Transitional Supported Housing (TSH) involves providing two different services, as the name suggests. Support and housing are quite different things and providing them involves different skills and different types of finance. In the past they have often been separated, so that one organisation provides the housing and another provides the support services.
This can make sense, as it allows the different organisations to specialise and divide the risks and rewards between them according to their different needs. But how well this separation will work depends on details of the relationship between the two organisations, the flow of money between them, and the different responsibilities each has.
There are broadly four different ways of organising this relationship between transitional support and housing, summarised in the table below. If the two are separated, then the support charity generally has to rent properties from a landlord. Three-quarters of the housing used in TSH is owned by social landlords: historically, support charities could rely on being able to meet their housing needs by renting appropriate housing from such landlords on relatively short-term arrangements. This is (1) in the table.
But the traditional dispersed street housing that is best suited for TSH is increasingly unattractive to many housing associations, which want to focus on building new, general needs homes. This has created an opportunity for commercial investors to move into this space. Commercial property investors like to maximise the certainty of their future income by renting out their properties for the longest possible period (eg 25 years or more). Such a long-term rental agreement is called a lease. These new commercial landlords, including publicly quoted Real Estate Investment Trusts (REITs), want to buy housing and then sign up tenant organisations on 25-year leases.
To date, these long-term lease arrangements have failed to attract many well-established supported housing providers. Instead, this new supply of property available on 25-year leases has created its own demand. This tends to come from relatively new supported housing operators with little or no track record or capital of their own, who find themselves on the hook to pay fixed rents, often tied to CPI, far into the future. “Lease-based providers” that operate in transitional (rather than specialised) supported housing face an extra level of risk: since their income comes from relatively short-term contracts with local authorities, signing up to fixed lease payments for the next 25 years creates a mis-match. Meanwhile, the funds are making healthy returns for their investors. See (2) in the table.
Since 2019, the Regulator of Social Housing (RSH) has been issuing increasingly strongly worded statements highlighting the financial risks of the lease-based provider model. This has consequences for the vulnerable people who live in this housing. And the government recently announced new funding to help local authorities inspect these new providers to check that they are delivering good quality support.
SASC’s view is that the issue here is not leasing itself, but the specific arrangements being seen in the sector. Those details matter. The lease-based provider problem shows that, as the RSH has been warning, these details can create serious financial risks that have potentially serious consequences for individual organisations and the people they work with.
But this leaves Transitional Supported Housing providers facing the same old problem: they want to be able to rely on delivering both good quality housing and support. As it has become harder for support providers to find decent properties to rent on reasonable terms, some have tried to cut out landlords entirely by buying housing themselves.
The standard way to buy property is of course a mortgage. But a mortgage requires putting down a deposit, and charities may question if that is the best use of scarce reserves. Taking on large debts also exposes a charity to void and property market risks: mortgage payments, like long leases, have to be paid, even if your income and/or property prices have suddenly dropped. See (3) in the table.
Now, however, there is a fourth option: social investment that allows transitional supported housing providers to buy properties themselves, while leaving the property market risks with the investors. SASC has developed one such model (Social and Sustainable Housing, or SASH) by working with support providers themselves. SASH takes advantage of the fact that long-term investors are happy to take on some key exposures that are unattractive to support providers themselves. This creates a way for some TSH providers to get access to the benefits of ownership in a way that carries less risk for them.
Table 1. Four ways for a TSH provider to get access to the housing it needs
TSH provider rents housing
Owner of property
Source of owner’s finance
|Length of rental / loan contract
Void risk held by
Property market risk held by
|1. Traditional model
|Landlord (HA or PRS)
|N/A (short-term rentals)
|HA or PRS
|2. Long-lease model (incl “lease-based provider” model)
|Property investment funds (eg REITs)
|25 years or more
|TSH provider owns housing
|3. Buy with mortgage
|Support charity, with bank mortgage
|Banks + equity (deposit)
|4. Buy with SASH loan
|Support charity, with SASH loan
Note: HA = housing association (or Registered Provider, RP); PRS = Private Rented Sector
Director of Research
External Affairs Consultant
Read the rest of our series – here
- A new way to finance supported housing
- Housing Crisis? What Housing Crisis?
- Hidden Charity Champions
- Social and sustainable: why owning can be better than renting for supported housing providers
- Comparing models for financing transitional supported housing (TSH)