Why affordable housing?

The trade-off between risk and return is the most important driver of investment in affordable housing, according to our survey. With rent increases generally tied to CPI, affordable housing can provide long term, index-linked returns, which 50% of investors suggested is their main motivation for investing in the sector.  Alongside the fundamental imbalance between supply and demand for affordable housing, this means that rental income is considered to be very secure, something which 75% of respondents suggested was in their top three reasons for investing.

Several others said the fact that the returns profile could be made to match liabilities was also an important factor – returns generated from affordable housing are heavily weighted towards income rather than capital growth. This works well for investors that need cash on hand to pay out to clients over long periods of time, for example pension funds.

Most investors plan to hold affordable housing for the long term, with 77% of respondents stating that they have no plans to sell homes, suggesting the reliability of future income streams is vital for them. But this is also vital for funds whose strategies involve platform or bulk asset sales after stabilisation – their exit strategy will often involve selling to those same long-term investors that are seeking steady index-linked cashflows.

Social value is also clearly important to investors. Every respondent suggested it is one of their top three reasons for investing in the sector. But just 25% ranked it number one, perhaps showing that social value cannot come at the expense of returns for most investors.

Flight to quality

Like most housing associations (HAs), FPRPs are looking to futureproof the stock they acquire. 67% report that they will only purchase new stock. This is whilst 60% have a minimum EPC threshold of B, suggesting that FPRPs are looking to futureproof their stock beyond the current Government target of EPC C by 2030.

The desire for long-term ownership means these organisations will likely be responsible for future repairs and maintenance on their homes and meeting associated regulatory requirements. Even providers that may sell their stock on are keen to futureproof homes to maintain capital values for their exit.

Some players in the sector are increasingly considering acquiring older homes to retrofit. But with no way to capitalise on the retrofit spending by increasing rents, the returns are more challenging for investors. This marks a shift from six years ago when players were seeking to acquire only brand new homes, primarily through Section 106 agreements.

Shifting tenure preferences

In the early years of equity investment into affordable housing, Shared Ownership (SO) was the most popular tenure. SO homes are seen as lower risk than general needs homes, with an index-linked income return, exposure to house price inflation and lighter touch management responsibility. It remains the most common tenure in 2025: FPRPs own 24,190 Low Cost Home Ownership homes, 56% of the total stock owned by FPRPs. All of the FPRPs we surveyed suggested they would consider acquiring SO homes, and 23% suggested they had grown more interested in the last year.

But increasingly, FPRPs are also looking to build up mixed tenure portfolios and are focusing more on rented tenures. They currently hold 18,540 General Needs (GN) homes, 43% of stock. 89% of these are Affordable Rent and the remainder are Social Rent. These homes benefit from an entirely index-linked pattern of rental income (subject to policy), and the lack of staircasing means the provider has certainty of ownership and income in perpetuity.

There is also a growing view amongst FPRPs and their financial backers that rented tenures, particularly social rented homes, offer greater social value, being let to households in the greatest need of housing. While SO does fulfil a clear need, providing the benefits of access to home ownership to those struggling to save for a deposit, according to our analysis, shared owners tend to be middle-income households . But the need for different tenures varies based on local circumstances: in some areas, SO can fill the majority of sub-market housing need, while in others (particularly in London) more social rented homes are needed. More on that here.

Our survey suggests that FPRPs will further diversify their tenure mix in the next five years. By 2030, 26% of homes owned by our respondents will be Social Rent, a significant increase on the current proportion. This aligns with the direction of travel for Government policy. Current guidance from Homes England describes social rented homes as a ‘priority’ under the current AHP. SO will still make up a large share, at around 46% of the stock in the sector, and Affordable Rent will make up 24%, meaning general needs homes will slightly outnumber SO homes in the FPRP sector by 2030.

Continued investment appetite

The increasing diversity of funders amongst FPRPs means there are several routes through which the FPRP sector will continue to mature. The major players have already shown a clear ambition to continue investing in the sector. And 85% of our survey respondents plan on raising additional capital and registering additional entities, suggesting most smaller players are looking to expand, including those who are institutionally backed and will own and manage their stock for the long term.

Different investors will look to use their FPRPs in different ways. Long-term investors can use additional entities to vary their investments either in terms of the level of risk and stage of development they invest in or the tenure, type and geography of stock they choose. They may also seek to bring in external capital to supplement their own funds and can use different entities to match their investments to the demands of that ultimate capital. This is likely to be popular amongst investors with long-term liabilities, such as pension funds.

Alternatively, funds can act as aggregators of stock, taking on development risk, stabilising assets and then disposing in order to recycle capital. Demand may therefore be strong for stabilised platforms which offer long-term income without needing to navigate the registration process.

Investment in the sector is set to grow, with a number of large investors and developers currently seeking registration. But the current challenges of delivering affordable housing (and housing more broadly) have deterred some investors. In our latest European Operational Real Estate Survey, the proportion of investors surveyed looking to target affordable housing has fallen from 38% in 2023 and 39% in 2024 to 22% in 2025. Still, this represents a sizeable pool of private capital which can be drawn into the sector.

Routes to Expansion