Why the ‘right’ kind of investment can help solve our housing crisis

At Big Society Capital, we believe that private capital can play a significant positive role in meeting the UK’s housing challenges, but that it needs to be stewarded responsibly. Investment Director, Drew Ritchie, explains how Big Society Capital is working with The Good Economy and housing investment funds to shape an inclusive housing market that provides high quality, safe and affordable homes.


Written by

Drew Ritchie, Investment Director

Nobel Prize winning Economist, Amartya Sen, pioneered a theory of social welfare he called the Entitlements Approach. The theory outlines that what an individual can access in society is a function not just of what is available, but the resources they have. Amartya Sen applied his approach to demonstrate that a lack of food supply was not always a precondition of famine, but that individuals lacked the ability (what he called ‘entitlements’) to command what was there.

The theory fits well to the current UK housing crisis. There are over 95,000 households, including over 121,000 children currently spending each night in temporary accommodation in the UK, double the number ten years ago. And, despite building 215,000 homes in 2019, each year we fail to supply 60,000 households with the affordable housing they need. This points to a problem of both supply and access to affordable housing, a crisis the National Housing Federation believes affects nearly eight million people, or one in seven of the population.

The role of private capital

Responsible private investment can play an important role. Registered housing providers, local authorities and charities provide over five million homes for people who are unable to afford to rent or buy in the open market. To fund and grow this provision, investment is needed from values aligned investor partners that share in the housing sector’s mission to meet the undersupply of quality, affordable homes.

Indeed, investment volumes into the housing sector continue to rise, with new ‘equity-type’ capital emerging as a growing option for providers. However, a confluence of factors has led to growing investor interest and capital flows and not all investment models automatically align with long-term sector interests, or consider the social obligations involved in operating in this space. This has led to both sector distrust and regulatory concern.

Rules of the game

In response to this we have partnered with social advisory firm The Good Economy to ensure private capital is a positive force in tackling the need for more social and affordable housing.

Together, our aim is to ensure that the market for investment in affordable housing is underpinned by “rules of the game” to help ensure that investor intentions are always clear, incentives are aligned, and principles of transparency and accountability are promoted and maintained.

We have teamed up with investment fund managers and other sector stakeholders to establish some norms of practice that we want to see, co-developing an approach to investing and reporting built around the linked practices of Environmental, Social and Governance (ESG) investing and impact management.

Launching our impact reporting framework

Today, we’re proud to be launching the product of that work: “Towards an Approach to Impact Reporting for Investments in Affordable Housing.

The purpose of this framework has been to create a common language to describe the social impact that is created through partnerships between housing investment funds and housing providers, and to enable investors to report on that impact in a consistent and transparent way. The fund managers we’ve worked with will now be adopting and testing this framework over the next 12 months and reporting against it as part of their annual impact reporting.

This project follows on from the ESG Sustainability Reporting Standard (SRS) launched by The Good Economy in November 2020 as a voluntary reporting standard for housing associations, covering 48 criteria across ESG considerations such as affordability, safety standards and energy efficiency.

Optimising impact, risk and return

In the course of this collaboration, it became apparent that there was both an opaqueness and a lack of shared understanding across the sector about the investment models that exist, what constitutes ‘good’ and ‘bad’ practice and the impact, risks and return characteristics of ‘equity-type’ capital.

As a result, we have also launched a supporting publication “Equity Impact Project Insight Brief” which proposes a descriptive framework for navigating this landscape. Our aim is to encourage an open and honest debate about the nature of investment in the social and affordable housing sector and develop a culture of trust and values alignment across market actors.

Looking forward

Establishing new norms takes time. These two reports aim to lay the foundations for an affordable housing investment landscape that acts responsibly and in line with sector interests. We now invite others to join in this effort, either as adopters or promotors of the impact reporting framework; or by sending us feedback and comments and engaging in the conversation about how to build and shape an effective market.

Private capital is only part of the solution to the UK housing crisis. However, it has a role to play, both by increasing supply and creating access for those who are locked out. As entitlements go, housing is a fundamental one. We’re grateful for all the work of our partners to build the responsible market we want to see and help address the housing crisis faced by many families throughout the UK.

Drew new

Drew Ritchie

Investment Director
Talk to me about:
Social and affordable housing