The positive social impact of investing in housing that puts a roof over the head of the most vulnerable in society is obvious, but the investment case is pretty strong too.
One such fund, Home REIT (HOME), is doing just that and has expanded massively since it launched almost exactly a year ago. It invests in homeless accommodation and has amassed a portfolio of 1,077 properties that has taken more than 5,700 people off the street or prevented them from becoming homeless. This will grow further as the fund continues to deploy the proceeds from its substantially oversubscribed £350m fund raise last month (September).
It’s very pleasing to see this level of investor interest in the fund and it is easy to see why. Homelessness is a major issue in the UK with Shelter, the homeless charity, estimating there are 320,000 homeless people in the UK. Sleeping rough is at the extreme end of the homeless spectrum, which also includes people in homeless shelters and temporary accommodation.
There was an 11% increase in the number of people sleeping rough or in temporary accommodation in England from Q2 2016 to Q1 2019, according to Shelter. The myriad complex causes of homelessness include drug and alcohol dependency; leaving institutional settings like prison, armed forces, foster care; eviction by private landlords; relationship breakdown; domestic violence; and mental illness.
There are clear and obvious benefits, not just to the individuals, but to local authorities, which have a statutory duty to house individuals that are homeless or at risk of becoming homeless under the Homelessness Reduction Act 2017, in housing people in the accommodation that will be provided by Home REIT.
A severe shortage in supply of fit-for-purpose accommodation has meant local authorities have been forced to house people in expensive temporary housing such as B&Bs and guesthouses. Home REIT says the rents it charges its charity tenants (which average at £95 per week) are agreed with the local authority from the outset at affordable levels and far less than (up to 70% less!) using B&Bs.
Homeless individuals housed in accommodation let to specialist housing associations, as opposed to private landlords, have been found to be substantially less likely to return to homelessness, according to a King’s College London report.
The security of tenure that Home REIT will provide housing associations and registered charities allows them to make a sustained impact on the lives of individual tenants. Instead of flitting between the streets and/or homeless shelters, it provides people with a long-term programme of training and rehabilitation, which takes place at the properties, and the skills and confidence to find long-term accommodation and to reintegrate back into society.
Aside from the social impact, the investment case is strong too. There is a structural supply and demand imbalance in the sector, which HOME aims to fix. An estimated 320,000 people are without a permanent home in the UK and a change in the law in 2018 placed a legal obligation on local authorities to house these people.
HOME buys carefully selected properties (not tower blocks but small apartment buildings) and leases them to charities on inflation-linked long-term leases. The charities collect housing benefits for each individual tenant from the local authority, which itself is funded by the Department of Work and Pensions. The trust collects rent from the charities directly – making the income effectively 100% government-backed.
HOME’s manager has talked about becoming a £1bn trust in the next three to five years. After its most recent raise, and given its clear ESG and investment characteristics, we see no reason why this couldn’t be achieved earlier. And more to the better.
HOME’s portfolio is diversified across 92 different local authorities, and let to 24 tenants (23 charities and one housing association). It has the following geographical exposures (by asset value):
- London: 15.1%
- East Midlands: 15.1%
- Yorkshire and the Humber: 12.0%
- North East: 11.3%
- North West: 10.2%
- South West: 9.9%
- West Midlands: 9.5%
- South East: 9.2%
- East: 6.7%
- Wales 1.0%
ESG Clarity’s Natalie Kenway will be providing opening remarks at QuotedData’s annual ESG Webinar Series, on 16, 17 and 18 November 2021. Each morning will focus on a different aspect of ESG with managers having the opportunity to present on their companies and how the specific aspects of ESG are embedded in their investment approach. Click here for more information and to register.