Institutional investors and for-profit registered providers are expected to triple their portfolios of affordable housing to over 86,000 by 2028, as predicted by Knight Frank’s Affordable Housing Market Update report.
There are currently 69 for-profit registered providers, three times what we’ve seen in the past decade. These providers currently own just over 29,000 homes.
Three quarters (77%) of these providers plan to increase their investment into the tenure over the next five years.
Oliver Knight, head of residential development research at Knight Frank, said: “With huge supply and demand imbalances and traditional housing associations facing financial headwinds, institutional investment can play a vital role in plugging the affordable housing gap.
“Just 63,605 new much-needed affordable homes were build last year in England, chronically behind the estimated 145,000 needed annually.”
The surge in institutional capital entering the market comes as the supply of new affordable homes falls far behind demand.
Government figures show there are currently 1.2 million households on social housing waiting lists in England, unable to access affordable accommodation.
Previous forecasts by the National Housing Federation suggest we need to be building 145,000 new affordable homes annually to keep up with demand.
Knight Frank has said that in the short-term housing associations have stated their plans to scale back development programmes to focus on investment in existing stock.
According to the survey, 50% of respondents identified a lack of subsidy or grant funding as the biggest obstacle to increasing supply.
This has forced many to row back on development plans, creating opportunities for FPRPs and investors to increase their market share.
ESG performance is now the top factor drawing investment into affordable housing, with a growing prevalence of sustainable features like air source heat pumps, now required by 43% of providers for new schemes.
Nearly 80% of respondents in the survey said they are targeting a minimum EPC rating of B on new affordable housing developments and acquisitions going forward.
Rising partnership models between investors and housing associations are also expected to unlock additional development capacity.
The firm’s survey also highlighted a growing reliance on partnership models to boost affordable housing supply.
Grant-funded development remains the preferred route, however, 40% of respondents said partnerships have become a more important delivery mechanism over the past year.
Paul Hawkey, head of affordable housing at Knight Frank said: “Over the next five years, the affordable housing sector is poised for a transformative shift as investors aim to expand their market share, driven by long-term secure income streams, inflation hedging capabilities, and the environmental, social, and governance (ESG) benefits of delivering affordable homes, as highlighted in our survey results.
“Looking ahead, innovative partnership models that bring together investors and traditional housing providers will be crucial to unlocking new development and boosting supply to meet the nation’s rising demand for affordable housing.”
