Ashley Horsey, Chief Executive of Commonweal, evokes the spirit of the Rowntrees and Octavia Hill with a new model of ‘venture philanthropy’ that could provide the building blocks for sustainable social housing
There aren’t too many Bill & Melinda Gates’s around; or Warren Buffets, Oprah Winfreys or even Christopher Cooper-Hohns (the London hedge fund manager who previously topped the Sunday Times Giving List, published as part of the famous Rich List, having given £1.1 billion to charity over the last three years).
Fortunately, for every one of these super rich, super generous individuals there are many others – companies and individuals – who provide the vital financial resources to many charities and voluntary sector organisations. They have done so for many years.
Despite such generosity, however, we know that there is increasing demand for charitable and philanthropic funding to fill the gaps left by withdrawn public sector funding in the arts, education, social care and welfare. So the much-talked about notion of ‘social investment’ – or ‘impact investment’ as it has also become known in the UK, the US and many other parts of the world – is a welcome one. The idea that philanthropists, social funders and even in some cases mainstream lenders and wealthy ‘high net worths’ might want to ‘invest’ in such a way to create social returns (in addition to financial ones) opens up new possibilities.
Terms such as social investment are relatively new (although the UK’s Social Investment Task Force is already more than a decade old) but philanthropy itself has enjoyed a much longer relationship with social housing.
The great social reformer Octavia Hill is known to have financed her first slum rehabilitation project in London with a loan from the writer John Ruskin (who apparently wanted a fair return for his money) before renting the homes at low cost to poor tenants.
But can philanthropy play such a role in meeting modern housing demands and filling some of the gaps there – or did meaningful housing philanthropy die out with the Rowntrees, Shaftesburys and Octavia Hill?
An emerging field
A new model of philanthropic capital funding has been developed by Commonweal Housing, a registered charity that has grown out of just such a philanthropic legacy.
This is our take on the emerging field of venture philanthropy.
It could offer an interesting opportunity for socially minded investors – as well as being one option to follow for the much heralded Big Society Capital, the social investment wholesale bank originally recommended by the task force and due to launch fully this year with around £400m of assets from so-called ‘dormant bank accounts’ and another £200m promised by the government’s ‘Project Merlin’ agreement with high street banks.
Commonweal Housing is, we believe, a unique charity. We use the resources entrusted to us by our principal benefactor, a not-for-profit organisation, to support, develop and test innovative housing solutions to different forms of social injustice, creating ‘role models’ for others to benefit from. We work in partnership with expert service delivery organisations that provide the client facing expertise. Our principal benefactor has an ethos and a board of directors who, if the finances of the company allow after meeting the organisation’s primary aim of ensuring financial robustness for the security of its own tenants and leaseholders, are keen to continue the philanthropic activities of the company’s founder back in the 1930’s – the current chairman’s Great Grandfather.
The bulk of the funding is provided in the form of housing – purchased by the benefactor and leased to the charity. The bespoke acquisitions are purchased at the direction of the charity to meet the aims and needs of each new project. Commonweal Housing then uses some of its resources to commission independent external evaluation to test if our solution really is a role model and working as we hoped. If proven, we then play our third role of campaigning, promoting and lobbying others to replicate the successful model elsewhere, wherever a need exists. Since 2007 we have spent over £4m in providing housing with a further £2m earmarked for projects over the coming two years and close on £1/2m on evaluation, promotion and developing the charity model.
The twist is the model of funding – at its core the money is a loan or more specifically an investment, a philanthropic repository for spare cash at a time when base interest rates remain low. Although in the case of Commonweal our current benefactor is committed to long-term support of the charity and a wider pattern of giving and donations to support our work, the capital can be recovered by them. Presently this takes the form of recycling ‘liberated’ capital at the end of one project for re-investment in new projects.
The company is enabling social good to be done with its spare cash knowing that if needed it can be recovered. The capital is used to acquire housing properties..These are leased to or held by the charity with the investor having a charge over the asset. They in turn lease the properties to the charity – in our case the standard model is a 10-year term. Commonweal then makes these properties available at subsidised rent levels to its project partners, again on a mirrored 10-year term giving long-term certainty to our partners to enable them to develop the new services and projects we are testing.
The differential between rent in, charged by the charity, and rent out, paid to the lessor (the benefactor) is addressed by a Gift Aid donation that can be off-set against tax liabilities for a corporate donor.
Having a long-term horizon for this sort of model is important for Commonweal for two reasons:
- Should the philanthropic investor seek return of their capital investment over a 7-10 year period the risk of negative equity is reduced significantly notwithstanding the vicissitudes of the UK housing market. Despite its ups and downs, it’s generally on an historic upward trend over the medium to long term.
- Importantly for Commonweal we know that the ‘new’ and the ‘innovative’ can take time to bed-in and display robust results. We have seen too often the curse of the two or three-year funded project where you have just got good staff in post after a tortuous recruitment process; just starting to fire on all cylinders when the end of funding is in sight and good staff start looking around for another post and the whole project comes to a shuddering halt.
It also hopefully gives our project partners ample time – assuming the project is a success – to develop their own capital programme. The ambition being for them potentially to purchase the properties in due course, possibly discounted where this is appropriate and feasible to reflect beneficial partnership.It also reflects a desire to mainstream what is by then, hopefully, a successful and established project. The subsidised rent enables our partner to support revenue costs over and above core housing management and maintenance from the rental stream charged to occupants; such costs can include those associated with providing tenants with support to address their needs.
Working both ways
We know that there are individuals and companies who have close links with some projects and who will periodically display that link by making a substantial donation. But there is also a growing niche of investment capitalists who purport to take a more philanthropic stance and who are seeking to measure their investments in a wider model of social return on investment (SROI).
The Commonweal Housing model can work for both of these modern day philanthropists. For the ‘investor’, the capital is safeguarded yet they can still ‘give’ in terms of their wider moral, financial and tax planning objectives. The donation back to the charity of rental income from the leased properties (or whatever portion is agreed at the outset) can be part of a legitimate Gift Aid programme of charitable support by a corporate donor which can be offset against tax in any given year depending upon their own financial position. This is ostensibly what companies and high net worth individuals would be doing with their one-off donations anyway.
EXAMPLE: Peer Landlord
Peer Landlord is a housing initiative that seeks to test a model of shared housing for people who have suffered from homelessness and social exclusion. For our partners the national young people’s charity, Catch 22, working with 16-25 year olds, there is a focus on increasing their ability to sustain private rented accommodation, including undertaking meaningful activities and maintaining positive relationships.
The model is premised on a distinctive ‘Peer Landlord’ support arrangement through which one tenant is given special responsibility, along with appropriate support, incentives and rewards, to provide informal advice and guidance to the other tenants. The overall aim of the Peer Landlord project is to demonstrate that the opportunity for people to be role model mentors or to receive support from a role model peer mentor can have benefits for all concerned.
The ambition is to show that enabling this to occur in a suitable accommodation setting at the right point in time can increase the chances of homeless people making substantial effective change in their lives.
This change measured in particular through being able to sustain accommodation, education or employment and positive relationships. The anticipated impact of the Catch 22 Peer Landlord project:
- 90% of young people will be in engaging in meaning full activity including education/ training or employment
- 100% of tenants to complete Catch22 Path to Independence training course
- 100% demonstrating increase in knowledge/confidence around their rights and obligations as a tenant and knowledge of occupancy agreements
- 95% of young people to be in less than 4 weeks’ rent arrears demonstrating the ability to manage rent issues
- 95% of young people maintaining their home after 6 months in a shared accommodation environment including dealing with conflict appropriately
- 100% of young people to move on to appropriate accommodation
- Investment benefits include:
- Social Return on Investment: positive outcomes for service users and society
Potential for a revenue dividend during the term (subject to individual investment terms)
- Capital efficiency: capital employed in charitable work immediately
- Capital impact: core costs for Commonweal Housing including project evaluation costs are covered by our principle benefactor sources – your capital investment is entirely invested in project properties
- Leverage: the greater the property portfolio secured the increased ability to share capital risk for individual investors
- We would report to investors, in person, every six months. Our reports include feedback on projects supported with your funding as well as how Commonweal Housing is progressing
Commonweal has already started talking to other potential interested parties about replicating this sort of giving model – using Commonweal Housing as a conduit to boost the number of projects we are able to support.
The complete package offered by Commonweal – i.e. properties, evaluation, dissemination and promotion along with the general strategic support and partnership – makes us stand apart from many mainstream charitable funders. However, it is a model that is already proving to be successful and can provide a blueprint for a new form of philanthropic giving and investment by companies, charitable trusts and foundations and high net worth individuals.
Commonweal Housing is not in the same league as Bill & Melinda Gates, nor indeed the Joseph Rowntree Foundation, but in trying to carve out new models of working we are having some success.
Companies and individuals should always seek their own independent legal, tax and financial advice if considering such models.
For further information on the Commonweal Housing and options for philanthropic funding and investment with us as well as details of the projects we have supported see our website: www.commonwealhousing.org.uk or contact Ashley Horsey on 020 7953 3038.