How social landlords can attract the right institutional investor


Close alignment between the lender and the landlord's principles is crucial, with potential funders being throroughly vetted.

(This article was published on the Guardian Housing Network on 8 May 2013)

It's been a turbulent time for funding partnerships in the housing sector. Revenue risks brought on by welfare reform and some high-profile mismatches between social landlords and funders have left many providers wondering how they can secure long-term, sustainable investment from the right institution.

It's perhaps counter-intuitive that one key way housing organisations can make themselves more attractive to financial institutions is through focusing back on to their core purpose: generating social returns. Prioritising social value, even during a process that might seem purely financially motivated, will lead associations to a funder with similar aims and values, and making for a happier marriage down the line.

The search for funding should be approached like any other procurement project. There needs to be a thorough "supplier" vetting procedure where potential funders are assessed. It's critical that there is close alignment between a funder's priorities and principles and those of the association. Problems have arisen when housing providers have procured finance deals where the cultural fit hasn't been right, or even considered.

Investment deals that are structured to maximise short-term profit for a capital provider, rather than long-term social benefit, can cause misalignment issues. To avoid this, social landlords should pay close attention to an investor's questions. How much do they want to know about an association's social initiatives? Are they concerned about the affordability of rents being charged? Are they genuinely interested in the social returns generated by the organisation?

At pre-tender stage, housing organisations must establish whether this is a long-term investment for a funder. They should determine whether an investor's name and reputation will be attached to it for many years into the future and ascertain whether the funder is seeking to put a significant proportion of its own capital in, or simply finance it with third-party borrowing. If the deal has been set up so the capital provider can walk away with little reputation damage then alarm bells should ring.

Generating a social return is a rising priority for investors, with institutions and pension fund trustees prioritising investments that are beneficial to society, while fulfilling their fiduciary duty. Social value procurement is one way that housing providers can knit wider community impact into everyday business processes. Funders are increasingly interested in the triple bottom line – the economic, social and environmental benefits – of the investment: this might be the number of apprenticeships created through a new contract, the volume of local small businesses engaged as suppliers, or carbon emission cuts generated through a new agreement.

There is still a gap between our ability to analyse these social returns and the financial aspects of an investment. But demonstrating social returns will be increasingly important as investors look for objective and empirical analysis where possible. Landlords can use tools that measure the value of social impact in monetary terms, such as wellbeing valuation, which was modelled in the recent Hact paper on the Social Impact of Housing Providers, or their own in-house modelling and analysis.

Above everything, housing providers must ensure that there's an alignment between their own priorities and those of their potential funder. A step to getting this match right is to keep social value in focus throughout a funding procurement process.

This article was written by Pete Gladwell, Head of Public Sector Partner at L&G, who generously supported HACT's 'The social impact of housing providers' report by Daniel Fujiwara (February 2013).


Read this article on the Guardian website.

Find out more about HACT's work on measuring social impact.