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Octopus draws in Big Society Capital investment for UK affordable housing

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Published: 1 February 2024

A £10m commitment from the social impact investor bolsters a fund expected to finance thousands of new homes and which has now made its first deployment.

BSC: “Impact-driven private capital had a vital role to play in addressing the UK’s housing shortage” | Aerial photo of residential area in London | Roberto Catarinicchi on Unsplash

Octopus Investments, a UK-based investment manager, said it had raised a further £10m for its Affordable Housing Fund from social impact investor Big Society Capital (BSC), following a £50m first close for the fund in December. 

The fund aims to accelerate the delivery of good-quality, affordable homes in the UK, built to “robust” sustainability standards. The £50m raised at the first close came from London CIV, an investment pool for 32 of London’s Local Government Pension Schemes.

Octopus said that initial capital would enable more than 500 affordable homes for families and older people to be built across the UK and was the first step in a meeting an overall target of funding 5,000 homes to be built in coming years.

The fund has now also made its first deployment through forward funding, committing to acquire 26 homes near Peterborough in eastern England from Vistry Homes. The builder is part of the Vistry Group, formerly known as Bovis . 

BSC said 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.

Octopus Investments is part of Octopus Group, which also includes UK sustainable energy provider Octopus Energy. Jack Burnham, head of affordable housing at Octopus Investments, said the affordable housing investment market remained nascent, but was growing.

“We continue to receive strong demand from investors. They 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,” he said.

Drew Ritchie, investment director at BSC, said impact-driven private capital had a vital role to play in addressing the UK’s housing shortage. He described Octopus as a “best-in-class” manager with an investment model that could unlock capital at scale, and which had a strong focus on providing high-quality, affordable housing.

“We were keen to back the fund’s equity partnerships model that can work hand-in-hand with the housing association sector to maintain and increase new affordable supply,” he said.  

BSC is a key player in the UK social investment market, which grew out of a government-backed initiative to invest money from dormant UK bank accounts, It is funded from those accounts, as well as the UK banks Barclays, HSBC, Lloyds and NatWest.

Acute supply shortage

Affordable housing provision is a growing focus for social impact investors in the UK, given the failure of supply to keep up with demand in recent years and the rising costs of both house purchases and rentals. For example, the pension fund for the Avon local authority area in southwest England, has said it would step up investments in affordable housing and renewable energy investments.  

However, the financing situation remains acute. A report from Octopus Real Estate published in October 2023 found that the registered social housing providers surveyed were expecting a decline of more than a fifth in their development pipeline in the short-to-medium term.     Affordable housing has long been a target for specialised investors seeking to make a social impact. However, as Impact Investor reported recently, real estate investors in general are paying a lot more attention to social and environmental considerations, in part due to stakeholder pressure and tighter ESG-related requirements in Europe and elsewhere.

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