "robust" sustainability standards. The fund has now made its first deployment through forward funding, committing to acquire 26 homes near Peterborough in eastern England from Vistry Homes.
The housing shortage in the UK is a key issue that impact-driven private capital aims to address. The area where the homes are being built is one of high housing need, where provision of new affordable housing over the last four years has been less than 50% of what was required. All the homes are expected to be ready by April 2025.
The affordable housing investment market is growing, and investors are attracted by the potential to generate long-dated sustainable income, low correlation to other real estate sectors, and the ability to have real tangible impact. Real estate investors are paying more attention to social and environmental considerations, in part due to stakeholder pressure and tighter ESG-related requirements in Europe and elsewhere.
The Avon local authority pension fund in southwest England has announced plans to increase investments in affordable housing and renewable energy. The focus on affordable housing is growing among social impact investors in the UK due to the failure of supply to meet demand and rising costs.
A report from Octopus Real Estate, published in October 2023, revealed that registered social housing providers are expecting a decline of over a fifth in their development pipeline in the short-to-medium term. This underscores the need for continued collaboration and investment to address the housing shortage in the UK.
In summary, key actors include Octopus Capital, pension funds, local councils, government programmes, and social impact investors, all aligned to deliver a substantial increase in affordable housing through sustainable, long-term investments facilitated by secure rental income streams and public sector partnerships. This collaborative effort aims to tackle not only the quantitative shortage but also the quality and sustainability of the housing, enhancing investor confidence and scaling up delivery possibilities significantly.
- Octopus Capital, a notable player in the social investment market, aims to deliver energy-efficient, affordable homes through patient capital, focusing on sustainability and community needs, and recently received additional financing from UK pension funds and Big Society Capital for its Affordable Housing Fund.
- The UK government is providing substantial underpinning for investment in affordable housing, with a committed £39 billion over the next decade aiming to deliver 300,000 social and affordable homes, and local councils and housing associations are crucial for offering long-term leases on social housing properties to attract private investors.
- Charitable and impact-focused investors, such as the Joseph Rowntree Foundation, contribute to the cause by providing temporary and supported accommodation, addressing the rise in long-term renters and wealth inequality in access to housing.
- Real estate investors are increasingly prioritizing social and environmental considerations, attracted by the potential for long-dated sustainable income, low correlation with other real estate sectors, and the opportunity to have a tangible, positive impact on the housing shortage in the UK.
