Focus on social rental agencies - Case study: SRAs in Brussels (1/2)

Investment for affordable housing: the private sector to the rescue of welfare state or taking advantage of a financial opportunity?

Inclusio is a Belgian social investment project, responding to the lack of housing for low-income households. It is a joint initiative of Kois, Bank Degroof Petercam and Re-Vive.

The development of affordable housing necessitates the development of affordable housing stocks, through construction, mobilisation of vacant housing and socialisation of the private rental sector for instance. But due to the increasing financialisation of housing, for housing to be affordable, a choice must be made by the developer, owner, investor or by the public sector, to rent at a lower cost. This choice can be purely social, or a strategic financial choice. That’s where social investing or “impact investing” comes in. Impact investing is becoming an increasing phenomenon as investors are attracted by investments in line with their personal values whether or not in safe and stable return opportunities like affordable and social housing.

These three partners have brought-in their complementary expertise to provide quality affordable housing to low- or middle-income population. For instance, the bank Degroof Petercam brings its competence in investment and its traditional financial competence; Re-Vive is a real estate developer based in Flanders, bringing its real estate expertise. Kois is a company specialising in social investments and provide their expertise in making profitable investments in positive social projects.

Inclusio's vision is to provide capital to buy, build and renovate buildings in order to develop a real estate stock of its own. The latter will be rented to social real estate agencies that will rent them to low-income tenants. The advantage for the investor is a safe return guaranteed by a public institution. As Piet Colruyt, director of Re-Vive, says, this is the perfect combination of the three P – People Planet Profit.

But for some critics, Inclusio and other “social investors” often take advantage of a favourable investment context, for instance benefitting from public subsidies or accessing quality locations earmarked for social purpose, to then make profitable gains. The Housing Solutions Platform has discussed these with one founding partner of Inclusio, François De Borchgrave, Founder & Managing Director at KOIS.

Mr. De Borchgrave thank you for taking the time to discuss with the Housing Solutions Platform the Inclusio project.

First, could you tell me a few words on how did Inclusio start? What was the trigger?

KOIS was one of the founding partners. Our motivation was to develop a project with social impact. We saw investment in housing as an opportunity. We believed we could have an impact by providing affordable housing to a fragile population. We decided to start with homeless people, as we believe that if the project could work with homeless people, it could work for everybody. But we don’t work exclusively with homeless people as this would be too limited to enable us to reach the scale we aim for.

I read that you partner with social actor for inclusion of vulnerable group - can you tell me a bit more about this?

Yes, we actually provide housing to two different groups of people. First, some people who have an income but maybe not enough to find the right kind of housing. They don’t need any support from us beyond access to affordable housing. This for example could be a working mum, a nurse, divorced, with two children. The other group is a very fragile population who needs specific support – there we partner with specialist NGOs who provide their expertise. For instance, to work with former homeless people for housing first, we partner with Infirmiers de rue. We also partner with NGOs providing logistical advice, to enable us to better work with people with disability. We do not finance the intervention of the support activity – what we offer is affordable housing.

How did you come to work with Infirmiers de Rue?

This partnership with Infirmiers de rue was an historical conversation, which was very much present from the start. These partnerships are often based on an encounter, or in some cases an NGO reaches to us and tell us they need housing for a specific project, or they have identified a building that is interesting but they don’t have the financial capacity to buy it. There are very different scenarios for these partnerships to come to life.

Taking a step back on the broader picture and the context in which you operate, could you tell us about your perspective on the future trends of the housing market in Belgium and in Europe?

I believe the likely evolution is that housing prices will continue to increase in large European cities. The population is still growing every year in Europe and housing stocks do not increase in the same proportion, so mechanically, the prices continue to rise. The market is tense, and the tension continues as population increases faster than stocks. This is certainly true in large cities.I read on KOIS website that “collaboration between for-profit organizations, social players and investors unlocks social impact “.

I also saw that you will be a speaker to the forthcoming Council of Europe development bank on "Social Investment for a Prosperous and Resilient Europe” – how do you foresee the impact of the increasing role of private companies in social welfare? What do you respond to the critics who believe to build a housing stock with the benefit of state support mechanisms but that you are likely to then sell it for profit, or “flip” the stock from affordable housing to market price housing?

It is not possible for us to sell at market price. It’s in Inclusio’s identity, its social mandate, and it is the base of the partnership between the three main shareholders. It is true that we, as the founders, could decide to change our aims and sell, but anybody can do that, a government can decide to sell its social housing stocks (and some do), even the Church and some NGO sometimes decide they need to do that. It is not because we are a private player that then the risk is bigger.

True but you could argue that the aim of the government, Church or NGO is not profit making whereas it might be the aim of a private shareholders…

Shareholders can indeed sell their shares, but they can’t force us to sell the buildings – so our tenants are protected. It is an interesting feature of the project, and I believe it makes it an even stronger case to go on the stock market – it is a very interesting feature of our project: allowing our investors to reap their profits by selling their shares on the stock market to an interested buyer, while thereby protecting the actual housing units from changing hands.

Do you trust the increasing role played by the private sector to step in where the welfare state is withdrawing, or do you believe it is simply a necessity?

It is complicated. What is the role that private investor should play? Ideally an investor should act to provide the best impact on society. But there have been too many examples of private investors deploying money to their benefit rather than to the benefit of society. I welcome that private capital is stepping-in because I believe private investors have a useful role to play. Is there a need for the private sector to replace government – it is difficult to say – but the reality is that governments don’t have the budget to implement the social policies they want. Delegating, if done in a proper and regulated context is useful. What is the added value for the state to hold the property of social housing? It is not a necessity – but in the context of reduce budget, it’s a question of where can we call on private capital to be beneficial to the public good. Private capital Is not the silver bullet- it is interesting to make It contribute, with necessary safeguards.

Is KOIS involved in other social investment project as regards to affordable housing in Europe?

No, this is the only one at the moment, but we might do more in future. We know of other actors I n other countries, but we have no definite plans.

Do you know of other examples of Innovative financing models for affordable housing solutions that stands out or inspires you?

I know of some other very interesting examples. There are some very good groups out there. Whether I am 100% convinced about the model, I am not sure. For instance, the model I know of in England is perilous because they sell the housing units after several years so there is a risk that when the housing is sold, new buyers would be getting rid-off social tenants. In France, there are very good examples of social housing management. I very much value our colleagues and these examples but I could not point out to one ground breaking model.

Thank you for your answers and taking the time to respond!