Investing in the squeezed middle: how institutional capital can bridge the UK’s affordability gap

This leaves a widening gap in the middle; households that do not qualify for subsidised housing but find their finances stretched thin, whether they rent or try to buy.

The consequences extend well beyond individual households. Pricing out this group places greater pressure on social housing waiting lists, undermines recruitment and retention for vital public services, and pushes workers to live further from the communities they serve.

What institutional capital can offer

The role of institutional investment in addressing the housing crisis has long been debated but the appetite is already proven. Take the build-to-rent market, which has grown rapidly to reach £5.3bn of investment in 2025, driven by investors drawn to the stability and returns of professionally managed rental homes.

The demand is there. The question is whether institutional capital can be directed beyond the open market to serve the households who need it most – and that requires investment in a broader toolkit of tenures.

Delivering for the squeezed middle

Thriving Investments launched the New Avenue Living Fund in Scotland in 2019 to tackle this exact challenge. Using a place-based, inflation-linked strategy, it forward-funds developments originally intended for the open market – taking high-quality, energy-efficient properties within easy reach of major city centres and creating discounted mid-market rental homes.

Rents are set at a discount to local market rates, with genuine security of tenure for households that are not in immediate need for social housing but fall below what the private market comfortably demands.

The difference for residents is tangible. Among the first residents in our Edinburgh developments was a young, dual-income couple, employed and financially stable on paper, but unable to find a home that was both affordable and well located for work. Others were medical staff at the Edinburgh Royal Infirmary, now a five-minute cycle or 20-minute walk away from their front door.

What’s more, our most recent impact data shows that New Avenue Living residents save an average of £458 a month compared to those renting privately – a meaningful difference in financial resilience, and a clear indicator of the demand that a well-targeted, affordable product can generate.

In England, this model operates as Discount Market Rent, and last year we brought New Avenue Living to Greater Manchester. The timing is significant: our cities continue to face acute housing affordability pressures. This month, the chancellor announced up to £1.7bn of investment across the Northern Growth Corridor as part of a plan to create new homes and career opportunities within a short commute for nine million people.

Greater Manchester specifically will have access to £175m to support jobs and development across places such as the newly announced Victoria North new town. Institutional investment in affordable homes for essential workers is precisely the kind of private capital that public investment of this scale is designed to catalyse – and our Greater Manchester fund is already positioned to support this delivery.

For households with aspirations to own who cannot afford an outright purchase, shared ownership offers a viable alternative. The ReSI LP Fund we manage in partnership with Gresham House has over 2,000 shared ownership homes and continues to deploy capital to deliver new homes across the UK, with ambitions to keep growing.

Not only do these homes provide a genuine pathway onto the property ladder for squeezed middle households who could not otherwise access ownership, but we also estimate that lifetime savings of £379,000 are delivered for our customers, mostly young families and essential workers.

Scaling what works

The need is not in question. Government figures show that 208,600 net additional homes were delivered in England in 2024-25 – a 6% fall on the previous year. But closing the affordability gap for the squeezed middle will require more, including broader recognition of Mid-Market Rent, Discount Market Rent and shared ownership within the national housing strategy, and frameworks for public-private partnership that reflect the full spectrum of affordability need.

The newly launched National Housing Bank – alongside the already existing Scottish National Investment Bank – provide a wide range of opportunities through which public and private capital can be brought together to grow these funds at scale.

What unites these approaches is their appeal to investors as much as to residents. Each delivers a diversified, inflation-linked income stream with a strong occupancy, low turnover and a resident base with a genuine stake in their community.

In an era where responsible investment strategies are becoming more mainstream, the social value is not incidental – it is part of the return. The models are proven and the investor appetite is there. What is needed now is the scale, the collaboration and the ambition to match the size of the problem.

Delivering stable, affordable homes for essential workers, whether to rent or to own, is not simply an exercise in social responsibility – it is a long-term investment opportunity that is gaining traction.

Cath Webster, chief executive officer, Thriving Investments