Octopus hopes to invest £1bn in affordable housing within five years

Institutional investor Octopus Real Estate has ambitions to invest around £1bn into the affordable housing sector within five years, after acquiring a small ‘for-profit’ housing association from a Suffolk housebuilder.

The firm, which owns more than £3.4bn of assets, has bought Rex Housing, a registered provider with just 12 homes, from Lowestoft-based developer Oldman Homes. This will allow it to own affordable housing and qualify for housing grant straightway without the uncertain timeline of seeking registration for a new provider with the Regulator of Social Housing.

Octopus Real Estate will forward purchase homes in the pipelines of established housing associations and retain ownership of the stock long-term, letting the property direct to the residents. The stock however will be managed by other housing associations through contracts.

Octopus is in discussions with 12 registered providers about signing forward purchasing deals and management agreements, with some of the negotiations at an advanced stage.

Benjamin Davis, chief executive of Octopus Real Estate, said that the funding has no ‘cap’ or ‘limit’ and provided it has good opportunities, could scale quickly to match the £1bn of investment the firm currently has in the care home sector.

“Our care homes fund is more than a billion pounds in size and I would certainly hope that we would have our affordable fund up to around that scale over the next few years,” said Davis.

“Over the next few years we have a massive opportunity to scale in the sector, if we could get to that sort of scale (£1bn) in the next five years, that would be great.” He said longer term the fund could “scale to multiple billions”.

Davis said the model offers a way for housing associations with capital constraints due to increased decarbonisation or fire safety remediation spend, to “continue to deliver new homes into the market.”

See also>> Briefing: how Octopus plans to get its tentacles into affordable housing

Octopus Real Estate is part of the Octopus Group which manages around £12.5bn on behalf of retail and institutional investors. The group owns renewable energy company Octopus Energy. Davis said Octopus Energy will engage with housebuilders to “educate them” on renewable solutions, while minimum EPC ratings will be including within the management agreements.

Octopus has appointed Elizabeth Austerberry as the chair of its registered provider. Austerberry joins following her retirement as CEO of Moat, a 20,000-home Housing Association which she has led since 2013.

Octopus is the latest in a line of institutional investors entering the affordable sector seeking long term returns from acquiring affordable rented stock. Gresham House has a similar model through its registered providers ResI homes and Resi Housing, while for-profit L&G Affordable Homes has a model based more on section 106 and direct development of homes through its modular arm.

Another company owned by the Octopus Group - Octopus Investments- announced earlier this week that it has acquired luxury housebuilder Elivia Homes. Elivia, which was formed through the merger of High Wycome-based Vanderbilt Homes and Southampton housebuilder Crayfern Homes, is planning to increase its turnover from £100m to £250m and up its annual development from around 250 homes to 600.