UK adult social care services are severely undersupplied and there is immense pressure on local authorities to deliver suitable housing to support the most vulnerable in society. To adequately meet this demand, there is a necessity for a wide spectrum of housing options that cater to different needs and different parts of the country.
Providing homes that are well-designed, well-managed and adapted to meet the needs of vulnerable adults is critical to providing everyone with the opportunity to live independent and safe lives. Dedicated housing for adult social care ensures that people’s health and wellbeing are prioritised, alleviating pressure elsewhere in the country’s health service. It is well-understood that pre-emptive measures around both physical and mental health can be critical to providing better life prospects for individuals and prevent an escalation in a person’s individual situation. Added to this, NHS hospitals are not suitable environments for individuals to be in long-term, come at an elevated cost to the public purse and long-term stays prevent people accessing hospital beds for urgent care.
Despite the recognised and urgent need for suitable housing to meet the needs of vulnerable adults, it can be a challenging sector for private sector capital to break into. Understanding the market and working with a complex web of stakeholders can also be a deterrent to new entrants.
Specialists supported housing provides accommodation for people with learning and physical difficulties, mental health challenges and autism. Although the Government has had an unexpected boost in the form of a £5.4bn surplus in its public finances in recent weeks, this is not a silver bullet, especially with the current high inflationary environment and public sector debt levels continuing to put the funding of social housing, care and support under scrutiny.
Private sector capital is instrumental in plugging the gap, as it provides wider benefit to the public purse and crucially provides vital homes at a time when they’re urgently needed. Although there are risks for investors that attempt to enter the space without the required expertise, a significant opportunity exists to provide high-quality, well-managed homes that local authorities feel are adequately resourced to provide suitable levels of support.
Long leases, typically around 25-years, have dominated the sector to date, making it an appealing proposition from an investment perspective, but they can put pressure on housing associations, especially when properties are below target occupancy levels. To mitigate some of these risks, it is important to work closely with local authorities and it is critical to understand underlying demand before pressing ahead with a property acquisition. By developing strong working relationships with local authority referral teams, it can help reduce the risk of properties being empty, which in turn reduces the long-term risk to the Housing Association. As well as ensuring those critical relationships are in place with referral teams, new lease clauses have been established to formalise risk sharing to help provide both housing associations and tenants, with long-term security. From a practical perspective at Henley this has meant, amongst other initiatives, the retrospective implementation of a 4% cap on annual rent increases and a 10-year contribution to capital expenditure requirements based on stock condition surveys.
From an investment perspective these new lease arrangements could have a short-term impact on returns, but they ultimately ensure long-term stability and have long-term benefits to operators and end-users. Counter to other traditional long-lease housing models, portfolio management in the specialist supported housing sector requires a much more hands-on approach from a team with specific sector knowledge. For the model to work effectively all the various stakeholders – housing association or charity, local authority, property owner and the vulnerable adult – need to work in close partnership and be completely transparent.
Although there continues to be challenges to address in specialist supported housing, the sector has evolved rapidly, and incredible progress has been made in the last five years to increase supply. Private sector capital has a vital role to play in filling gaps in demand and while the most important element is providing secure and safe homes for vulnerable adults, the model also provides genuine social benefits for all stakeholders and a secure income stream.