The potential for social investment is big. What promise does it hold? Whether it is helping someone off the streets, into work, or tenancy sustainment: any outcome comes with a clear social return. But also a financial one, as we pay out less in costly remedial interventions.

The current spending squeeze in the UK, combined with the Government’s commitment to ending rough sleeping in England by the end of this parliament, means that there is more interest than ever both in tools to achieve greater value, and in tools that can tap new sources of finance for social goals such as ending homelessness.  

But the growth of interest in social investment precedes the Covid-19 pandemic. In fact, when I first started working in the homelessness sector in the early 2000s I remember Sir Ronald Cohen had been championing social investment for a while, and how it could help ensure every pound we spend goes on meaningful change.

Since then, the UK has become a world leader in putting these principles into practice. We created the first social impact bond – with more of these bonds in the UK today than in the rest of the world put together. The UK also created the first ever wholesale social investment bank - Big Society Capital,together with the first Social Stock Exchange, and the world’s first tax relief on social investment. 

Given this, and the many pressures the homelessness sector is facing as it emerges from a global pandemic, the question of whether social investment can accelerate an end to homelessness is especially timely. 

So I would like to consider the implications of the rise of impact investing in homelessness, as well as share a few initial thoughts on some of the challenges and opportunities ahead.

First, I think this agenda is helping to normalise the idea that, despite good intentions, it cannot be enough to pour money into homelessness programmes, but with too little care for results the other end. No: what matters most is the impact our actions have in transforming people’s prospects, restoring security, hope and independence so that all in our society have a chance to prosper, so that no one is left behind. 

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The story so far

In terms of delivery, positive stories to date include the rough sleeping bond in London which reported reducing rough sleeping by 30%. The original Peterborough prison bond, for the first 1,000 short sentence prisoners, saw reoffending reduced by 8%. Also positive is the work happening in Greater Manchester and the new social investment pilot that will create over 200 move-on homes for people sleeping rough or at risk of homelessness in England. The pilot will run for three years, but the financial returns will be reinvested into providing homes for people sleeping rough for the next 30 years.  

So at the Centre for Homelessness Impact we are optimistic about the potential of social investment and we welcome the enthusiasm the idea has elicited. We also believe that to ensure social investment helps accelerate progress towards ending homelessness, it will be important to make the potential drawbacks, as well as the potential benefits, of these financing streams more apparent.

To take a concrete example: Social Impact Bonds: three challenges in particular stand out:

• The relative weakness of the evidence base. This means there are difficulties facing any investors or banks wanting to judge the risk of a particular set of interventions, and the bodies being funded to carry them out;
• Overlaps with existing public programmes. In a world with no public spending, social impact bonds would be relatively straightforward. However, they depend on demonstrating a causal link between additional spending and outcomes achieved. This is hard for target groups already in receipt of public support.  
• Issues of scale and transaction cost. Social impact bond programmes require significant up-front costs and contracting expertise. The number of parties involved in the deals adds to the difficulty.  

I say this because making clear that social investment is not a panacea will help ensure that social investment and the social sector both grow in the right ways. 

We are certainly keen to see a family of different approaches to investment for social impact be tested out rigorously over the next few years. 

In doing so, it will be important to continue to build the evidence base. Without objective, reliable evidence of impact, refocusing decisions on actual impact is difficult, if not impossible. 

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Questions for investors

It will also be important to make complete and specific comparisons. Actors involved should ask: if we didn’t make this investment, what would be the specific alternative use for our capital, and what are the expected financial, and social returns of that alternative? Are trade-offs on one dimension required to meet specific goals on the other? In this way, investments can be considered in the context of their full opportunity cost.

And if the trends in the past ten years are anything to go by, one of the most important contributions of this approach might be to unlock philanthropic and foundation assets in shouldering the risk for return-seeking capital. So one of the most interesting questions at the moment is whether impact-seeking rather than return-seeking capital will spur the growth of social investment? 

Through research and engagement with policy-makers, practitioners and funders, we are keen to help and interested in critically examining questions such as: What is the purpose of investing for impact? What return profiles are realistic in homelessness? How do different strategies actually create social value and facilitate the creation of a thriving, sustainable, social sector?   

I believe there are significant opportunities for impact investing to help accelerate an end to homelessness in the UK, but success will remain challenging. It will be important to make investment choices targeting not just return, but also sustainability, and impact.

To succeed the practice of investment will need to continue to evolve. But the risk is worth the reward.

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Ligia Teixeira is chief executive of the Centre for Homelessness Impact.

This is an edited text of her speech at an event on March 9 co-hosted with Big Society Capital. A recording of the event can be viewed below.

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