Charity begins at home

Why social housing deserves a place in your portfolio

Conan McKenzie
Portfolio Manager, BlackRock

Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.

As I live in a building that was once an almshouse, I’m constantly reminded of the long history of charitable involvement in housing. First established in the tenth century, almshouses were built to provide accommodation to those in need. The UK’s oldest operating almshouse, St Oswald’s Hospital in Worcester, was founded in 990. And across the country, hundreds more are run as registered charities today.

For over a millennium, then, housing has been a pressing social issue in which charity can play an important role. At BlackRock, we see social housing as an attractive asset class for our charity clients – one in which their investments can produce a steady income and a positive societal impact.

Risk: BlackRock has not considered the suitability of any investment against your individual needs and risk tolerance.

Achieving such impact is important to many investors, and it’s a particular focus for our charity clients. As questions of sustainability are given greater consideration, environmental, social and governance (ESG) issues have become increasingly prominent in recent years. For the most part, environmental issues – the E in ESG – have dominated the discussion. That reflects the pressing nature of the climate crisis and the fact that avoiding polluting industries or investing in renewable energy can be achieved more readily than addressing social or governance concerns.

On top of this, environmental improvements – such as upgrading property or building renewable infrastructure – tend to be capital-intensive, which means that investors can be more confident that their money is achieving the desired effect.

However, the Covid-19 crisis has led to a greater focus on the S in ESG. The negative effects of both the virus and successive lockdowns have fallen disproportionately on disadvantaged sections of society. Furthermore, the rifts revealed by the pandemic have underscored the urgent need to tackle social problems. Nevertheless, many investors still struggle to identify reliable means of achieving positive social impacts through capital allocation.

Social housing – including bespoke accommodation for those with specialist care requirements – is one area where the beneficial impact of investment is clear. It’s an area where problems can be addressed by allocating capital – because there’s a shortage of suitable housing that has led to lots of would-be tenants living in inappropriate accommodation.1,2In our view, the answer is to build more specialist housing – and that requires investment.

At BlackRock, we invest in social housing that is specially built or adapted for vulnerable people. Supported housing of this sort allows its residents to live as part of the wider community. This leads to better health, greater confidence and increased independence. Given an acute shortage of suitable accommodation, these facilities are in great demand – especially when the alternatives are residential care or even hospital wards.

Such purpose-built homes are also much less expensive for the government than residential or in-patient care. Not only do they improve the lives of their residents, but they also reduce the burden on the taxpayer.

Of course, when we invest our clients’ capital, we are looking for decent returns too. Social housing can deliver on this front; our investments in supported housing derive their income streams from long-term leases, providing a reliable source of steady revenue.

Risk: There is no guarantee that a positive investment outcome will be achieved.

There are several other factors in that steadiness. For one thing, social housing is answering a persistent social need. For another, the income streams it generates are ultimately paid by local and central government. And, thirdly, those income streams are inflation-linked – an important consideration at a time when inflation is a growing concern. These features support an asset class that is largely resilient to economic shifts.

The lack of correlation to the economic cycle means that social housing may offer diversification benefits, too. 3At first glance, the returns from a social-housing allocation might seem lacklustre compared with those that might be obtained from other property assets, such as high-specification office developments or shopping centres. However, we believe our working and shopping habits are susceptible to drastic change. Just as online shopping has been facilitated by the rise of online deliveries, so the pandemic has, for many of us, normalised working from home. That means that office blocks, like shopping centres, may look much less attractive as investments than they once did. Many may prove hard to fill in the years ahead.

Risk: Diversification and asset allocation may not fully protect you from market risk.

By contrast, social housing is steadily addressing one of society’s most pressing needs. Almshouses – an early form of social housing – have been with us for more than a millennium, and their modern equivalents are unlikely ever to be short of demand. As a result, this is an asset class to which we allocate with confidence – both in the sustainability of its returns and the positive social outcomes it will achieve.

1Source: Mencap, Funding Social Housing For All, April 2018.  

2Source: House of Commons Housing, Communities and Local Government Committee, Building More Social Housing, Third Report of Session 2019–2021, 20 July 2020.

3Source: Investment Property Forum, Prospects for Institutional Investment in Social Housing, January 2015.