Operating in a sector so often labelled as ‘in crisis’, it’s easy to forget that housing is a safer investment than many realise, says Chris Benn
City grandee Sir Nigel Wilson published a report this month that outlined how Britain will need to invest £1tn over the next decade to realise its growth potential. It’s a statement of bold ambition, but also a reminder of the scale of the challenge to reignite the UK’s flat economy.
But in Wilson’s own words, “there are many potential positives for the UK, and far from subscribing to ‘doom loop’ thinking, we are optimists.”
I echo this sentiment. And operating in a housing sector so often labelled as ‘in crisis’ or ‘falling short’, it’s easy for many to miss the opportunities and slip back into the thinking that homes are a perennial problem for the UK, rather than a market with a foothold to flourish.
We know first-hand the role the capital markets can play in accelerating the delivery of new homes.
Last year, we issued a £250m bond and part of it has been used to help fuel our biggest housebuilding programme ever. Our £585m two-year commitment has the capacity to deliver 2,300 affordable homes across London and the south of England.
But this is just one of the many ambitious build programmes that need to get started if the social housing sector is going to be able to help the government meet its aim of delivering 370,000 homes a year. This is why up to almost a third of the £100bn yearly investment recommended by the Capital Markets of Tomorrow report is dedicated to the UK’s housing stock. We need to make clear why housing is a valuable asset class if we’re to unlock the funding needed.
As safe as houses
From an investment perspective, housing is a safer bet than many realise. The sector provides strong long-term returns, borrowings are typically secured and much of the underlying business is government-backed, such is the need for the market to operate at pace and scale. This is even more so the case for social housing, given it’s not as exposed to economic volatility as homes on the open market.
There’s an additional, sustainable by-product too. Homes must be EPC C-rated by 2030, so a considerable chunk of funding is being directed to making homes ready for net zero. This helps investments qualify for funds’ ESG targets and puts money towards a more sustainable housing stock.
We’re using our bond issue to boost the green credentials of our existing homes, and our joint venture with housebuilder Thakeham is one example of the partnerships prioritising new net zero carbon homes. The net zero carbon scheme in West Sussex will deliver homes that leave no carbon footprint, as a result of timber frames, solar panels and an array of features to boost efficiency and self-sufficiency. Additional capital markets funding will undoubtedly be needed to unleash even more green-first housing projects.
Sustainable growth applies to the economy, as well as the environment, and it’s ultimately the crux of Sir Nigel’s report. This is perhaps where new homes – particularly those available for social and affordable rent – have the greatest impact.
Homelessness charity Shelter and the National Housing Federation published research in February that found that delivering just 90,000 social homes over the next decade would add £51.2bn to the economy, with nearly two-thirds of that realised in the first 12 months after construction.
Building new affordable homes directly creates new jobs, both through construction and management of them once complete. But the indirect benefits of the new homes continue – homelessness is reduced, employment across all sectors increases and the outlay on housing benefit and healthcare provision is cut. These are the hallmarks of a strong society and economy.
So, when considering the sector as a whole, beyond social rent, the £30bn a year of investment in Britain’s housing stock recommended by the Wilson report very suddenly looks a trivial amount when compared to the hundreds of billions a vibrant, growing and secure British economy will yield in the long run. Housing’s not a problem, it’s an opportunity.
Chris Benn is chief financial officer at Aster Group