Octopus Investments, part of Octopus Group has announced it has launched an Affordable Housing Strategy for institutional investors. How will the strategy help to accelerate the UK’s much-needed delivery of affordable homes?
It has been revealed that the evergreen strategy is targeting initial commitments of £200-300 million across multiple closes in 2023. As announced in May 2022, Octopus has acquired a Registered Provider (RP) of Social Housing and will operate a scalable direct let model, rather than lease-based, to ensure a fair sharing of risk with its approved housing association partners. These will manage the properties on Octopus’ behalf.
Trusted Partners Need To Step Up To Meet Net Zero Targets
The acquisition of the RP ensures that the strategy is subject to appropriate regulatory oversight and enables the company to draw on grant funding, where appropriate, to support the delivery of new homes. Octopus Investments has revealed that the strategy will use a fully onshore, unlisted Real Estate Investment Trust structure, delivering long-term, transparent capital to the sector.
Jack Burnham, Head of Affordable Housing, Octopus Real Estate who will be leading the strategy, explained that it is essential that trusted partners step up to help meet our net zero targets: “With Housing Associations searching for alternative funding routes for their development pipelines in the face of net zero costs and increased cost of debt, and Local Authorities aiming to move back into large-scale social housing provision, there is a real need for trusted partners and private capital to step up.”
This is exactly what we are trying to do with our strategy, by helping institutional investors to channel their money into this area.
Jack then explained that the focus is on making the homes affordable and sustainable throughout their use: “It’s really important to us that the homes we’ll be funding aren’t just affordable at the outset, but affordable throughout their use – we’re not looking to provide a quick fix and walk away.
“Our direct let model means we are heavily involved in ensuring the high quality of accommodation and management. Also, by maximizing our close relationship with Octopus Energy, we can future-proof our portfolios from an energy efficiency standpoint, and benefit both residents and investors in the long term.”
This way it’s truly sustainable for both the environment as well as the housing associations we partner with.
Building Affordable Housing With Low Energy Bills Is Crucial
To focus on sustainability, the new homes funded by the strategy will be built to high quality and robust sustainability standards. In light of the rising energy costs exacerbating fuel poverty and disproportionately affecting affordable housing tenants, building stock with as close to zero energy bills is a key goal for Octopus. Octopus’ partnership with its sister company, Octopus Energy, will enable more energy-efficient homes to be built and help reduce resident outgoings.
Jennifer Ockwell, Head of Institutional at Octopus Investments, expressed that the strategy is supporting the country’s levelling-up ambitions and is offering long-term growth: “It has been great to see some initial investors going through the process of due diligence who are passionate about the social impact potential. However, there is a clear financial opportunity too. In general, affordable housing has low correlation to other property markets and the wider economy.”
With this in mind, the strategy is able to offer steady income, supported by government-backed inflation-linked revenues, and long-term capital growth.
The strategy is targeting resilient, index-linked finance from the forward funding, acquisition, and long-term ownership of a portfolio of affordable homes across the UK. Co-investment opportunities will be available for locally interested investors such as Local Government Pension Schemes.