Minister insists private equity is welcome in social housing sector

A minister and a senior official have welcomed the growth of equity investment in the social housing sector, despite concerns over the impact of private companies in public services such as social care.

Social housing minister Baroness Scott told MPs all forms of investment should be considered to boost supply because the days of just using Government grants and local authorities “have gone”.

The chief executive of the Government’s housing agency Homes England, Peter Denton, also backed the involvement of profit-driven entities in the social housing market as registered providers.

The growth of private companies in services such as children’s homes, fostering and care homes for the elderly has been identified as a key driver of rising costs which councils say are becoming unmanageable.

But the Levelling Up, Housing and Communities Committee heard evidence of a growing appetite for private investment in the social housing sector, with a particular focus on shared ownership schemes.

Baroness Scott said: “I think the days of just using Government grants or local authorities to build social housing have gone. We need to look at all options for social housing.

“My opinion is that providing whoever invests from outside Government is properly regulated we should look at all forms of investment in affordable housing and particularly in social rented homes.”

Baroness Scott said she is confident the regulator will “control” for-profit providers “as they should”.

She added: “The issue I think is really important is customer service, looking after and listening to the tenant – all the things that are important for housing providers shouldn’t be forgotten in the profit side of it.

“But the profit side of it is going to allowing them to build more social housing of a decent standard and we should be encouraging it, including institutional investors.”

Baroness Scott said she had seen no evidence that commercial providers are providing a poor standard of homes, but she said councils appear reluctant to work with them.

She added: “I think they are a bit scared of it at the moment and I think perhaps we need to hold their hands a little bit more with it. If the regulator is happy with the partner they might be looking at, then they should not be afraid of it.”

Mr Denton said the social housing sector was attractive to some due to a rise in ESG (environment, social and governance) investment funds.

He added: “If you are an ethical investor then a large part of what they are doing is driven by the ‘S’ in the ESG funds they are investing in.

“They are driven by the social purpose and the fact that their partners, their investors want to see that.”

Mr Denton said another key factor is social rent being linked to inflation.

“There is a deep attraction to long-term committed investing into income streams that will deliver and match annuities over the long term,” he added.

Describing his personal experience of dealing with this type of institution, Mr Denton said: “Their challenge on retrofit, their challenge on getting to net zero, their challenge on decency in the homes was of a very high standard.

“Yes, there is always scope for abuse in everything, but I don’t think that is the direction of travel with RPs (registered providers).

“The for-profit RPs that are choosing to be regulated are adhering to the norms that we would typically see in the not-for-profit RPs.”

Jonathan Walters, deputy chief executive of social housing regulator, told the committee that shared ownership schemes provide a “natural home” for private investors.

Addressing fears of potential “rogue elements”, he said the regulator’s registration process was “rigorous”, with “good control on who comes through the door”.

But chair of the regulator Bernadette Conroy added her organisation would need to “dig further” if more for-profit providers entered the social rental market.

When questioned on the financial health of the sector, Mr Walters said the proportion of providers downgraded to a V2 rating, which means they are compliant on viability, had increased from 30% to 60% in the last two years.

He added there is now a small number of “traditional” housing associations with a V3 rating, a situation he described as “unusual”.

However, Ms Conroy said that “in aggregate” the social housing sector “remains financially strong”.

She added: “I think that has been borne out in recent weeks and months with some fundraising that has occurred and that demonstrates that there is still attractiveness to investors out there.”

Mr Walters identified housing associations in urban areas with large blocks of flats in need of improvements are the most financially challenged due to their exposure to the impact of high inflation.

The role of the regulator will be expanded role from April, including the ability to require all registered providers to devise and implement a performance improvement plan.