A differentiated approach to specialised supported housing

COMMENT The UK’s housing crisis is well-documented, but within this broad challenge lies a critical yet often overlooked sector: specialised supported housing. SSH provides housing for vulnerable individuals who require support to live independently. These residents have care and support needs, including learning difficulties, physical disabilities and mental health conditions. Despite its essential role in the wider housing economy, SSH remains a misunderstood sector, suffering from a variety of misconceptions which have resulted in investor uncertainty. But a differentiated approach, in addition to changes in market conditions, are aligning to position the sector as one of the most compelling investment opportunities in the UK real estate market today. Common misconceptions In January, Atrato Partners was appointed as investment manager for Social Housing REIT, which provides specially adapted, long-term homes for vulnerable adults. The homes, like those across the SSH sector, are managed by approved providers, which are predominantly regulated housing associations or charities. Crucially, SSH enables individuals to live in familiar, community-based environments instead of institutional or medical settings. This delivers multiple benefits for residents, the taxpayer and investors, including: Better outcomes for residents – SSH provides long-term stability, which, in turn, improves mental and physical wellbeing. Residents have access to local support networks, reducing the need for costly institutional care and can live comfortably and safely in specially adapted homes Significant public savings – SSH can deliver substantial savings to the UK taxpayer, with costs materially lower per resident when compared with NHS beds or residential care settings. Sustainable, inflation-linked income – SSH rents are fully inflation-linked, with annual reviews, based on the government’s affordable housing rent policy. The challenges faced by some adjacent residential strategies has undoubtedly amplified misunderstandings of the sector’s structure and risk. The onus is on us to explain it better, to restore investor confidence in the model and the benefits it can deliver. SSH is not temporary accommodation. Unlike short-term housing for homeless individuals or asylum seekers, SSH provides long-term, often lifelong homes. The average length of stay for residents with learning or physical disabilities is over 10 years. It not a passive, long-lease investment. While long leases exist, income security is directly tied to resident occupancy. Managing occupancy levels proactively is key to long-term success. We consider it a long income and not a long lease investment. Although occupancy is not automatic, it is stable. Demand for SSH is high, but commissioning bodies carefully consider placements and residents do move on if their conditions and support requirements change. But that’s OK – a well-managed scheme remains profitable even with 80% occupancy. Unlike the wider supported housing sector, no grants are used to subsidise delivering the homes. Government funding to pay rents is secure, but the approved provider intermediaries require oversight. Rents are ultimately funded by housing benefit, but APs – specialist operators who manage our properties – must be carefully vetted and supported to ensure sustainable income collection. Tangible difference Key to better managing SSH investments is proactive engagement with AP counterparties – to obtain financial, property and resident level information, to understand how properties are performing functionally and financially and to assess how the AP’s wider business is managed and governed. We consider SSH as operational real estate, so it is important to supplement this information, sourced through regular communication, with property inspections, maintaining direct oversight of the homes to ensure regulatory and lease obligation compliance. With this information, we believe it is possible to make timely, informed decisions, managing a portfolio of operational residential assets to deliver safe, well-maintained homes that provide stable, growing income for the benefit of residents and investors alike – all whilst delivering savings to the UK taxpayer. The investment potential for SSH is significant. The sector – which is already structurally undersupplied – is expected to see demand for almost 30,000 additional homes over the next decade, driven by population growth and increased movement from institutional care into community-based settings. We believe it will be possible to better secure the contractual income delivered by these homes. In doing so, the SSH sector could be positioned for a significant rerating. Through successfully derisking counterparty exposure, SSH has the potential to become even more attractive to low-cost private capital seeking predictable, returns over the long term. With sustainable earnings growth, inflation-linked income, and a significant social impact, specialised supported housing is not merely a real estate investment. It also provides an opportunity to deliver long-term value for investors and make a tangible difference to the lives of residents. Adrian D’Enrico is managing director at Atrato Group