These homes are being built with communities in mind, so people will want to live in them – leading to a better chance of a long-term, secure income.
– Vidhya Alakeson Power to Change Chief Executive
Investment in housing is nothing new. But as society starts to demand business and investors take social impact more seriously, the housing market is catching up. A growing army of affordable housing investors understand that while their returns may be lower than the luxury market, they are safer, more reliable and have a social as well as economic impact.
The move is a positive one and reflects not only the reality of housing costs for the majority of people, but also a shift towards a more responsible investment world. Less than a year ago Larry Fink, Chairman and Chief Executive Officer of BlackRock, Inc wrote in his annual letter to CEOs that ‘society is demanding that companies, both public and private, serve a social purpose.’ With housing costs a major issue for millions of people worldwide, it is hard to think of a better industry to serve this mission.
A small but rapidly growing segment of the housing market remains overlooked by investors but has much to offer – community-led housing. These developments are often genuinely affordable in perpetuity, exploit land that larger developers won’t, and contribute to local economic development by giving communities long-term control of assets. They are designed with the communities who live in them front and centre. This means they are fit for purpose, are well maintained and designed to sustain communities long term. For investors, this means they will retain their value – and earn safer, more reliable, long-term returns.
A number of inspiring organisations across England have already created homes in this way. In Bristol, a group of residents from the St Werburgh’s area came together to fight a proposed development in a disused scaffolding yard. Forming their own housing group, they bought the land – and 10 years on have built over 40 homes and a community of over 100 residents. The development also includes several initiatives such as a ‘village green’ and a community centre. The group has now purchased a second site, Bridge Farm in Lockleaze, Bristol, with the aim of renovating the land’s old farmhouse, converting the outbuildings, creating new housing and managing the open space.
Community-led housing has traditionally been small but is reaching a tipping point, thanks to strategic investment. Organisations like Power to Change have been priming the pump with our £10m fund for early stage investment; but the UK Government’s £163m Community Housing Fund, specifically designed to boost this sector, is the real game changer.
Now is the time for impact investors to start looking seriously at community-led housing. There are long term, relatively low risk returns to be made and a range of fund managers with specialist knowledge.
Medium-term investors can support projects during the development stage. Equity is particularly needed to support groups through the development process; to leverage mainstream financing, and grow interest in the role that community shares can play.
There are also long-term prospects for rental properties with the attraction of real asset returns that have a link to inflation.
Investment could also stimulate communities to raise their own equity through community shares, much as it has in the community energy market. We recently supported Leeds Community Homes, a Community Land Trust, with a grant of £9,000 to get a community share offer off the ground and invested in shares worth £100,000 on an equal basis with the community. This enabled the Trust to raise a further £260,000 in community shares largely from local people,. This is vital equity for its planned 1,000 people-powered homes in the city.
Compared to other social investments, the risk profile for community-led housing is relatively low. Because the homes are being built with communities in mind, people will want to live in them – leading to a better chance of a long-term, secure income. Plus, the future income stream has a low dependency on government funding. There are a growing number of funds in operation and in development to allow investors to provide finance at scale across a number of projects.
Of course, community-led housing is not going to be for everyone. Some investors will always be more comfortable with the high risk, high return luxury housing market. But for those who agree with Fink’s assertion that society now demands companies to demonstrate a social purpose, community-led housing offers a real win-win. This is not about ticking a charitable box – it is about long term value creation both for investors, and for the world we live in.