Affordable housing to make up a quarter of institution-owned homes by 2025

New affordable homes funded by institutions will account for nearly a quarter of all purpose-built rented accommodation in the UK within the next three years, according to an analysis by JLL.

The property consultant forecast that the 26,400 institutionally backed affordable homes built by ‘for profit’ housing associations by the end of last year will have more than doubled to 58,100 by the end of 2025.

This means this sector is set to be the fastest growing of any of the institutionally backed residential development sectors in the UK over the period, according to the agent.

JLL said that of the affordable homes built by the end of 2022, 85% were developed by just four providers – Sage, Heylo, L&G Affordable Housing and ReSI – but that new entrants will see the sector grow 120% to the end of 2025, outpacing the rate of growth in traditional city centre build to rent blocks, suburban single-family build to rent homes and rented later living accommodation.

JLL said it expected the total stock of institutionally backed new-build homes for rent to have doubled to 258,100 by 2025.

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The forecast comes despite L&G Affordable Housing this week reporting a £7.5m loss in its accounts for the year after a revaluation of its homes portfolio, and a “strategic decision to slow origination of new homes in response to the challenging economic environment”. However, the firm said it remained on course to build 10,000 homes by 2027.

In May Savills reported that ‘for profit’ registered providers owned nearly 30,000 homes, an increase of 35% on the number in March 2022, and predicted the sector would increase this ownership to 113,000 by 2028.

The wider build to rent sector has been hit particularly hard by the financial turmoil in recent months, despite evidence of rising market rents. The latest figures from the British Property Federation show that Build to Rent starts dropped by a third in the 12 months to June, while completions dropped by a quarter.

Richard Petty, head of affordable housing at JLL, said institutional capital had a growing part to play in affordable housing delivery. He said: “We have seen a significant increase in institutional investment across all the living sectors, spanning PRS, multi-family, single family, specialist supported and mainstream affordable.

“The sector needs to embrace that and make the most of investors’ willingness to work in partnership. Together, we cannot let the possible imbalance of supply and demand go on much longer without making the sort of changes to the model that will be necessary to deliver real increases in supply.”