Capital flowing into social and affordable housing funds in the UK has grown 10-fold in five years, according to Big Society Capital.

Data from the impact investor’s annual study of the market size of the sector has found that investment has risen from £350m (€388m) in 2016 to £3.8bn in 2021.

This growth has made social and affordable housing the largest segment of the UK’s £7.9bn social-impact fund market, representing 48%, according to estimates by Big Society Capital.

The funds typically provide high quality homes, often to lower income households or those struggling to access mainstream housing, such as women fleeing domestic abuse.

Their aggregate value continued to grow even following the onset of COVID-19, seeing an increase of 28%.

Between 2020-2021, there was an £880m increase in outstanding investment into funds, driven by new commitments and increases in value of commitments from prior years.

Big Society Capital, which itself invests in social-impact housing funds, said the growth showed the role private capital could play in combatting the UK housing crisis, which is expected to worsen amid a cost-of-living emergency.

An estimated 3.8m people in the UK require social housing, a problem which has since been exacerbated by rising costs of energy and goods. With low-income families spending up to a third of their income on rent, increased household costs will impact negatively on already stretched budgets, Big Society Capital said.

Gemma Bourne, managing director at Big Society Capital, said: “The continued growth of impact-led social and affordable housing demonstrates that investors are increasingly seeing the positive role they can have in tackling the housing crisis.

“The funds that are doing impact well have also shown genuine resilience throughout a challenging period.

“It is, however, extremely important that this market has the right type of growth, which can only happen when tenants are put at the forefront of investment decisions.”

Investors in the funds include Social and Sustainable Capital, which worked with Hull Women’s Network to provide safe homes for 200 women fleeing domestic abuse.

A partnership between homelessness charity St Mungo’s and fund manager Resonance has also leased more than 800 homes to over 2,700 people who were previously living in temporary and inappropriate accommodation, such as hostels.

Others include Man GPM, whose RI Community Housing Fund aims to create 3,500 new homes by 2026, with at least 50% affordable homes (social rent, affordable rent, key worker and shared ownership) and ambitions to reach more than 70%.

Recent years have seen investment from pension funds into social and affordable property funds – including the Hammersmith and Fulham Local Government Pension Scheme Fund and Wiltshire Pension Fund.

Earlier this year, Big Society Capital teamed up with pensions consultancy Cardano to direct up to £195m of new investment towards real estate fund strategies addressing the UK housing crisis.

Big Society Capital said 14 fund managers in the sector had signed up to the Equity Impact Project, a framework created in partnership with The Good Economy to enable consistent and transparent impact reporting.