In the first two articles, we contextualized the current housing access situation in Spain, the existing structural housing deficit, as well as the four needs of public administrations to be able to develop affordable social housing stock, taking into account the current public-private partnership models.
Now it’s time to talk about an effective solution to help public institutions and the private sector reduce the structural crisis and social vulnerability that exist in our country — in many cities that are already strained and in those that are starting to feel the strain — and improve the quality of life of families, young people, and the elderly who would like to access rental housing but find it impossible to do so.
Fondviso is the new infrastructure investment fund from Solventis that is socially responsible and the first of its kind in Spain. It is an innovative alternative for public management and private investment to expand the public affordable housing stock and reduce rental prices. Thanks to the characteristics of its public-private partnership, it reduces development costs and eliminates risks for private investment, all while avoiding public debt and housing subsidies. Fondviso therefore responds to the needs and interests of all the different stakeholders involved.
Fondviso is an innovative alternative for public management and private investment, to expand the stock of affordable public housing and reduce rental prices
For Solventis, Fondviso is more than an investment fund, it is an instrument for sustainable social transformation that invests in providing solutions for the population. For investors, it has the added value of being a socially responsible fund, a project with social impact, and of having an estimated net annual return of over 7%.
They keys to Fondviso’s investment strategy
At Solventis we have identified three levers that will drive the transformation of access to housing and the generation of long-term value in the Spanish residential segment, facilitating universal access to rental housing.
a) Housing as social infrastructure
This first lever develops the supply of affordable housing with an infrastructure model that specializes each stakeholder involved in the infrastructure development according to their long-term role. We distinguish three stakeholders, each with a specific functions: the landowner, which maintains ownership of the land and assigns the surface right to the investor; the investor, which is the owner of the infrastructure and responsible for investing in the development of the infrastructure/housing. The investor builds the infrastructure, obtains the ownership of the air rights, and cedes the right of use to the public operator. Finally, the third stakeholder is the public operator, which manages the rent with the renter and focuses on identifying the risks it wishes to assume based on the public housing policies being promoted at that time. In other words, the public operator is the owner of the use of the infrastructure and assumes the demand risk, the credit risk, the asset maintenance costs (managed by Fondviso subsidiaries), and the fee (94% of the rent) that the investor must pay (Fondviso investee companies) for the cession of the use of the infrastructure (housing).
The public operator covers the maintenance costs of the asset as well as the fee amount with 100% of the rent paid by the renters.
In short, this infrastructure model makes it possible to separate the roles of Investor and Operator of the infrastructure, making it possible to reduce infrastructure development costs, optimize the financial structure, eliminate intermediaries, create synergies through the industrialization of the infrastructure, and optimize the operational processes through standardization and digitalization.
b) Public-private partnership
The public-private partnership model proposed by Fondviso distributes the risks between public administrations and private capital, where the former are the public operators and assume the demand risk, and the private investor, as owner of the infrastructure, manages the development risk.
This risk distribution also makes it possible to reduce investor risk and optimize the resources of public administrations, thus achieving the main goal of reducing rental costs for renters, and more quickly boosting the public supply of affordable rental housing. In short, this new public-private partnership formula is an effective alternative for increasing the stock of affordable rental housing and relieving pressure on median incomes.
c) Sustainability
The Fondviso model is socially, environmentally ,and economically sustainable thanks to the distribution of responsibilities and benefits among all the stakeholders involved in managing and owning the infrastructure/housing. In the social orbit, it meets maximum environmental standards throughout the development process, such that the housing units reduce energy consumption by more than 40%, generate 95% of the energy they consume, and reduce water consumption by 30%. In other words, the model reduces maintenance and utility costs for renters. It is also worth noting that the Fondviso model fulfills 10 of the 17 Sustainable Development Goals set by the United Nations for the 2030 Agenda.
Economically, outsourcing the risks and omitting the cost of fees through the cession of public land to the Investor, among other attributes, makes it possible to estimate a target net return of over 7% (IRR). And in terms of social sustainability, the 30% reduction in habitability cost (we discuss this term further below) with the creation of more than 12,000 affordable housing units is a key step in ensuring the universal and equal right to housing in Spain. With the new model, the cession of use rights is key to being able to make housing and city planning policies according to the needs of municipalities, seeking the socio-economic integration of the housing stock.
Levers to reduce a home’s habitability cost
The Fondviso model is unique and disruptive in Spain because its investment approach directly impacts the habitability cost borne by renters. There are three attributes that can reduce a home’s habitability cost:
- New public-private partnership formula, focused on a pioneering distribution of risk between private capital and the public administration, that can reduce rents by eliminating the demand risk to the investor, which is assumed by the public administration.
- Housing as social infrastructure, where private investors reduce infrastructure investment costs by eliminating intermediaries in the value chain and optimizing resources through industrialization and standardization.
- Highly efficient assets, with high environmental sustainability of the housing aimed at enhancing energy efficiency and reducing CO2 emissions and water consumption. Therefore, the cost of habitability decreases as the consumption of supplies is reduced.
The Fondviso model is an alternative to the only two measures currently available today for public administrations and the private sector to expand the affordable housing stock: concessions and direct investments (which we covered in the article on public-private partnership opportunities in this blog). Unlike those, Fondviso is the only way to bring together the three central criteria for developing affordable social housing stock: universality, flexibility, and economic resources that don’t impact public resources or the national debt.