Initially, the fund will support 750 new affordable housing projects in locations ranging from West Sussex to Cornwall.
Directors of the housing and construction company Legal & General, which specializes in insurance and pensions, have stated that addressing the affordable housing issue in the UK at the current construction pace will take more than ten years.
In an effort to increase the amount of money available for affordable housing, L&G partnered with the Greater Manchester Pension Fund (GMPF), the largest local government pension scheme in the UK. While applauding Labour’s commitment to build more homes, L&G stated that the industry as a whole would need to move more quickly.
The insurer’s affordable housing fund was introduced a fortnight ago, and GMPF will contribute £120 million to bring the fund’s overall value to £280 million.
Initially, the fund will support 750 new affordable housing projects in locations ranging from West Sussex to Cornwall. Some of the rented apartments would be shared ownership or rented for between 30% and 50% of the market rate. By the end of the year, the company hopes to have raised “significantly” more money to finance further houses. It further stated that the other projects undertaken in the north as a result of GMPF’s investment.
In the last two to three decades, the UK has created between 40,000 and 50,000 affordable homes annually on average, which is around one-third of the 145,000 required annually.
The urgent demand for affordable housing around the UK has resulted from this, according to Simon Century, head of housing at L&G. Housing associations have built the great majority of new affordable homes since the council housing boom of the 1970s and 80s. However, in recent years, they have prioritized maintaining existing homes due to increased costs, interest rates, post-Grenfell regulations, and zero carbon rules. As a result, there is a sizable gap that some pension funds are willing to fill.
According to Century, the rate of increase in house prices and rental income over the past 20 to 30 years has created a situation where it is getting harder to buy our first home and to rent in the private rental sector no matter where you live in the nation.
Government estimates show that there are 1.3 million households on local authority waiting lists for social housing, which is an increase of 73,000 from the previous year and the largest level since 2014. The actual number of people in need of this kind of accommodation, according to Century, is “way beyond” and in the millions.
“Those wait lists are in the thousands in every single local authority. And that’s the reality when you’ve got 30-plus years of under supply of housing, generally, and certainly affordable housing,” he said. “To reverse that is a decades-long-plus investment programme, which requires many different players and investors, to work hand in hand with local government and with housing associations as well.”
Rachel Reeves, the chancellor, has promised a “big bang” for private pension funds as the government looks to unleash billions of pounds for housing and infrastructure projects in the UK. It has declared an ambitious five-year plan to build 1.5 million homes, supported by last week’s planned improvements to the planning system. Providing more reasonably priced housing has become a primary goal, especially for social rent.
According to Laura Mason, head of L&G’s private markets, this demonstrates the “significant role pensions capital can play” in regaining Britain.
António Simões, the new chief executive of L&G, is carrying forward the work of his predecessor, Sir Nigel Wilson, who discussed “inclusive capitalism.”
Since its founding in 2018, L&G has invested £1 billion in its affordable homes company, which serves as a developer and operator of affordable housing supported by its asset management division. With 3,000 still under construction and 5,500 already built, it currently has 8,000 dwellings. Following a £7.5 million deficit in 2022, it built 1,304 homes last year – the greatest annual amount since its founding – and achieved a pre-tax profit of £1.3 million.
By 2028, the company wants to have a £4 billion portfolio of affordable homes.
The renovation comes after a three-year downturn in home construction, which led to L&G closing a plant that produced prefabricated modules that are assembled on-site as dwellings, which were heralded as a potential answer to the housing shortfall. Before closing the Leeds-based operation last year, L&G recorded losses of £236 million. Additionally, L&G has listed Cala Homes, its homebuilding division, for sale.