UK housing and the ESG opportunities for investors
The following is an extract from the independent guide ‘UK residential real estate debt 2022: An ESG Opportunity?’
Sponsored by LendInvest, the guide looks at the current landscape and opportunities for ESG investment from institutional investors. You can download the guide here.
The commercial case for investing in British homes has long been compelling. A chronic shortage of housing stock, strong and consistent house price inflation over the long term and too few new homes being delivered to keep pace with demand present a strong capital investment proposition.
Increasingly, residential real estate offers a compelling case for equity and debt investors seeking opportunities that deliver not only on environmental grounds but also demonstrate a clear social contribution.
Mandatory requirements to produce annual TCFD – Taskforce on Climate-related Financial Disclosures – reports laid on pension schemes with more than £5 billion under management came in on 1 October 2021. All pension funds and master trusts with more than £1 billion assets will have to comply from 1 October this year and it is widely expected that smaller schemes will follow.
Together with a relaxation of the rules governing asset classes deemed appropriate for pension funds, institutional investment priorities are shifting gears.
—-
Investing capital into the UK market supports a broader push by Government to foster growth in infrastructure and pursue its levelling up agenda. Net zero targets are no longer on the distant horizon, they are in the here and now. Commitments to cut carbon emissions across supply chains and within business operations and commercial activity are imminent.
Perhaps the biggest challenge facing the UK on its overall journey to net zero by 2050 sits firmly in its buildings. According to the Committee on Climate Change, 40 per cent of UK emissions come from households, with poor insulation, gas central heating and electricity generated from fossil fuels accounting for the lion’s share.
2030 is a milestone for the housing sector, with regulation for new build homes committing developers to cut CO2 emissions by 30 per cent. All social housing and private rented housing will have to meet a minimum energy performance certificate rating of band C, with the government expecting the owner occupier sector to be well on its way to the same target.
To achieve this, a huge retrofitting programme will have to take place on homes older than 12 years. Government has said the private rented sector must lead the way, with minimum EPC band ratings set to become mandatory in 2025 for all new tenancies.
—-
Investing in residential housing represents a huge opportunity to combat both climate and the crippling cost of living by improving homes’ energy efficiency, bringing usage down and cutting bills. The rise of build-to-rent over the past few years has increased the supply of new and affordable energy efficient housing.
Another key focus of the industry should be on improving and upgrading the quality of the high proportion of existing legacy buildings through refurbishment and delivery into the build-to-sell or build-to-rent markets.
The property finance industry has a responsibility too, with many lenders beginning to offer “green” mortgages that incentivise property owners to invest in energy efficiency. In the development market such products have encouraged significant investment in upgrading existing housing stock to future-fit standards.
Lenders in the buy-to-let finance space have also launched products designed to reward and incentivise landlords for having refurbished buildings to a higher EPC standard.
These are long-term trends and it will require long-term investment to deliver, but the appetite is there and the return on that investment will be financial, environmental and of benefit to society.
This is an extract from the independent guide ‘UK residential real estate debt 2022: An ESG Opportunity?’
Sponsored by LendInvest, the guide looks at the current landscape and opportunities for ESG investment from institutional investors. You can download the guide here.
Capital at risk – The value of investments (and income) may fall as well as rise and you may get back less than invested. Past performance is not a reliable indicator of future results. Learn more about our approach to managing risk.
Income and capital repayments are not guaranteed. Investors cannot liquidate investments, but the underlying borrowers may repay early, late or not at all. Your capital is at risk. Past performance is not a reliable indicator of future results.
The information we provide can help you make your own informed decisions, but it is not investment advice or a personal recommendation. You should seek independent financial advice if you are not sure a product or investment is right for you, or you do not fully understand the risks.
Issued by LendInvest Funds Management Limited (the Investment Advisor) on behalf of the LendInvest S.C.A SICAV-SIF S.A. – The LendInvest Real Estate Opportunity Fund which is authorised by the Commission de Surveillance du Secteur Financier.