Social and Affordable Housing in the UK
Understanding the market and enabling community-centred housing investment
EXECUTIVE SUMMARY
The UK faces a persistent social and affordable housing crisis. Millions cannot access homes they can afford, while many others live in housing that is expensive, insecure, or poor quality. Addressing this requires tens of billions in additional annual investment to deliver new homes and improve existing stock.
Institutional capital is already playing a growing role in the sector and has the potential to accelerate delivery at scale. However, it is best understood as part of a wider system. Policy, public investment, and local partnerships shape whether private capital can scale and deliver lasting impact.
How capital is deployed is therefore as important as how much. Different investment strategies shape levels of impact, additionality, risk, and return. Investment must be long-term, patient, and purpose-driven – grounded in local needs and shaped by meaningful partnership with residents and communities.
Purpose-driven institutional capital can play a critical role in addressing the housing crisis – but its effectiveness depends on investment strategy and deployment, with community-centred approaches key to managing risk and delivering lasting impact.
Although awareness of the importance of community and resident engagement is growing, practice remains inconsistent –varying between actors and across the development and investment cycle. In many cases, engagement remains compliance-driven, while community-led housing models offer an opportunity to learn from and set best practice.
No fund fully reflects best practice. However, leading funds are beginning to incorporate elements of resident-centred approaches, showing that stronger engagement can improve both social outcomes and long-term performance.
This report bridges that gap. It identifies the key levers available to investors and sets out three themes, supported by practical tools, to help investors strengthen communitycentred approaches in social and affordable housing.
Theme 1:
Improve access to high quality, sustainable, well-managed, affordable homes, informed by community engagement.
Theme 2:
Enable and empower community-led/owned housing models that provide quality, affordable, sustainable, safe homes.
Theme 3:
Advocate for and prioritise community-led approaches.
Key findings
Systemic change is needed
•The UK social and affordable housing system is characterised by a structural mismatch between supply and need, driven by chronic undersupply and worsening affordability. These dynamics shape both the scale of investment required and the conditions under which capital can be deployed.
Market mapping and investment strategy analysis
•Purpose-driven institutional capital is playing an increasingly significant role in the sector. We identify:
- 38 funds, managed by 29 fund managers1
- £6– 6.8bn deployed or committed2
•Investment strategies vary across the market. Choices around tenure, strategy, financing structure and route to affordable housing all influence the balance between impact, additionality, risk, and return.
Community-centred and community-led housing: current practice
•Approaches to resident and community engagement remain inconsistent. Funds have a range of levers to engage residents and communities and forge genuine partnerships, but few adopt a consistent, portfolio-wide approach to maximising these through what they invest in, how they invest, who they partner with, and how homes are developed and managed.
•At the same time, elements of stronger practice are emerging within some funds, while community-led housing models demonstrate more comprehensive best-practice approaches –embedding community influence across development, governance, and long-term stewardship.
• The Spectrum of Community Involvement provides a framework for investors to assess their current approach, identifying ‘meaningful community partnership’ (Level 3 on the Spectrum) as an achievable and scalable standard for institutional investment.
1 Capital basis varies by fund disclosure: 29 funds report capital deployed, 15 report capital committed, and capital figures are not available for 8 funds.
2 Better Society Capital 2024 Market Sizing of the social impact investing market estimates the Social and affordable housing market to be £6bn, we estimate it to be £6.8bn based on capital deployed and committed Where possible, we have used figures for capital deployed (£m) to best reflect the actual level of activity and delivery by funds. Where deployed figures were not publicly available, we have used capital committed as a proxy For four funds, we were unable to identify a reliable deployed or committed figure.
Practical tools to support decision-making
•Levers investors can use across the investment cycle to enable institutional capital to flow toward housing that genuinely serves community needs.
• Six Principles for Community-centred Investment provide a practical framework to support a shared understanding of what ‘good’ looks like in community-centred social and affordable housing investment.
Recommendations
1.Scale
investment and embed a community lens
Increase allocation to social and affordable housing to help tackle the UK’s affordable housing crisis. Prioritise investments that integrate community-centred approaches across the investment cycle – from development through exit – ensuring housing aligns with local priorities and strengthens neighbourhoods.
3.Partner with community-led projects
Where funds are limited in their ability to develop a community-led approach, seek to partner with community organisations to engage with and provide support to community-led projects.
2.Portfolio strategy
Social and affordable housing funds should set a clear strategy for maximising impact for residents and communities – either through direct development and management of homes to best-practice standards, or by carefully selecting and working with developers and operators who prioritise strong approaches.
4.Promote sector-wide best practice
Advocate for a community-centred focus across the sector, leveraging influence to encourage high-quality, socially impactful delivery.
5.Further this research, including:
• Explore funding options for community-led models: Where appropriate, investors such as Esmée should consider exploring blended finance approaches –combining grants, concessionary debt, and impact-aligned equity –to support community-led or owned housing.
• Develop best-practice guidance for investor-developer partnerships: Strengthen approaches to developer-led or partnered schemes (e.g. Section 106), ensuring investors set clear expectations that development partners embed best-practice community engagement across the development cycle. This should cover both risk management and how investors can use their levers to maximise impact. This area remains the least evolved within funds and has significant potential.
Our mapping includes investment funds that invest exclusively in social and affordable housing, as well as those where it forms part of their wider housing or real estate portfolio. This spans a range of tenures, including community-led and supported housing, alongside more traditional tenures such as social rent, affordable rent and shared ownership. We exclude funds without a significant focus on social and/or affordable housing, as well as LGPS co-investment vehicles and funds focused on land acquisition. Figure 2 on the next page provides a snapshot of the market.
Investment strategies
In social and affordable housing investments, decision-makers consider a range of investment parameters that shape a fund’s impact, additionality, return profile, and risk.
Consideration of investment parameters
Impact Additionality
Tenure Affordable housing delivers positive societal impact when risks are managed. Vulnerable groups benefit most from specialist supported housing, temporary accommodation, and Social Rent. Other models (affordable PRS or communityowned housing) may not reach low- or middle-income households, depending on design.
Strategy
Finance
Delivering or improving homes to a good quality, safe and sustainable standard while maintaining affordability has a positive impact.
Mixed portfolios are expected, but setting KPIs (e.g. % Social Rent) maximises additionality by supporting delivery of an under-supplied tenure.
Return Risk
Funds delivering Shared Ownership, Affordable Rent and (usually a small proportion of) Social Rent: Approx. 7–9% return
Funds delivering specialist supported housing may have a higher return profile (low double digits).
Capex to achieve a standard above legal minimum (e.g. sustainability/quality) achieves good additionality.
Different financing structures enable different impacts. Debt can be recycled so development finance reinvested may compound impact and get more homes built; equity can give levers to push for quality and long-term stewardship.
Route to affordable homes All routes to delivering affordable homes are positively impactful to residents and communities.
Blended structures that enabling otherwise unviable investment is highly additional. Equity typically offers stronger levers than debt.
More active strategies (e.g. value-add) typically generate higher returns.
Mostly low risk , considered relatively resilient to economic externalities.
Specialist supported housing/temporary accommodation carry more risk due to more operational complexity (care), regulatory scrutiny, reputational risk, and void risk.
Low – Tenanted acquisitions.
Medium – Policy-mandated affordable (S106) with competitive bidders for sites.
High – New non-mandated Affordable/ market homes converted to Affordable/ S106 at risk of stalling.
Strategy dependent.
Blended finance may enable finance at more concessionary rates, e.g. for community-led models.
Forward-funding developments can offer higher returns; however, mixed portfolios with tenanted acquisitions help manage the Fund’s risk, return profile, and cash flow.
Higher risk for more active strategies, due to greater exposure to economic, market, planning, cost, and operational uncertainties. Such strategies may put resident affordability at risk if extractive and high costs are recouped through unaffordable rents.
Equity generally carries more risk than debt , but the level of risk depends heavily on the investment strategy and context. E.g. equity in tenanted schemes may be lower risk than development debt on a speculative site.
New development carries significant risk , particularly in the current development market (See pages 20 to 21). Less risk when investing in later stages – e.g. S106 where planning is improved/wider development.
Tenanted acquisitions are usually lower risk –assuming adequate safety and quality standards.
Grant/guarantees/
The Spectrum of community involvement
The Spectrum of community involvement is intended as a helpful tool for investors, developers and housing managers/RPs seeking to move beyond compliance-driven community engagement. Through interviews and workshops, we have developed a framework that presents five levels of community involvement, using the International Association for Public Participation (IAP2) framework as the basis. It ranges from conventional development (Level 5), where communities receive information only after key decisions are made, to fully community-led models (Level 1), where residents hold democratic control in perpetuity.
In applying the framework, the definition of ‘community’ should be made clear at the outset and revisited across project stages (pre-development, development, operations, etc.) to ensure engagement reflects the wider local population, rather than a self-selecting group. The framework is designed as an aspirational tool to help institutional investors understand where their investments currently sit and how they might progressively strengthen community engagement.
Our ambition: Level 3, meaningful partnership, as the ‘new normal’ for social and affordable housing investment
We recognise the value and necessity of all levels and note that a fund’s ability to meet every criterion may be dependent on several factors (see Levers for community engagement); however, funds should strive to meet this ambition. Establishing Level 3 as the baseline creates a foundation for more transformative community-centred approaches to flourish, representing a necessary step change for the sector.
At Level 3, meaningful community engagement is both financially viable and delivers improved outcomes for residents, communities, and investors. A more hands-on approach may impact the return to investors in the short term, but will likely improve outcomes for residents and the local community. In the long term, it will likely protect investments by keeping homes lettable and minimising voids, and more
importantly, supporting the creation of places people want to live in. By establishing Level 3 as the baseline expectation, we create space for more transformative Levels 1-2 models to scale alongside mainstream investment.
Level 4 is seen as the minimum fundable standard while Level 5 is viewed as not fundable.
An overview of the Spectrum is on the next page.
The Spectrum of community involvement
Most commonly seen in…
Standard commercial debt/ equity investors prioritising returns, traditional developers/ property managers with no or minimal social value strategy.
Governance and decisions
Full control with developer/ investor/property manager.
Community informed but unable to influence.
Institutional debt and equity/ developers/RPs/schemes with basic compliance-focused social value approach.
Approach
Impact/Risk/ Return profile
Focus only on tick-box requirements, which are poorly implemented. No feedback loops.
Minimal positive impact , high impact risk for community.
Typical target returns of ~6–8%. High development and returns risk due to lack of local buy-in (reputational risk).
Full control with developer/ investor/property manager. Engagement through mandatory mechanisms only.
Community-centred impact funds/forward- thinking institutional investors, developers, RPs with embedded social impact strategies.
Established mechanisms to meaningfully engage community (e.g. consultation panels, stewardship bodies) in line with levers. Feedback loops embedded in decisionmaking structures.
Mechanistic (some limited consultation in design, tenant satisfaction measures).
Low positive impact , some impact risk. Typical target returns of ~6–8%. Limited meaningful community engagement so some development/returns risk stemming from lack of local buy-in.
Strong partnership approach, including co-design, and involvement in management decisions and stewardship.
Moderate positive impact , low impact risk. Typical target returns of 6–8%. Some costs to cover policies that ensure genuine affordability and quality engagement. Low development/return risk.
Split equity models/patient debt approaches with community-centred partnerships. Community benefit core to strategy.
Community holds Board seats (minority/equal representation).
Formal partnership agreements in place.
Fully community-led -E.g. Community Land Trusts. May be supported by long term patient debt/alternative equity, social investors, grant.
Community designs, owns, manages or stewards homes. Democratic member-based structure. Community has final decision-making power over key decisions.
Structured shared decisionmaking embedded through development and operations.
High impact , low impact risk. Sub-market returns (3–8%, structure-dependent).
Moderate development and return risk due to partner tensions and limited track record.
Community initiates and controls process from development to stewardship.
Transformative impact , low impact risk. Moderate/high development and returns risk (delivery model dependent).
Grant/concessionary debt at 0–3% but blended/other innovative models vary.
Principles for community-centred practice
The Principles for community-centred impact offer a framework for investors seeking to strengthen authentic community participation across their portfolios.
Principle
1.Understand place-based needs
Investment is driven by where need is greatest, getting the right homes in the right places, not just market opportunity.
2.Meaningful community governance
Communities influence decisions across the investment lifecycle, with input reaching fund governance.
3.Authentic participation across the investment lifecycle
Participation is embedded at all stages, tailored to investment route.
4.Affordability and anti-speculation
Affordability is genuine, targeted, and protected long-term.
5.Local wealth building and economic justice
Investment builds local economic opportunity and retains value locally.
6.Long-term stewardship and community resilience
Investment supports long-term community capacity, wellbeing, and climate resilience.
Benchmark for Funds
• Investment decisions and portfolio composition informed by local needs data (Waiting lists, deprivation, affordability ratios, local authority housing strategies)
• Performance assessment maps investments against need and gaps
• Development creates thriving, well-connected places with social infrastructure access and green spaces informed by meaningful community engagement
• Portfolio -wide engagement strategy and KPIs
• Feedback loops embedded in Fund governance – including board oversight and consultation mechanisms in place for residents/community to inform decisions
• Partner selection considers evidence of community engagement/resident satisfaction
• Resident committees on larger schemes; satisfaction tracked and reported
• Fund level community strategy in place articulating participation and partnership standards in line with investment levers (land-led, developer-led, acquisition)
• Whole investment cycle (development, operations) embeds community participation
• Inclusion strategy identifies, engages and supports under-represented groups
• Participation performance monitored and reported, including feedback loops
• Clear tenure mix and rent-setting policies, including social rent prioritisation
• Affordability tracking and targets to ensure genuinely affordable homes
• Long-term af fordability protections (25+ years) in place
• Exit strategies safeguard affordability
• Procurement and local labour targets
• Living Wage commitments
• Social value embedded in partnerships
• Partners engage local groups including SMEs, VCSOs, charities, etc.
• Long hold periods (15+ years)
• Asset management plans including social and green infrastructure
• Dedicated budgets for community development
• Resident participation in stewardship and improvement decisions
Leadership Questions
Portfolio, local needs assessments and developments co-designed
Formalise community roles with influence over fund/scheme decisions
How does our investment strategy respond to place-based needs and aspirations?
How does our fund ensure community voice influences investment decisions?
Co-design as default for land-led schemes. Stewardship bodies across schemes
Deeper affordability responding to local needs
How does our fund strategy ensure meaningful community participation at all stages of the investment cycle?
What is our fund-level affordability strategy?
Commit to ambitious local targets across portfolio
Ring-fence participatory budgets
How does our portfolio strategy create local economic opportunity?
How does our portfolio strategy build lasting community resilience through long-term stewardship and place-making?
See the full report for more information, including case studies.
The report gives an overview of social and affordable housing in the UK and the investment need and the opportunity. It also shares best practice principles for enhancing community engagement.
State of the affordable housing crisis
An overview, including its core challenges and systemic drivers
Market and investment landscape
An overview mapping of social and affordable housing investing in the UK
Embedding community-centred approaches
A deep dive into community-centred and community-led housing, including a Spectrum of community involvement ranging from conventional developer-led engagement to fully community-owned models
Guidance for Investors
Practical principles and recommendations to help investors ensure funds or schemes align with best practice in social and affordable housing, while embedding a strong community-centred approach
Case Studies
Examples of good practice in community-centred and community-led social and affordable housing investment