Building Momentum in Social Housing with Rolf Bastiaanssen  

What brought you to the social housing topic in your work? What inspires you about it?   

My parents had very modest incomes but I have always been lucky to have a home; 

in the 1980s they could afford a flat, and then a terraced house with a garden. These days many families have trouble finding suitable housing or face working poverty conditions due to steep rent increases. It is frustrating to see – I think Europe can do better than that.  

My background is in public-private collaboration; I advise the European Commission, cities and innovative companies on local energy systems and energy efficiency. Their financial models are quite mature. Impact finance can change the lives of millions in our own communities. And, personally, I would be proud to help create impact for our communities in Portugal, where Essential Housing is based.  

What are three common factors that create a housing affordability crisis? Is the situation worsening in Europe and, if so, why?   

There is a trend towards urbanization for many reasons: availability of jobs, education and healthcare. The pressure on house prices is significant in cities. In the countryside, on the other hand, homes are very cheap. Like many other sectors, housing has been financialized. The public sector has withdrawn from the market. There are many winners, especially the older generations. Newcomers, such as younger families and migrants, are worse off. Those decades-long trends have now culminated in a housing crisis. In Portugal, rents have gone up 90% in 5 years. It is absolutely unsustainable.   

There really is a generational difference between haves and have-nots; the effects will be felt for decades by tens of millions of people and will deepen the social divide. It has gotten worse, but the tide is turning. There is now a recognition that collective action is needed. Now, signals are quite positive.  
 

What does Essential Housing do? What enables the model?  What are the learnings so far? 

Essential Housing aims to offer housing at cost price level and stabilise rents for the long term. Rents are now 37% below market rents. The average family saves over €150 per month; that goes a long way in our part of Portugal, where incomes of €1,000 are the norm.  

What enables the model is patient capital. Not to maximise financial returns, but rather to minimise them. By attracting financial partners with a long-term view, we aim to reduce long-term rents; we partner with the public sector to place tenants. That stability reduces the financial risk for lenders, which reduces our borrowing rates à which allows us to reduce rents further à which makes our model more attractive to tenants. There really is a positive flywheel effect.  

Learnings are mostly social. We are shocked by the hidden poverty in our region and the need for our solution. We get over 100 responses for each place we put up for rent. On the positive side, having a stable home really changes lives. Instead of annual rent increases or forced exits, we see people that start a family or think about home improvements. As landlords, we get birthday invites and birth cards. I hope that is a signal we are doing something right. 

Can you share some other social housing investment success stories? What works? And what shows promise for scale?   

Across Europe there are many successful initiatives. That is what makes Impact Europe so interesting; members I met are happy to share deep insights in work methods. There are established banks, such as Erste, one of the largest lenders in central Europe; or social investors, such as Habitat et Humanisme and Resonance, with thousands of units. Hogar Si is on the Spanish stock exchange. Simon Communities works with venture finance. The expertise in the network is amazing. 

When talking to the network, we see potential for scale and replication. The need for affordable rents is easily 10% of Europe’s housing market, while impact investing currently covers 0.1% or less.  

The coming decade may see a growth of 10-100x: tens of billions of euros. That partially goes with the capital intensity of the sector and its vast scale, but it also reflects the obvious benefits of affordable housing policy with public-private finance from both a social and financial perspective.  

That effect covers both very large funds and investors, but we see that replicable models could flourish in every region in Europe: hundreds or thousands of local, small-scale projects of a few dozen homes run by organisations who know the local market needs.  
 

What are the kinds of partnerships needed to make this model work? Who are the players already involved?    
 
Social housing has been around for a century. Impact finance is a relatively new player in the sector, with some success in the past decade or so. But up until now, it has all been quite limited. The big change is: The European Commission has just entered the building. Commissioner Ursula von der Leyen seized on the ambition of market-making to handle our grand challenges. And with that, suddenly, European banks, investment funds and pension funds paid attention.  

Now, impact investors are paying attention, too. But there is still a large market gap. Most impact housing initiatives are very local and relatively small scale; financing and investment is still not structured for a large scale. A fund of funds structure would help bring the worlds closer together. 

What investors in the social housing sector will need to find out is how to balance opportunities on the vast scale of real estate markets, driven by finance, with the inherent social and local aspects of housing. First, for tenants: to make sure housing is affordable, but also a home rather than just a place to live. At Essential, we try to experiment with joint home improvement, where tenants get a say in what and how we make upgrades. The same goes for partnerships with smaller cities and municipalities, who sometimes urgently seek help to house people in desperate situations, but who also want to make sure buildings and districts have mixed family profiles. I think regional players like Essential can play an important role there. 

What policy shifts would you like to see for more social housing investment?   

Several countries have traditionally had a strong public policy on housing. In some countries, a third of all housing is public or affordable; in others, it is negligible. When it comes to impact investment, a recognition of this category would go a very long way. This could unlock access to EU finance, which now explicitly excludes housing unless it is 100% publicly owned or not for profit. Portugal’s Development Bank is now not allowed to finance Essential for that reason. There are billions of euros available in European funds that could be unlocked in a way that directly benefits those in need. 

At the local level, we see that impact investors really can be a partner for municipalities or NGOs. There really is a mutual benefit if a municipality wants to offer long-term housing to people in need and an impact investor can create a portfolio with long-term stability. Resonance is very successful in the UK, addressing the homelessness problem. It requires awareness and trust at local level to work with private partners.  

How can we de-risk social housing investments to bring in more capital?   

Housing is extremely capital intensive, as you can image. Unlocking those investments requires public-private collaboration. One of the models we are very excited about is borrowed from VC finance: convertible loans. It allows for risk finance to join in investments taking an equity share and some upside, which in turn unlocks bank finance and public finance.  
 

At Impact Week, you’ll be moderating the session “Building Successful Investment Funds for Affordable and Social Housing through Collaborative Approaches.” Who should come to this session and why?   
 
Anyone active in impact finance. Affordable housing is one of the hot topics socially, but also in policy and in finance. There is a lot of momentum; you notice the sector is on the verge of a big positive change. The session will bring together large and small players in an intimate and open setting. A great place to learn and network. And I believe there will be some policymakers as well. Our working group on housing – financiers, investors, operators – are very ambitious on creating a joint storyline positioning the sector internationally, and at the same time very open in sharing good practices.