Spend five minutes online searching for supported housing and you'll almost certainly be shown adverts promising "Government-backed income", "25-year leases" and "10% net returns". It sounds compelling, but the reality is often much more complicated.
The demand for supported housing is not in doubt. In 2024/25, Councils in England spent £2.84 billion on temporary accommodation, that’s up 25% on the prior year.
We have 131,140 households living in temporary accommodation, including 169,050 children. Much of this money is spent on B&Bs and nightly paid rooms that can be more costly and often deliver poorer outcomes than supported housing.
Good quality supported housing can meet this need more effectively and at a lower cost to our local authorities.
I count myself lucky to have spent the best part of a decade developing and investing in supported housing. Some members of our team have worked in this sector for more than 40 years, and between us we have helped create thousands of social, supported and specialist supported housing properties.
Throughout my time working in this sector, we have seen an increasing appetite from retail investors. Some are well informed, with experience of owning and managing property and can undertake effective due diligence. The most expensive mistakes I have seen less experienced investors make in this market had little to do with yield, location, or leverage. It has been from investing in schemes that are simply not as advertised, combined with a lack of understanding of the nuances in this market. It is easy to see why. This is a complex and often poorly understood sector.
Over the coming months, we will cover the key issues and pitfalls that investors need to be aware of, so investors can take a more informed decision when considering their next investment. This is not financial or investment advice, but an educated perspective from a team deeply committed to this sector.
Understanding the terminology
We’ll start with some definitions, because the terms below are often misunderstood and misused.
Social housing
Social housing is low-cost rented accommodation provided by local authorities or registered providers. Rents are controlled by the Rent Standard, and by the Government’s rent policy statement, and there is typically no support element for residents.
Supported housing
Supported housing is housing plus support for people at risk of, or experiencing, homelessness, care leavers, people in recovery, and victims of domestic abuse. It is an umbrella term rather than a legal category.
Much of it is funded through housing benefit as exempt accommodation: accommodation provided by a county council, housing association, registered charity or voluntary organisation, where that body, or someone acting on its behalf, also provides the tenant with care, support, or supervision. Exempt accommodation is not subject to the usual housing benefit rent restrictions. That is why supported housing rents can be above local housing allowance, although they should always represent good value for money.
Usually, there is no separately funded care provider with supported housing, and the lease sits directly with a housing provider or registered provider (RP).
Specialist supported housing (SSH)
Specialist supported housing is a defined funding classification, and a carve out from social rent setting rules, which is why its rents can exceed the standard formula.
To qualify, all the following must apply:
• The property is designed, structurally altered, refurbished or designated for occupation by residents who require specialised services or support to live, or adjust to living, independently in the community;
• It offers a high level of support similar to what would be provided in a care home, for residents for whom the only acceptable alternative would be a care home or long-stay hospital;
• It is provided by a registered provider other than a local authority under an agreement or arrangement with a local authority or the health service;
• The rent complies with that agreement, and there was no, or negligible, public assistance, other than assistance by way of a secured loan.
The structure of SSH is different from the other two categories. There will be a separately funded care provider supporting the residents, and a registered provider responsible for the property and collecting the rent.
Why the differences matter
Delivered well, this sector is one where commercial returns and the social case can be fully aligned. Delivered poorly, it helps no one, including the investor.
The ultimate purpose of supported housing is to help residents to live well and as independently as possible. Combining this social good with a commercial return attracts retail investors. However, it is becoming increasingly clear that several companies are set up to take advantage of well-intentioned and less-informed investors.
Their offers often present a compelling proposition of long term fixed leases and Government-backed income. However, not all those statements reflect the full truth. The investor checks the yield, checks the lease length, and buys, often without properly understanding the structure required to make such investment viable in the long-term.
Government funded is not Government guaranteed
The most glaring issue is the term "Government-backed." This is almost never true. The income may be Government funded, but that does not mean the Government has agreed to step in and pay the rent if the care provider with whom the investor has their lease fails. If it is not the Government paying you directly, who is?
Investing with confidence
There is a great need for continued investment in this sector and much of this funding can and should come from the hard-earned savings of retail investors.
However, it is essential that retail investors are treated fairly and that the true nature of the commercial risks they are taking is explained.
Supported housing can deliver meaningful social impact alongside attractive long-term returns. However, those returns depend on understanding how schemes are structured, who is responsible for the lease, and where the risks actually sit.
In our next articles, we'll explore these important considerations.
If as an existing or new investor you have any questions or concerns, please feel free to contact our team and we will be happy to support you.
By Will Bailey, Managing Director, Bailey Capital.
