By Gina Clarke
Have you heard of the term ethical property? It’s more widely known in the charity and not-for-profit sector but it’s become more widely known in recent years as a focus on good-will and religious sector investment prompts an increased growth.
What is ethical property?
Essentially, it’s a construct that relies on the ethos of those who build it, live in it or rent it. It is certainly not new but it is a market that is continually growing, assessed at £15billion in the UK alone in 2015. And while initially slow it has been stable, around 1.2% growth over the last decade according to the Investment Management Association. But over the last few years its uptake has gradually increased, in 2018 it is on track to out-perform previous years.
One source driving the market has been the amount of Sharia-law compliant mortgages and investments that have emerged from major banking arms such as Barclays, HSBC and Citibank. With interest restricted, Muslim’s have had to seek other ethical arrangements and the opening of the market has piqued the millennial’s generation interest also. Whether investing in an ethical property fund, or a managed buy-to-let portfolio, it means that there are now plenty of opportunities available to invest ethically in property.
Where did it come from?
This sort of funding was originally set up to help churches and other good causes and can be traced back over a century, to accounts such as Edentree’s Amity fund – established in 1887 as Ecclesiastical Buildings Fire Office. Its primary purpose was to insure churches and church buildings, investing any profits back into the charitable work of the church – a commitment that is still kept today.
More importantly, we know that the concept of doing ‘good’ through property is not a new one. On the investment side, ethical funds now have a track record of over 30 years in the UK and independent research has concluded that ethical funds largely hold their own against conventional funds in terms of performance.
The Schroders Global Investor Study 2017, published in September, reveals 54 per cent of UK investors have increased their allocation to sustainable investment funds compared to five years ago.
The study, which surveyed more than 22,000 investors globally and over 1,000 in the UK, found that globally, 78 percent of investors say sustainable investing has become more important to them.
Is it more suited to millennials?
When it comes feelings around ethical investment Schroders finds this varies by generation, with 86 percent of millennials (defined as 18-35-year-olds) citing its importance to them, followed by 79 percent of Gen Xers (36 to 50-year-olds) and 67 percent of Baby Boomers (51-69-year-olds).
But of course, millennials have less disposable income than their previous generations, such as the Baby Boomers, so you can see why the demand for ethical housing has pretty much stayed static over the last decade. A growing interest, but a declining wallet so to speak.
However, housing is classed as a safer bet than some, despite the housing crash of 2007 when it comes to investment terms, as long as you can ride out the peaks and troughs of the housing market you could find yourself with either guaranteed rent or a sizeable profit after the sale.
How do we know it is about to boom?
Attention is certainly being focussed on this part of the market right now. Indeed, The Royal Institution of Chartered Surveyors recently launched a comprehensive guide to what it calls “the responsibilities of residential property agents to ensure they are working to the highest ethical and professional standards.”
The document is the sixth edition of the RICS’ famous Blue Book – formally called UK Residential Property Standards and is a ‘bible’ for landlords across the country. There are now whole chains of ethical property productions. From banks and investors to construction firms and management agencies.
If you were to build an ethical property from the ground upwards a huge part of the ‘ethical’ ethos would be that you looked for partners that displayed a strong social purpose. They should be able to demonstrate that they had no reliance on funds or investments that were unethical, lending streams would need to be analysed and employee checks completed to make sure there was nothing that could be constructed as criminal, funding arms or abuse worldwide.
Equally, to live inside the building, it would be assumed that the inhabitant would be a charitable or non-profit organisation, a social enterprise, an ethical business, or an organisation of strong local benefit to the regeneration of an area.
What about social housing?
Well, actually ethical housing can be a source of social housing in its own right, where tenants, both private and in receipt of benefits, live by a doctrine of ethical considerations and abide by these rules as part of their contract.
Just last month a local authority announced it is launching a not-for-profit ‘ethical’ lettings agency in February with the intent to woo landlords with a promise of no fees for tenants.
Guildhall Residential Lettings has been set up by Northampton council and believes landlords will appreciate their thoughtful tenants, bound by an ethical code, which the Council believes will reduce the amount of tenant movement and damage to properties. Although landlords will have to pay a hefty price for the peace of mind – a £500 set up fee plus 12% management fees and the ability to only charge 76% of market value.
However, while the UK market continues to grow, it still lags behind most of the EU in terms of the number of assets that flow into sustainable funds. This can be mostly attributed to a fairly fragmented pensions market whereas, in other countries such as Scandinavia and the Netherlands, large investing strategies allow them to push for ethical or social considerations more effectively. It remains to be seen if the UK will look to change this.
To say that ethical living is on the up is a very real prospect.