Affordable housing has ‘best risk-adjusted returns I’ve ever found’, says for-profit owner

Mr Walsh has created several companies, including a house builder and a land promotion firm. Before that, he spent 10 years at European investor Rockspring. He has been co-owner of Zen Housing since 2023.

Last year, Zen Housing committed to building about 1,700 affordable homes, and this year it expects to commit to around 5,000 homes, he said.

“What we’re trying to do is basically facilitate an access point for long-term capital to invest in [and] help alleviate the shortage of low-cost affordable housing in England,” he said.

One of the attractions of the sector, according to him, is that “regulated housing has a high barrier to entry”. 

Mr Walsh added: “Regulated housing also has extraordinary access to the debt capital markets, which is underappreciated.”

He applauded Blackstone as an early private investor in affordable housing. Sage Homes is now England’s biggest for-profit affordable housing entity.

He continued: “Unfortunately, they’ve been somewhat burned because of the interest rate environment, but their business model is absolutely spot on. More people, more institutions, more GPs [general partners] need to be more courageous in seeding this.

“At the moment, LPs [limited partners] are reluctant to commit capital, but GPs are also not being, in my opinion, brave enough, courageous and bold enough to bring their own money to seed the initiative and get on.”

Ed Clough, head of real estate at Octopus Capital, also spoke on the panel. He said he had seen a “positive development” in insurance schemes investing in property.

“This is a massive oversimplification, but we know that a lot of the defined benefit (DB) pension schemes are now transitioning, and to insurance buyout as well. And the DB teams were the biggest owners of real estate in the UK and in other countries.

“But increasingly, as they got or are getting closer to some kind of buyout or end of their lives, naturally, their time horizons start shortening again.

“What we do have is this opportunity with a lot of the insurers who are taking the other side of that now, to be back into that really long duration.

“It is those insurers... many of them big lenders to the social and affordable housing debt markets as well. They are just increasingly looking at more and more assets. And they are looking at 30, 50-year time horizon assets.”

He continued: “We have assets in sectors that will be developed in our real estate business that are quite nascent, but they are going to generate cashflows, which look 50 years long. And we are already starting to do deals with insurers on bits of those.

“That is quite positive, having investors and capital that wants to commit to stuff for 30, 50 years.

“One of the things people don’t actually realise about regulated housing is that debt leads, rather than equity. And I think in a capital-constrained, equity-constrained market, people have got to wake up to this.

“But the problem is scale... the ramp-up capital is what we need. Blackstone did an awesome job at this. And not enough people are being courageous to do that.”

Last year, Inside Housing Living interviewed Sage Homes’s chief financial officer to discuss building affordable homes in high volume, profitability and trimming its portfolio.