Why social loans are an untapped opportunity for social housing

What is a social loan?

A social loan is made exclusively to finance (or refinance) a ‘social project’. A project will be ‘social’ where it addresses a social issue or seeks to achieve a positive social outcome.

Many projects will benefit a specific target population, for example people living below the poverty line, people with disabilities, minority ethnic groups etc.

The loan must comply with the four core components of the SLPs, namely:

1. use of proceeds – loan must be used exclusively to finance or refinance social projects;
2. management of proceeds – loan proceeds must be tracked separately from the borrower’s other funds, eg through a separate bank account;
3. reporting – borrowers must report on the use of proceeds and the projects at least annually; and
4. process for project evaluation and selection – borrowers must clearly communicate project information to funders.

The existing social project: housing

Rather than viewing this as a ‘new’ product, it’s worth recalling that social issues are at the heart of the housing sector.

The names of many of today’s HAs evidence their original roots of serving target populations with social projects (ie housing) – long before these phrases were coined by the SLP.

This social purpose remains relevant today. A 2023 report on behalf of the National Housing Federation found that 1.5 million families will be on the waiting list for social housing by 2030 (an increase of 32 per cent from 2020-21) and an extra 1.7 million households will be living in unaffordable homes (an increase of 35 per cent from 2020-21).

So, does this mean that any lending to a HA is a social loan? In short, no.

While the provision of social housing is certainly a social project, a loan still needs to meet the core components of the SLP to be classed as a social loan.

Existing HA funding arrangements generally do not meet these requirements as they do not contain the same reporting obligations or controls on use and management of proceeds.

Structuring of a social loan in social housing

But there is clear scope for structuring at least a tranche of a facility to HAs as a social loan and the SLPs confirm that a ‘social tranche’ can be included within an otherwise non-social (ie general purpose) facility.

The parameters of any projects, including eligibility criteria and expected impact, would need to be agreed between the borrower and its funders, but examples of eligible expenditure include:

• capital expenditure of building social, affordable or shared ownership homes – where such projects have already been funded (either by debt or by equity) a suitable lookback period for refinancing can also be agreed;
• operating expenditure of providing improved services (eg customer care or repair) to those living in social housing; and
• incidental project expenditure (eg R&D, marketing, related IT expenditure.

An element of ‘additive behaviour’ that is going beyond the ‘business of usual’ of the borrower may also be required.

Many HAs now provide services to their residents beyond the bricks and mortar of housing to address other underlying social challenges with clear potential for social loan funding. For example: 

• employment support programmes (such as training for interviews, support with CVs);
• digital skills programmes;
• financial advice and money management programmes;
• recreational programmes for young people (such as sports activities, music workshops); and
• community gardens and allotments.

Would this mean the end of SLLs?

So would this mean the end of SLLs? The answer is no. These are all tools in the sustainability toolkit and borrowers are likely to use different tools at different stages depending on their funding needs and sustainability objectives.

SLLs will continue to be an attractive proposition for borrowers in their working capital facilities and where they are looking to achieve specific sustainability targets.

The landscape on SLLs is evolving as banks increasingly require stretching, science-based targets and more thorough reporting.

Borrowers are also increasingly raising concerns with rising external review costs on SLLs – which can, at times, outweigh any margin saving.

This allows space for HAs to consider social loans in their funding mix.

As stakeholders increasingly (and justifiably) scrutinise claims of sustainability, projects aimed at mitigating real social challenges in their communities can be a meaningful way for HAs to demonstrate their social credentials.

Joanne O’Dea, managing associate, Addleshaw Goddard