The tap is open. Will money now flood into British housing?
Melville Rodrigues
Thanks to a first-ever fund launch, from Resonance, institutional investors now have a new, simpler and cheaper method of investing in that knotty asset class: housing.
Large institutions have long struggled to structure investments in UK housing – at scale and with the financial returns they require.
Little wonder that I have spent more than seven years leading the campaign and advocating for the Reserved Investor Fund (RIF). I’ve worked with government and regulatory officials. I’ve conferred with UK real estate managers and other industry stakeholders on legislative details.
And following the RIF becoming an investment structure implemented into UK law last year, I am delighted the very first RIF was launched on 29 July by Resonance.
It already has UK local authority and other institutional capital of more than £118m in assets under management (AUM). The ambition is £700m in AUM by the end of 2030.
Most importantly, it’s a fund with an admirable positive social impact: providing accommodation for the homeless.
This is because the Resonance Housing Pathways Fund looks to provide capital and income growth through investing in and owning residential units. It then lets them to organisations that support occupants classified as homeless. The goal is for the occupants to progress into self-sufficient living, with the rent financed by local housing authorities. The RIF seeks positive social impact in the fight against homelessness: a solution that can help deliver on Andy Burnham’s pledge to bring an end to homelessness.
That’s not all. There is also a pipeline of developer-/landowner-led RIF projects in the build-to-rent (BTR) market. These are homes to be let at affordable rents to the likes of essential workers.
These developers/landowners see the RIF plugging a UK investment structure gap: it has lower costs and more flexibility than existing UK alternatives; and it competes with offshore investment structures.
Perhaps above all – and this is where the RIF will be innovative for the entire industry – it enables the developer/landowner to gain access to direct pension schemes and other institutional capital, UK and international.
RIF dovetails with UK growth narratives
The RIF aligns impact-focused capital with growth ambitions and social needs, including affordable housing delivery. In particular, if the UK is to achieve sustained economic growth, it must accelerate the supply of affordable homes. This could amplify productivity channels like labour mobility, disposable income, key worker retention and cluster expansion.
In the UK, we need to attract capital that will enhance the supply of such homes. This is notably important when debt finance is prohibitively expensive and government finances are generally stretched.
That said, very welcome catalyst capital is now available from Homes England’s National Housing Bank. It would be reasonable to expect that such catalyst capital will be useful for RIF launches.
The lion’s share must come from pension schemes (UK and international) and other institutional investors. Their low cost of capital and strategic focus on patient, inflation‑linked and income‑producing assets align naturally with affordable housing.
The government’s pension scheme reforms – such as megafunds – support greater investment into UK productivity and growth. We should expect more UK local authority and defined-contribution pension scheme capital into affordable housing that meets pension scheme expectations: diversification and capital flows via efficient, scalable delivery models.
In return, pension schemes and other institutional investors want value for money, competitive fees and other due-diligence requirements.
For example, the fee you pay for investing directly eats into the money you make. Lower fees can make for higher returns. Disciplined cost structures are essential if affordable housing is to attract institutional investment at scale.
I specifically designed the RIF to win the prize for low and appropriate costs, compared with other UK and offshore investment structures.
Watch this space for more RIF launches.
In the process, I hope the RIF contributes to supplying more affordable homes and UK growth more generally – and enhances the UK’s role as the leading European asset management sector.
I continue to live the dream.
Melville Rodrigues is head of real estate advisory at Apex Group
