Many charities which specialise in providing temporary residential accommodation for vulnerable groups in society have, over the years, accumulated a mix of properties in their estates, from purpose-built facilities to individual residential properties potentially bequeathed or donated to them.

Up until about 2020 many of these properties were either let out to generate rental income or used as part of that organisation’s remit to house those in need, but recently the burden of managing the latter has increased. This is due both to a change in commissioning by local authorities, and additional compliance requirements.

The standard model is that a local authority will commission a third party – often a charity – for a fee to provide a number of bed spaces. In many cases charity buildings were developed to meet a different standard and don’t now meet new 'best practice’ requirements, especially for sustainability, or are no longer fit for purpose.

In the past, accommodation for homeless people offered dormitories; this standard was raised to single rooms with shared amenities. Current commissioning standards are for residents to have their own front door with bedsit accommodation and en-suite facilities following the pioneering Finnish ‘Housing First’ model, designed to deliver the maximum benefits to the occupants; to restore dignity and enable them to build their lives again.

For charities active in the UK homelessness sector, the major challenge is that each change in commissioning rules (often backed with short contracts) requires substantial investment to upgrade or replace outdated facilities. The funding required to refit such facilities to this model often isn’t possible within the charity’s operating budget. This means that these buildings are on the cusp of becoming liabilities, rather than assets, to a charity, and a danger that there will be a greater shortage of places to house some of society’s most vulnerable people.

What are the options to improve these assets? Some charities have attempted to raise debt funding, but it’s difficult: for example, local authorities usually commission a charity to provide them with spaces for two to three years; this doesn’t meet the requirements of most lenders looking for a secure business case to invest possibly tens of millions of pounds over a decade. But is there a social value model where a charity providing a public service can access money?

We’ve witnessed a rise in the number of specialist social value funds which are willing to work more creatively with charity partners, and encourage homeless charities to work with the commissioning authorities to create new innovative joint ownership structures to unlock capital investment. This can accelerate the delivery of solutions for those in desperate need of support.

In these models, we suggest that a charity is commissioned to provide homeless services for 15 years, thereby delivering security of income and tenure. This length of local government-backed commitment would satisfy a social value fund’s investment requirements, allowing the charity to leverage market capital to improve, renovate or replace its stock. The local authority benefits from having a partner in place to deliver support for the homeless which will invest in and maintain the accommodation long-term to evolving energy and regulatory standards.

A key requirement for all parties will be the appropriate design of the facilities to enable the services and charity to pivot into other areas of need (such as affordable housing) if the long-term homelessness crisis reduces.

While this may seem like a new way of working, the rise in socially-driven investment makes it likely that we will see more money looking for capital where trustees can point to it delivering a true social return. Where charities may otherwise have to cease to provide support in some locations, this may assist them to continue to work at the heart of communities where the need is greatest. We are helping all parties involved to think a bit more creatively and to work together to unlock a long-term solution.

Further information

Contact Julian Lyon

How charities differ from corporate occupiers and how real estate can help their strategies