Learned in lockdown: Large real estate investors flocking into social housing in the UK

This summer Impact Investor talks to investors and entrepreneurs about how the pandemic shifted priorities. This week: Richard Stonehouse, Head of Residential Investment at Avison Young.

“I have never been so busy,” says Richard Stonehouse about how Covid changed his working life at Avison Young, a global real estate consulting firm. “Covid has positively impacted the dynamics of the UK residential market.”

A few years ago, there was very little capital deployed in residential housing. “Now we are seeing a major shift,” in particular towards affordable housing. Stonehouse signals a big rise in interest in shared ownership models, ‘rent to buy’ and assisted living.

It is an area close to Stonehouse’s heart, as he set up Jones Lang LaSalle’s affordable housing unit in 2014. He welcomes the shift because “more needs to be done”. Traditionally, investors were nervous about this sector, not least because it takes at least two years just to get registered as a social housing provider in the UK.

Avison Young has grown from a handful of UK employees in 2008 to some 6,000 today. In the UK, it has a commanding position in the Local Authority market.It is therefore not surprising that Avison Young has been advising some of the biggest investors in the affordable housing space, such as CBRE GI and Edmond de Rothschild.

‘Buying back the interest’

The trend of large companies launching for-profit social divisions has been given a ‘rocket boost’ by Covid, with Legal & General, Grainger, William Pears Group and British Land all increasingly involved in the space.

Often for end investors in affordable housing like pension funds, lower returns are balanced by the security of income.

“When you are operating with a 40-year lease with a local authority you are effectively offering pension funds the ability to buy back the interest.”

Creating solutions

But Stonehouse says that post-Covid there are also other, more exciting returns available. “A lot of impact investors are looking to ‘create a solution’,” he notices. They identify a major social problem, develop a business strategy, and then take the development risk.

“The returns for investors could be very high, certainly double figures,” he says, adding that the social impact can be significant. And local authorities in the UK are interested “when investors provide solutions.”

One of Stonehouse’s clients, PHI Capital Investments, recently announced they are working with Metropolitan Thames Valley Housing to re-house families with urgent short-term housing needs.

Another one, HS Property Group, based in Manchester, works on a number of projects in the North of England, most recently delivering emergency accommodation for those at risk of homelessness in Middlesborough.

Green housing

One other change Stonehouse is seeing following Covid is a much stronger focus on environmental issues, and how we can create ‘green housing.’

“Almost the single biggest change in the last year can be attributed to the environmental agenda.”

For green housing to be more economically viable, Stonehouse says it is vital for the UK Government to make development approvals less bureaucratic and to understand properly that investors will be attracted if they can see better income opportunities.

Electric car next

Given Stonehouse’s social and environmental awareness it is no surprise that he sticks with public transport for the daily commute. He does hope remote working will be entrenched in his life going forwards after enjoying it during the pandemic. “I really don’t miss the train,” he quips.

Even so, like many realtors, he is committed to a mixed working pattern – believing “we all need some time in the office and the creative buzz of having people around you.”

In any case, while he and his family were already very environmentally aware, Stonehouse is now committed to their next car being electric.