Build-to-rent will not end homelessness, but private finance will play a role

Private rented sector – an ever-shrinking pool

The system is heavily reliant on the private rented sector (PRS) – 62% of TA is provided through private sector leasing, including B&B accommodation, which has surged by 25% in a year.

Due to rising rents and a shortage of accommodation, out-of-area placements by local authorities are increasingly common, with more than 42,000 households placed outside their home boroughs. This is most acute in London, where 46% of TA households are now out of borough.

The number of households in TA has risen by 21% over five years, driven primarily by the end of private rented tenancies, which accounts for 42% of homelessness prevention cases faced by local authorities. Vulnerability is high as nearly 60% of TA households have additional support needs, including mental health issues, disability or domestic abuse experience.

The PRS is both a critical source of accommodation and a key driver of homelessness. However, traditional PRS, which is mainly delivered by private buy-to-let landlords, is shrinking. In Q1 2025, 15.6% of homes for sale were ex-rentals and nearly a third of homes for sale in London had previously been rental properties.

This trend is driven by tax changes, regulatory uncertainty and the freeze on local housing allowance rates, which have made it financially unviable for many landlords to let to tenants on benefits.

Build-to-rent is not the answer

Meanwhile, institutional investor-funded and corporate-run build-to-rent is expanding, with 200,000 new homes in the pipeline. But these developments typically target higher-income renters and do not replace the affordable stock lost from the traditional PRS.

Social housing provision is dire, with waiting lists having grown to 1.29 million households – a situation exacerbated by the policy failure of replacing homes sold under Right to Buy. The result is mounting pressure on local authorities which, to comply with their statutory obligations, are forecast to spend £2.8bn on TA in 2024-25 – a 25% increase in a single year.

This is against a background of chronic undersupply of UK housing, which has just 434 homes per 1,000 people. This is far below the average in France, Italy and countries part of the Organisation for Economic Co-operation and Development.

Could private investment play a role?

Solving the TA crisis requires a multifaceted approach, but private finance is playing an increasingly important role. Social impact investing has grown rapidly, with £550m in new capital announced in 2024 for homelessness-focused property funds.

Managers such as Schroders, Man Group and Resonance are acquiring and managing homes to lease to councils and charities, aiming to provide more stable, higher-quality accommodation than ad-hoc private arrangements.

Resonance’s homelessness property fund, for example, has grown from £20m to £76m, with a target of providing 1,500 homes to house more than 15,000 people.

Institutional capital is scaling up. The Sterling 20 partnership, which involves Legal & General and AustralianSuper, has pledged over £2bn for social impact investment by 2030, targeting affordable housing and urban regeneration. Legal & General alone has committed up to £2bn over five years to deliver around 10,000 affordable homes.

“For private finance to have a transformative impact, it must be integrated into a broader strategy – one that includes increased public investment, policy reform and innovation in delivery models”

Direct financing deals are also emerging. In April 2025, Macquarie Asset Management, on behalf of Phoenix Group, agreed a £235m, 42-year inflation-linked loan to Westminster City Council to acquire more than 350 TA properties. The deal includes a rent-free period, refurbishment requirements and a guaranteed rent level, offering both financial certainty for the council and improved standards for residents.

Macquarie has provided £1.4bn in debt facilities to local authorities and housing associations since 2015, and Phoenix Group’s social and affordable housing portfolio now stands at £1.5bn.

However, the scale of private investment, while significant, remains modest compared with the £2.8bn that local authorities are forecast to spend on TA this year alone. For private finance to have a transformative impact, it must be integrated into a broader strategy – one that includes increased public investment, policy reform and innovation in delivery models.

It is precisely because of the affordable housing funding shortfall that other avenues, such as social impact bonds and community land trusts, focusing on homelessness prevention and long-term housing affordability, respectively, should be encouraged and supported.

Real change requires joint effort

Private finance is already making a valuable contribution to expanding and improving temporary accommodation, but it cannot solve the crisis alone given its severity.

Meaningful progress will require a co-ordinated strategy – combining public and private investment, policy reform and innovation – to address the root causes of homelessness and create a more stable, equitable housing system for the future.

Josh Ware, residential valuation associate, Allsop