Back social housing funds and earn a better income

The shortage of affordable homes is at the top of the political agenda. However, the government will not, for the moment, be putting up all the cash for the building of more houses — a result of cuts to the grants given to local authorities and housing associations.

The funding gap provides savers with the opportunity to back social housing projects, and receive dividends of as much as 5-6 per cent of their investment.

There are 1.2 million households on waiting lists for social housing, but only about 17,000 homes are being made available annually.

Simon Bond, the manager of the Columbia Threadneedle UK Social Bond fund, says: “Grants have been cut down. In England they are at a very low level, something like 15-20 per cent of the cost of housing.”

In the past year three new ventures have launched on the London Stock Exchange, with the aim of raising money to invest in social housing.

The first was Civitas Social Housing, which raised £350 million from investors in November 2016 and will plough the money into supported housing for the eldery or those with special needs.

Residential Secure Income secured £180 million from investors when it launched on the stock exchange in July.

“Investors are helping to meet a need within society and are able to earn a fair return”

Triple Point Social Housing, which raised £200 million in August, invests primarily in the Midlands and the north of England.

These bodies are real estate investment trusts (Reits), which means they are companies run by investment professionals and are listed on the stock market, so you can buy shares in them and receive a regular dividend that is expected to be 5-6 per cent.

“There is a good ethical story here,” says Adrian Lowcock, an investment director at Architas, a wealth manager. “They are helping to meet a need within society and are able to earn a fair and suitable return for shareholders.”

Civitas buys property from housing associations and local authorities, providing them with a lump sum that they can use to increase the provision of housing in their area. The property is then leased back to the housing association for between 10 and 40 years, so the association continues to manage the property as usual.

“Crucially, the property Civitas buys does not come out of social housing circulation. Tenants in almost all cases will see no change,” says Gordon Smith, a research analyst at the wealth manager Killik & Co, which has invested in the Reit.

For housing associations, the arrangement being offered by Civitas, Triple Point and Residential Secure Income is an alternative to issuing bonds, which is the main source of income for many.

A bond is used to borrow money from investors, and the cash is then used to acquire or build properties. The housing association pays interest to the investors over a period of up to 35 years and at the end they receive their full capital back — provided the association has not gone bust.

So far, no housing association has collapsed, but it is always a risk when investing in bonds.

Mr Bond invests in about 20 bonds issued by housing associations through his fund, including Peabody in London, WM Housing in the West Midlands and Circle Anglia in East Anglia.

“We used to have the policy that we wanted to spread money from the fund into the regions, particularly to deprived areas. But as housing has become worse over the past three years and has caused problems for key workers and social renters, we now include a couple of housing associations in London,” he says.

For investors the attractions of social housing are that the returns come from rental income, which is based on a long-term lease. There is a form of government backing, since some of the rent will be paid using housing benefit, and this link makes social housing less risky than other types of property investment, such as office blocks or shopping centres.

“Rents are capped within social housing and this is controlled by law,” says Mr Lowcock. “The government runs a list of registered providers and no registered provider has failed or been allowed to fail.”

You can also invest in social housing through the local authority bonds directly, or through an investment fund such as Columbia Threadneedle’s or the Rathbone Ethical Bond fund, which has invested 11 per cent of its money in affordable housing.