Sustainable improvers: The future of social housing?

Our industry is engaged in an important dialogue to improve sustainability through ESG transparency and industry collaboration. This article is a contribution to this larger conversation and does not necessarily reflect GRESB’s position.

In the dynamic landscape of residential real estate, understanding the unique challenges of the social housing sector is essential. In this article, we will cover the pressing issues within the industry, offering valuable insights for those looking to invest in shaping the future of residential communities.

Since the introduction of ESG standards to the financial landscape, much of the focus has been on the environmental and governance status of real estate assets. However, with the advent of the Health Day at COP28 and the World Green Building Council’s recent publication scoping the importance of social impact for the building and construction sector, it is clear that the importance of the ‘social’ dimension of ESG is quickly on the rise. As the world moves towards a more digital era, how we interact with the built environment — and the type of built environment we have access to — only becomes more important.

So, how can asset managers respond to the increasing need for social responsibility and find investment security within social housing?

Balancing the supply and demand for affordable housing remains a delicate feat. The increasing demand far outweighs the available supply, contributing to escalating prices and housing shortages. Navigating this dynamic landscape requires strategies that address both short-term housing needs and long-term sustainability. These issues are felt acutely within the sector, often left behind in the wake of housing development and innovation. Yet, simultaneously, these issues offer great opportunities for investment funds to demonstrate their commitment to advancing social well-being while maintaining reliable returns on investment.

Planning capabilities and a lack of funding leave the most vulnerable with low-quality housing and a lower quality of life. New reporting guidelines from the ESG Social Housing Working Group aim to support the sector in accessing ESG funding and highlight issues affecting social housing residents, such as mold, damp, and poor insulation. The cheap fabrication and vulnerable status of those residing in such assets also influence the longevity of asset value, as a low EPC rating combined with the inability to cover rising utility costs are affecting residents’ ability to heat their homes.

This raises the question: is there more that the social housing sector could do to reduce operational costs alongside some of the more financially buoyant asset classes like Build-to-rent (BTR) or Purpose Built Student Accomodation (PBSA)? Making assets more sustainable (financially and operationally) can only be a positive for residents, freeing the availability of resources to invest in other aspects of social well-being. Adopting smart technologies, IoT devices, and assistive software designed to reduce expensive areas will have a multifaceted effect on the sector. Such asset upgrades will reduce utility costs, free up resources, and increase the attractiveness of assets when it comes time to trade them.

Only 2.7 percent of new homes built by housing associations in the 2022-23 British fiscal year were EPC Band A, a significant improvement on previous year’s figures, but significantly lower than the wider residential building sector. The Future Homes Standard, to be introduced in 2025, will be aiming to drive down emissions in residential buildings, something that will come hand in hand with the quality of social housing developments. Ms Hutchins, head of policy and public affairs at the UKGBC says the government should ensure:

These are important goals for the sector to set within its sights, but they are less likely to be achievable without a change in tactics. There needs to be a clear starting point to create improvement and change. Insight into current property air quality, humidity, and average running temperatures will clear the path for finding solutions to the relevant issues. And issues of dampness, mold, draughts, and poor insulation can be quickly identified and addressed.

The pressures faced by housing associations to meet rising demand can be tackled from a number of angles. Support in meeting ESG regulations can open access to green funding under SFDR Articles 6, 8, and 9. Moreover, the new Sustainability Reporting Standard, adopted by over 100 housing providers, is proving to be a powerful tool for demonstrating ESG credentials to investors.

Access to data collection and insights will support local government and investors alike, providing evidential support for the changes in regulation. New UK Sustainable Disclosure Requirements (SDR) will be bringing in new areas of focus, one of which is sustainable improvers. These products aim to deliver measurable improvements in the sustainability profile of assets over time. This is excellent news for residents, councils, and investors alike, giving back value to ‘brown’ assets as they move through refurbishment. This is also a positive development for councils, providing them with better investment opportunities and better living standards for residents, in line with evolving ESG regulations.

As stakeholders navigate the complexities of the social housing sector, acknowledging multifaceted challenges is crucial. Contributors can shape vibrant, inclusive communities that stand the test of time by adopting a proactive stance and leveraging solutions like smart technologies. The goal is not just to address housing needs, but to foster sustainable, thriving environments for all, and to create clearer links between the E and S of ESG. These goals will maintain a forward-minded approach to asset management.

This article was written by Muir Baxter-Yiannou, Head of Global Sales and Strategic Deals, at Utopi.

References

Brown, Carl. “​Social housing ESG reporting standard updated to focus on tenant issues” Housing Today (London, UK), Oct. 3, 2023.

“EIC Partnership.” EIC Partnership. Accessed February 12, 2024.

Harley, Flora. “What does ‘good’ ESG in UK real estate look like?” The Intelligence Lab by Knight Frank (London, UK), Jul. 5, 2023.

Hollander, Gavriel. “Housing associations are building more energy-efficient homes – but is it enough?” Inside Housing (London, UK), Jan. 9, 2023.