Real Estate Insights
UK Social Supported Housing
Real Estate Insights
UK Social Supported Housing
As the real estate investment market experiences turbulence and uncertainty due to COVID-19, we revisit Social Supported Housing in the UK – a sector which we believe offers the potential for resilient returns when the wider real estate market is expecting major falls in rental income this year and consequent falls in valuations.
The key characteristics of Social Supported Housing (SSH)
- The UK Government has a statutory responsibility to provide the existing and future population of working-age adults with life-long care needs (primarily those with mental health illnesses) with long-term, safe accommodation under the Care Act 2014.
- This is a distinct category of social housing, separate from ‘registered care homes’, sheltered housing, hostels for homeless people and affordable housing. The key difference being that the costs are fully-backed by the Government.
- There is a chronic lack of suitable, modern accommodation that is designed with integrated technology specifically for residents’ requirements. SSH in a community setting supports residents’ increased independence which, in turn, has a positive impact on their quality of life, wellbeing and reduces their reliance on National Health Service (NHS) services.
- The Government does not have the funding or borrowing capacity to build this accommodation and it is closing older units which are no longer fit for purpose. It is therefore seeking private sector capital to build new accommodation which it will indirectly lease on a long-term, FRI/NNN basis. Such arrangements offer a significant saving to the public purse with typical cost reductions of 11% and 55% respectively compared with registered care home and in-patient alternatives1.
- With such a favourable demand and supply dynamic the long-term, high-quality, inflation-linked nature of the cashflows make the economic investment case highly compelling, especially when they are not correlated with the economic or property cycle.
SSH’s resilience in the current Covid-19 environment
- SSH involves the development or major refurbishment of properties that are considered suitable for the delivery of mid-to-higher acuity care which is an essential service and non-discretionary from the UK government‘s perspective. This supports the National Health Service (NHS) by enabling people to be cared for outside of NHS facilities, thereby relieving pressure on the NHS itself which is more critical at this time than ever before.
- SSH properties are always in very high demand but, at the current time any bedrooms which do become vacant are being filled much more quickly than normal and typically by younger residents who never enter a traditional NHS in-patient environment. Some Local Governments are even providing rent guarantees to providers of SSH facilities because they require the capacity so urgently.
- The average age of SSH residents is about 32 years old, which is one of the most resilient age cohorts to the virus compared with care homes which are typically occupied by residents in their 70s or 80s who are much more susceptible to the virus.
- SSH schemes are designed and operated for mid-to-higher acuity care provision which necessitates higher staffing numbers. In the context of Covid-19 this helps contingency planning compared to lower staff levels in lower acuity care such as care homes where it can become challenging to provide cover when staff inevitably become ill or are required to self-isolate.
- Unlike care homes where, other than the bedrooms, all the space is communal to reduce loneliness, encourage socialising and thereby delay the onset of dementia for example, SSH residents have their own apartments with their own front door as this is critical to their specific care needs. This has proved beneficial in both preventing infection and isolating any residents who might become infected.
- The standard levels of hygiene practices in mid-to-high acuity care facilities like SSH is very high and these have been further augmented as a result of Covid-19.
- SSH facilities are designed to control and monitor access to the properties at all times and this has enabled a restricted regime of access to be implemented.
SSH is legislated for and paid 100% by the Government to enable the most vulnerable people in society to live in a normal community setting in the most cost effective manner. The nature of the care and the properties make the underlying cashflows resilient at the current time and, with demand far exceeding supply for the foreseeable future, we believe it could represent a compelling income-focused opportunity for investors seeking more defensive long-term strategies.
For more information, please contact Robin Hubbard, Head of Real Estate Capital
+44 207 658 3444
- WFH: Is it the death knell for offices?
- UK Real Estate market commentary - Q1 2020
- Continental European real estate market commentary: Q1 2020
- Global Market Perspective - Q2 2020
- Coronavirus and the world economy: recent research from the economics team
- What are the credit opportunities in a low-yield environment?