How ESG investors are helping to tackle the homelessness crisis

How ESG investors are helping to tackle the homelessness crisis

By Sue Coulson                                                                                                                                              6th January 2022

Demand for properties in London is growing strongly again, which is bad news for families in temporary accommodation or at risk of being made homeless. Their chances of finding a home – and one they can afford – in the private rented sector (PRS) are increasingly reduced.  

Capital Letters was set up by and is owned by London councils in response to the capital’s homelessness crisis. Our usual business is to procure properties from landlords and agents at LHA rates for our members to allocate to homeless families and to support tenants to manage their tenancies successfully. But our service is susceptible to market changes, such as rising rent levels and competition. 

That’s why Capital Letters has been developing a separate business to increase the supply of rented properties available to low-income homeless families that councils in London have a duty to house, which we discussed at a recent roundtable hosted by Inside Housing. 

We are in discussions with three prospective investment companies looking to develop long-term portfolios for Capital Letters to manage.  

Our business plan is based on securing around £1.5bn of private sector investment over four years to create up to 4,000 additional rental properties at below-market and affordable rents. Capital Letters will lease the properties from the investors and become a private sector landlord. 

Most properties will be pegged to LHA rates, giving more homeless families a chance to enter the PRS market and reduce the cost of homelessness for councils. According to Shelter, over half (56%) of homeless people in London are working but many cannot afford the rent in the private sector without assistance. 

By aggregating their future demand through Capital Letters, the councils in London have created a single, simplified investment opportunity that will help to tackle the homelessness crisis head-on. Investors can be confident about steady demand. Our councils will be able to access a predictable supply of good quality, well-managed properties for homeless families at an affordable rent.  

 One of our potential partners, QSix, describes working with Capital Letters as a “game-changer” by offering pan-London access for institutional investors. 

 Public/private partnerships are nothing new in housing. The idea that private equity money could provide a solution to the homelessness crisis in London is gathering traction as the focus on ESG (environmental, social and governance) investment grows. 

 Long-term investors are attracted to secure returns for shareholders who demand that fund managers achieve social good with their money, driving different behaviours in the market. ESG is driving investment in a way that already works for the affordable housing sector – housing associations have well-established private equity investment vehicles to deliver affordable homes. This approach is now set to expand into the PRS and to support the Government’s long-held ambition to leverage private investment into housing to increase supply in the PRS.  

 Capital Letters will offer high-quality homes at LHA rents, meeting or exceeding our existing quality, space and safety standards. The shared goal of Capital Letters and its ESG investment partners to tackle homelessness means that families will benefit from longer tenancies, providing secure, safe and well-managed settled homes. Vitally, families can stay close to their support networks, jobs and their children’s schools. 

 Capital Letters offers a tenancy sustainment service to all families who need it to increase the chances of tenancies succeeding. This part of our existing offer for tenants and the landlords we work with is making a significant difference to the sustainability of tenancies, avoiding the risk of repeat homelessness, with all the attendant financial and emotional costs. This will be extended to families living in homes in our own portfolio. 

 What will investors get in return from our proposed investment model? Three things: secure income streams; an appreciating capital asset, and the ability to demonstrate real social impact. 

 The need for their asset base to appreciate means the properties themselves must be good quality and affordable. The investment model offers a win-win-win for investors, councils and the families who will live in the new homes. 

 Part of Capital Letters’ mission is to drive up the standards and the reputation of the PRS. By becoming a private landlord ourselves, Capital Letters will continue to address the inequalities in housing experienced by those with little choice about where they can afford to live. 

These new opportunities for public/private investment in the private rented sector offer the potential to tackle the homeless crisis faster than the growth in social housing can do on its own as one part of the solution. 

Sue Coulson is the Chief Executive Officer of Capital Letters

Read our previous related article, where a panel of experts discussed new investment models – like ESG investment – in tackling homelessness via this

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