Institutional investments in social and affordable housing in Europe

  • Drs. Ad Hereijgers
    Drs. Ad
  • Dr. Mathias Hain
    Dr. Mathias
  • Lutz Rittig
  • Sebastian Wolf

ESG (Environmental, Social and Governance) performances are gaining importance and becoming more and more scrutinised by investors. The Good Economy – a UK based social advisory firm, specialising in impact measurement and management – published a White Paper on a Standard Approach for ESG Reporting within the UK social housing sector. RITTERWALD did supplementary research from a pan-European perspective and presents a paper that compares social housing sector investment schemes in France, Germany and the Netherlands. RITTERWALD – known for its pan-European expertise in the residential real estate market and its Certified Sustainable Housing Label – issued a complementary report that goes beyond the UK borders and offers a brief overview of the different social housing schemes across Europe, namely France, Germany and the Netherlands. This paper strives to shed more light on sustainable finance and ESG performances.

To date, the UK social housing market has seen low levels of UK institutional investment compared to Europe. Housing associations in the UK turned to institutional investors for their financing needs as banks became hesitant about the expansion of long-term lending programs after the global financial crisis. Additionally, in recent years the British housing sector has witnessed the entry of equity funded for-profit housing providers. What are the advantages and disadvantages of this trend in a European perspective? This article aims to not only provide insights on the French, Dutch and German markets respectively, but also to understand how in these regulated markets the role of institutional investors is being affected by the public debate. Before diving into the heterogenous settings and recent developments in these social housing markets, it is important to first familiarise oneself with the regulatory differences. In a nutshell, two basic, yet different, types of rental housing markets can be distinguished: the integrated and the dual rental market.

Housing associations in the UK turned to institutional investors for their financing needs as banks became hesitant about the expansion of long-term lending programs after the global financial crisis. Additionally, in recent years the British housing sector has witnessed the entry of equity funded for-profit housing providers. What are the advantages and disadvantages of this trend in a European perspective? This annex aims to not only provide insights on the French, Dutch and German markets respectively, but also to understand how in these regulated markets the role of institutional investors is being affected by the public debate. Before diving into the heterogenous settings and recent developments in these social housing markets, it is important to first familiarise oneself with the regulatory differences. In a nutshell, two basic, yet different, types of rental housing markets can be distinguished: the integrated and the dual rental market.

The dual system can be characterised by preventing competition between the smaller for-profit providers and the dominant, municipal not-for-profit providers. Thereby, access to regulated low-cost homes of the social housing providers is limited to households with low incomes. This system is commonly adopted in France and in other countries such as Norway, Finland, and Italy.

In the integrated rental market not-for-profit suppliers are exposed to competition. Social housing companies in this system have a certain level of profit orientation. In the past, these markets were generally created by phasing out subsidies and gradually reducing the regulation of the rental housing market. This system strives to strengthen effective providers with not-for-profit objectives for the open housing market. It can be found in Germany and the Netherlands among other countries such as Austria, Denmark, and Sweden. Despite similar objectives and the regulatory framework, there are significant differences within the integrated rental housing markets. Germany, for example, has different types of non-profit rental housing companies (municipal, cooperative, and faith-based housing companies). While the Dutch offer a uniform structure regarding housing associations.

The country profiles in this annex show that:

  • France is transforming capital flows in the delivery of social and affordable housing by opening for private investors if they work together with the social housing providers.
  • In the Netherlands housing associations remain dominant and rely heavily on the two sector banks for their debt financing. For middle income housing private investors have stepped in.
  • With its more than 20-year track record of housing privatisation, Germany shows the importance to carefully consider the goal of private investors in social and affordable housing, as they can be a welcomed addition to public companies.


In 2019, France registered 35.7 million homes. More than 5.0 million (15.0%) are social homes; Habitation à Loyer Modéré – HLM. In 2019, 86,300 new HLM social homes have been built, that’s a 1.7% increase in comparison to 2018. France’s HLM stock can be considered quite old, as the country built 50% of its housing stock in the period 1945-1975, Trente Glorieuses.

HLM homes in France are built with the help of the State and are subject to regulations regarding construction, governance, rent levels and allocation. Access to social housing is conditioned by a commission that reviews the eligibility criteria of the applicants.

France counts on several actors to provide social homes, namely the State, local authorities, and investors, but relies heavily on one central agency to finance social homes: the Caisse des Dêpôts et Consignations (CDC). The CDC grants long-term loans funded by popular savings deposits such as the Livret A savings account. Loans with terms of 30 to 70 years account for nearly 75% of CDC’s financing.

France today is facing a certain conundrum. While the number of applicants for HLM housing is increasing those already living in the latter homes are struggling to move on. This in return reduces the possibility of new allocations and lengthens waiting times. In addition, tense areas concentrate nearly three-quarters of the overall demand, but such areas only register just over half of the social rental supply.

France is on the eve of a major shift in the HLM sector, which is understood to change the very foundations of the existing system. On the stakeholders’ perspective, certain aspects remain unchanged. The historical actors in social housing are still in the thick of things: State, local authorities, investors. The European Union has joined this list and gained in importance. Social housing providers remain key stakeholders. Nevertheless, the government has already acted measures to change the landscape of the HLM stakeholders.

The 1% housing scheme for example, now known as Action Logement, has been thoroughly restructured and has seen its funding significantly oriented towards national policies, particularly urban renewal plans. The government ELAN Act (Evolution du Logement, de l’Aménagement et du Numérique) will drastically change the scope of the social housing sector. The act will enforce 450 small social housing providers (out of total number of 800) managing less than 15,000 homes to regroup.

The aim of the act is to ensure that social housing providers allocate their financial resources in new constructions. HLM homes in France belong mainly to the Offices Public de l’Habitat (OPH Public Offices for Housing), the Entreprises Sociales pour l’Habitat (ESH Social Companies for Housing) and the Coop’HLM (HLM Cooperatives). In 2016, France registered 259 OPHs (2.27 million homes), 229 ESHs (2.17 million units) and 31 Coop’HLM (0.05 million homes). Together, both OPH and ESH own and manage over 90% over the existing HLM nationwide.

On a financial perspective, France is also seeing its historic system being challenged. National budget constraints and modifications brought to the regulatory framework by the ELAN Act will probably transform the regular HLM-activities – own, build and manage social homes. As a result, some social housing providers will be allowed to manage dwellings without construction or full ownership titles, while others will be able to own and sell homes without managing them.

HLM organisations are not-for-profit, which means that any surplus generated cannot be distributed to shareholders. Entreprises Sociales pour l’Habitat (ESHs), however, are private companies. They are entitled to reward their shareholders with dividends. These, however, are capped and set at a very low level. This leaves virtually no, or very little room for private investors, a principle rooted and openly defended by the Union Sociale pour l’Habitat (USH body representative of the HLMs in France).

There has not been any direct institutional investment in the social rented sector: as a result of rent-control legislation and the sales ban of HLM homes to institutional investors, returns are too low. The launch in 2014 of the Fonds Logement Intermédiaire (FLI) with SNI Group, the largest landlord in France (350,000+ homes) and 100% subsidiary of the Caisse des Dépôt, as well as 7 institutional investors (mainly active in insurance and pensions) paved the way for institutional investment in the affordable housing sector. Today, the government is considering opening the door to private investors, an idea frowned upon by the USH. The HLM sector has set itself ambitious targets for the construction of new social housing dwellings. To achieve this, the French government believes investors need to strengthen their equity capital, hence the idea of possibly including private investors in financing projects. In September 2019, therefore, the Inspection Générale des Finances (IGF government body in charge of inspecting finances) and the Conseil Général de l’Environnement et du Développement Durable (CGEDD General Council for the Environment and Sustainable Development) published a report to include private investors in the financing of social housing and offered four proposals:

  • Creating an investment vehicle: the private investor provides equity capital for a development project selected by the social housing provider.
  • Creating a Social Housing Estate – new status for the housing provider: the objective of this entity would be to manage social, intermediate, and private market homes.
  • Opening the capital of ESHs and Société d’Economie Mixte (SEM) to private investors: With the aim to increase capital and share buybacks and set higher ceilings on dividends.
  • Open social rental management to private landlords: in compliance with a set of specifications, any landlord will be able to manage social housing, albeit for a limited period.

France is transforming the main capital flows in the delivery of social and affordable housing. Two questions remain open: to what extent will the system be transformed, and of course will the existing stakeholders of the HLM sector embrace these changes?

Sources of data: Insee, Mediaterre, Union Sociale pour l’Habitat, Ministère de la Cohésion des Territoires et des Relations avec les Collectivités Territoriales, Perspectives L’étude sur le logement social. Banque des Territoires. 2018, Reforme des HLM: que représente le logement social en France?. Le Monde. 2018.


The Netherlands have built a name for themselves when it comes to social and affordable housing. With 3.3 million homes, it does not only have the largest share of affordable housing stock in Europe, it is also one of the wealthiest countries. With 2.3 million homes, the social and affordable housing market is dominated by not-for-profit housing associations (woningcorporaties): registered private companies with the legal entity of a foundation (stichting) required to work within a strict regulatory framework approved by national government and controlled by regulatory bodies Autoriteit Woningcorporaties (Aw) regarding governance and Waarborgfonds Sociale Woningbouw (WSW) regarding financial risks.

In 2018, the Netherlands registered 7.7 million homes. Most of the homes are owner-occupied (57%). Out of the rental housing stock (43%), the majority (70%) is owned and managed by housing associations whereas 30% is owned and managed by others: institutional investors and professional providers and a small part by private individuals. Early 2019, 312 housing associations were registered (down from 320 in 2016 as result of mergers). One third of the entire 2.3 million stock belongs to 19 housing associations of more than 25,000 homes of which 5 (Ymere, Eigen Haard, Portaal, Alliantie, Woonstad Rotterdam) own and manage more than 50,000 homes.

Eligibility for social housing is determined by the 2009 EU decision, that social housing is a service of general economic interest (SGEI). The primary motivation for this EU involvement is the provision of subsidized land and state guarantees in financing. Only loans for SGEI-part (so called daeb with a maximum monthly rent of €737) are provided with a state guarantee assessed by the Guarantee Fund Waarborgfonds Sociale Woningbouw (WSW). With a market share of 88% (representing €81 billion in 2018) sector banks Bank Nederlandse Gemeenten (BNG) and Nederlandse Waterschapsbank (NWB) are market leaders in bank loans to housing associations. In 2018, the remaining market share was provided by commercial banks (2%) and institutional investors (9%): lower shares in comparison to 2017.

About 95% of the associations’ housing stock require monthly rents below €737 and are therefore regulated and allocated to households with a maximum annual income of €39,055. For eligible households individual rent assistance is available. About 5% are unregulated (approx. 140,000 homes) and (re)financing is not eligible for state guarantees.

There is no public funding available for social housing. The main principle of financing social housing is its revolving characteristics: use the net proceeds from rental operations and sales for new investments: primarily new construction of social housing and renovations (greening the housing stock). Example: assuming net proceeds (after loan repayment) of one sold home is approx. €75,000 on average, the housing association can build and finance one new regulated rental home assuming a one-off loss of approx. €50,000 due to the required below market rate rent level. The actual loss depends on the type of home (single family or apartment) and housing market.

The 2015 Housing Act has created additional room for private investors, especially in housing delivery for households with a middle income (>€39,055) and a monthly rent of >€737 (threshold for unregulated market). Also, this act has opened opportunities for joint ventures between housing associations and private investors. The main goal here is to introduce new equity capital in the affordable housing sector.

Since 2015, new housing delivery of unregulated homes by housing associations has been reduced to 500 in 2017 (down from 2,000 in 2014). On the other hand, the delivery of new homes by private investors has increased: since 2016, Dutch investors (primarily institutional investors) have been buying approx. 9,500 homes per year and foreign investors peaked in 2018 with their purchase of 8,000 new homes (a 100% increase in comparison to 2017). Including transactions of existing residential portfolios, this represents an investment volume of €8.5 billion in 2018.

Relatively speaking, in terms of ratios, in 2019, private investors contributed more than housing associations to the construction of new social homes. As mentioned above, housing associations register 2.3 billion dwellings. In 2019, housing association built 13,600 new homes, which represents only 0,6% of their total housing stock. Private investors, on the other hand, register a total of 140,000 social homes. In 2019, private investors constructed 9,000 homes, which represents no less than 7% of their total housing stock. In other words, to an increasing extent, private investors contribute in solving the housing crisis. Moreover, on the existing stock of private investors, 15% offer a rent level lower than €737 and therefore serve as social housing. Furthermore, only 10% have rent levels >€1,000 per month. In other words, private investors take a growing share in providing affordable housing for households with a middle-rate income (>€39,055).

Until now less activity is perceived in joint ventures between housing associations and private investors, although this is encouraged by law. It could help finance more social housing if the housing associations would sell – part of – their unregulated housing stock to long term strategic private investors.

Sources of data: Staat van de Volkshuisvesting: Jaarrapportage 2019. Ministerie van Binnenlandse Zaken en Koninkrijksrelaties. Den Haag. Mei 2019


The German residential real estate market registers over 40 million homes. 43% of these homes are owner occupied and the other 57% are register under rental housing. Of the rental market, private, small, or non-professional suppliers have a 65% market share, whereas 35% are owned and managed by professional municipal and commercial suppliers.

An important note to mention is the market share development of the professional-commercial suppliers. Due to the widespread attention of the political debates surrounding the large private stock-listed investors (Vonovia, Deutsche Wohnen), one would expect their market share to have grown significantly. However, during 2011-2018 their market share fell by 2 percentage points to 8% in total in 2018. This loss compensated the municipal housing associations and cooperatives which gained over 1 percentage point over the same period. This marked the end of the trend that started in the 2000’s. Between 2000-2010, the public sector sold approximately 917,000 apartments. Overall, more than 2 million apartments were traded nationwide over this period. Yet a closer look at these figures indicates a net peak of residential portfolio transactions in Germany between 2004 and 2007. While international institutional investors appeared as buyers, the public sector (federal, states and municipal authorities) were sellers. 2005-2007 registered a high number of resales of residential portfolios, with repeated changes of private ownership within a short period of time. The global financial crisis of 2008 marked a clear stop. Since then, public authorities only sold off housing stocks on a case-by-case basis.

The decline in the sale of publicly owned housing is due to a radical change in the political agenda, and not because of a drop in buying interest by private investors. Rather, in the absence of supply of large housing portfolios from public authorities, the pressure on private companies to consolidate via acquisition of peers increased over the years. A few examples: Deutsche Wohnen acquired the GSW Immobilien AG (in 2012), Deutsche Annington Immobilien SE bought Süddeutsche Wohnen GmbH and Gagfah (in 2015) and was rebranded as Vonovia SE, Vonovia bought the Austrian housing associations Conwert AG (in 2017) and Buwog AG (in 2018) as well as the Swedish housing associations Viktoria Park AB (in 2018) and Hembla AB (in 2019). And just recently, on April 9, ADO Properties S.A. announced the successful completion of the acquisition of ADLER Real Estate AG.

At the same time, due to the housing crisis – shortage of housing in urban areas due to mutually reinforcing factors like urbanisation, long economic boom, influx from foreigners for jobs and refugees, historically low interest rates – social housing has dramatically and steadily gained in political relevance since the beginning of the 2010’s. So much that a slight reversal can be observed over the last couple of years. Today, public authorities act as buyers. Recent examples are the portfolio purchases of the Berlin based municipal housing associations Gewobag and Degewo that bought back 6,000 and 2,000 homes respectively from institutional commercial housing companies in 2019 alone. All 8,000 homes were formerly already owned by the State of Berlin and belonged to the housing stock of the Gemeinnützige Siedlungs- und Wohnungsbaugesellschaft (GSW).

But back in 2004, when the GSW was one of the largest housing associations in Germany with 65,700 homes and one of the seven municipal housing associations in Berlin (nowadays there are six), it was sold for €405 million to a consortium headed by Cerberus/Goldman Sachs. Part of the deal was also the take-over of €1.56 billion of debt. The sale of the GSW is one of the most criticised deals of this era. This is underlined by the note that the entire GSW (65,700 homes) was sold for about €2 billion whereas the repurchasing costs of only 8,000 homes accounted for €1.3 billion. Next to the sale of the GSW, the sales of WOBA Dresden GmbH (47,830 homes, sold to Fortress – the then majority shareholder of Gagfah – in 2006 by the City of Dresden) as well as Gemeinnützige Heimstätten Spar und Bau Aktiengesellschaft (GEHAG) (27,000 homes, in 1998 and 2001 Berlin sold its GEHAG shares to the financial investor RSE which resold the GEHAG to Oaktree in 2005) are often mentioned when the privatisation of housing stocks is discussed and criticised. This is even more relevant today, with the ongoing debate focusing on expropriation in Berlin regarding Deutsche Wohnen. However, this sensitive topic neglects the fact that times have changed dramatically since the GSW privatisation. In the early 2000’s, Germany was considered “the sick man of Europe” and cities and municipalities were in poor financial conditions. The sale of their housing stocks enabled cities to pay off a large part of their debts at a stroke. The city of Dresden even managed to become debt-free in one swoop by selling the WOBA. Thus, the sales of housing stocks at that time served to finance other social services by attracting private money into a sector that until then had hardly been open to professional investors in Germany.

The short history of the Deutsche Wohnen, a strategic investor, is a good example. Deutsche Wohnen AG was founded in 1998 as a subsidiary of Deutsche Bank AG in Frankfurt and was dealing with the bank's residential real estate. The IPO followed in 1999. In July 2007, the company acquired GEHAG, the housing association privatised by the State of Berlin (see above). In 2013 Deutsche Wohnen also acquired GSW (see above), which was meanwhile a stock-listed housing association. Both, GEHAG and GSW were formerly sold to financial investors who realised profits through resales after a short timeframe. While financial investors regularly plan with a short-term focus, Deutsche Wohnen, as a strategic investor, follows a significantly longer planning horizon than the mentioned financial investors. The long planning horizon of Deutsche Wohnen is underlined by several retrofitting programs and comprehensive constructions. Furthermore, with an average rent price per m² of €6,70 in Berlin, the company is in line with the average Berlin-rent price per m² – €6,72 in 2018. However, back in 2014 Deutsch Wohnen reported an average rent price of €5,67 per m² for Berlin (+19% in 4 years). In comparison, the municipal Berlin based Gewobag AG reported a price increase of 10% in the same period (from €5,52 to €6,09 per m²).

The German example shows that it is very important to carefully consider the business goal (strategic or financial) of private investors in social and affordable housing. Private investors with a long investment horizon and corresponding returns, can be a welcomed addition to public companies regarding the mitigation of the housing crisis. Nevertheless, they naturally have higher return requirements than municipal housing associations.

Sources of data: Zensus 2011, IBB Housing Market Report (2018), CBRE Berlin Housing Market Report 2019, rbb (2019), BBSR (2011) – Transaktionen großer Wohnungsbestände, Mikrozensus (2018), Heitel, S. et al. (2011), p. 34-40, Working paper „Wohnungswirtschaft im Wandel: Möglichkeiten und Grenzen öffentlicher Finanzierung in der Wohnraumversorgung“, Websites and annual reports of Vonovia, Deutsche Wohnen and Gewobag, several newspaper publications on transactions


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