It is no coincidence that the right to adequate housing is included in the UN’s Universal Declaration of Human Rights. The place you call home has a fundamental impact on your life. It is at once your roadside inn, your granary and your fortress. It is where you sleep, where you eat and where you shield yourself from the world beyond. In the words of the Declaration, adequate housing is one of the most basic human needs, and is essential for human dignity, physical and mental health, and overall quality of life. This has never been more appparent than after a year largely spent indoors.
Among its many tragedies, the pandemic has exposed – and exacerbated – one of the great faultlines in our society. It has simultaneously shone a light on the plight of people who live in unsuitable and inapropriate housing, and expanded the number of people who are unable to access or afford the housing that they need and deserve. Even before the pandemic, four million people in the UK were on social housing waiting lists.
One area that is particularly concerning is the shortfall of housing for those with care needs: people with learning disabilities, autism, physical disabilities and other long-term conditions. Many of the most vulnerable in the UK are housed away from friends, family and local communities in institutional care settings, like long-stay hospitals and care homes. These settings deprive people of the independence that they need to live healthy, fulfilling lives while costing the state more than is necessary. With the Government’s finances under strain even before the pandemic, it’s unlikely the Government alone will be able to provide the high quality, community-based homes that it wants but too often cannot afford.
Growing momentum for impact investing
Fortunately, over the past year, we have seen a step-change of interest from individuals and institutions to use their investments as opportunities to support positive societal and environmental change. In 2020, investors injected record sums into sustainable investment vehicles and by 2025 assets in sustainable investment products in Europe are expected to outnumber conventional funds.
The increasing enthusiasm for sustainable investing in part reflects the awareness that companies should be accountable to society. In 2019, the CEOs of nearly 200 major US companies published a statement reversing decades of corporate orthodoxy, acknowledging that businesses should pursue a wider stakeholder value.
But there is a growing recognition that sustainable investing can provide more than a warm glow. Research from Morningstar, which examined the financial performance of 745 European ESG funds, showed that the majority of them outperformed their non-ESG peers over one, three, five and 10-year periods (https://www.ft.com/content/733ee6ff-446e-4f8b-86b2-19ef42da3824).
It is perhaps counter-intuitive that sustainable investing is often better for your purse as well as the planet. Part of the explanation for the ESG funds’ outperformance may lie in their low exposure to assets that were badly hit by the pandemic, such as oil and gas. But companies and investors that focus on their societal and environmental impact tend to be more discerning about their supply chains and partners, which can help manage risks and unlock value. Besides, businesses that focus on meeting societal challenges are often the most resilient, precisely because they provide the services that our society cannot live without.
Sustainable property income through social housing
In light of all this, it may come as no surprise that social housing is an asset class that is increasingly attractive to socially conscious investors. To start with, social housing benefits from strong fundamentals, such as chronic demand and support by Government policy. For decades, we have built fewer homes than are needed against a backdrop of a rising population: the shortfall of supported housing, a type of social housing for those who are vulnerable, is estimated to be 46,771 units by 2024-2025.
Beyond this, social housing has shown its resilience in times of economic turbulence. Triple Point Social Housing REIT plc (ticker: SOHO) is a listed social housing fund that uses private capital to acquire, or fund the development of, newly built or newly renovated housing in the community for people with long-term care needs whose rent is funded by Government. This type of housing, called Specialised Supported Housing, is developed in conjunction with local health commissioners precisely because it has been shown to improve resident wellbeing while saving the Government money. Despite the pandemic, in 2020, Triple Point received 100% of rent due because its housing provides a critical piece of social infrastructure that is needed irrespective of the state of the economy.
Social housing is developing as an asset class. At the end of 2020, Triple Point joined 70 organisations (39 housing associations, and 31 lenders and investors) who committed to become early adopters of the Sustainability Reporting Standard for Social Housing. This industry led initiative will promote the adoption of high-quality standards for measuring, managing and reporting social and environmental outcomes in a transparent and consistent way for investors and other stakeholders.
Due to the chronic shortage of social housing in the UK, there is likely to be strong demand for this type of housing for the foreseeable future. For investors looking to make a positive impact on society, social housing represents an opportunity to generate sustainable, long term, inflation-linked income while helping to address one of society’s most pressing challenges.
