Bosses at the insurance and pensions group Legal & General, which invests in and builds homes, said it will take more than a decade to tackle the UK’s affordable housing crisis at the current pace of construction.
L&G welcomed Labour’s housebuilding drive, but said the entire industry would need to move at a faster pace as it joined forces withthe Greater Manchester Pension Fund (GMPF), the UK’s largest local government pension scheme, to boost funds available for low-cost homes.
GMPF will invest £120m into the insurer’s affordable housing fund, launched a fortnight ago, taking the fund’s total to £280m.
The fund will initially finance projects totalling 750 new affordable homes in areas from West Sussex to Cornwall, where some of the rented flats will be let at 30% to 50% of the market rent, or sold under shared ownership. The firm expects to raise “significantly” more money by the end of the year, to fund more housing. It added that GMPF’s investment meant there will be a number of projects in the north.
An average of between 40,000 and 50,000 affordable homes a year have been built in the UK in the last two to three decades, roughly one-third of the 145,000 needed every year.
Simon Century, head of housing at L&G, said this had led to a dire need for affordable housing across the whole of the UK. Since the council housing boom of the 1970s and 80s, the vast majority of new affordable homes have been constructed by housing associations but, faced with higher costs, interest rates, post-Grenfell regulation and zero carbon rules, they have focused on maintaining existing homes in recent years, leaving a large gap that some pension funds are willing to plug.
Century said: “If you look at the level of house price or rental growth over the last 20 to 30 years, it has left a place where it’s become increasingly hard to buy your first home; it’s increasingly hard wherever you are in the country, to rent in the private rental sector.”
There are 1.3m households on local authority waiting lists for social housing, the highest number since 2014 and up by 73,000 on last year, according to government figures. However, Century said the true number of those in need for this type of housing 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.”
The chancellor, Rachel Reeves, has pledged a “big bang” for private pension funds, as the government wants to unlock billions of pounds to invest in UK infrastructure and housing. It has announced an ambitious goal to build 1.5m homes over the next five years, underpinned by reforms to the planning system proposed last week. It has made the delivery of more affordable homes a top priority, in particular for social rent.
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Laura Mason, chief executive of private markets at L&G, said this shows the “important role pensions capital can play” in building back Britain.
L&G’s new chief executive António Simões is building on the work of his predecessor, Sir Nigel Wilson, who talked of “inclusive capitalism”.
L&G has spent £1bn on its affordable homes business, where it acts as a developer and operator of affordable housing backed by its asset management division, since its launch in 2018. It now comprises 8,000 homes: more than 5,500 existing ones and 3,000 in development. Last year, it built 1,304 homes, the highest annual total since its launch, and made a pre-tax profit of £1.3m, after a £7.5m loss in 2022.
The firm is targeting a £4bn affordable housing portfolio by 2028.
The revamp follows a slowdown in housebuilding over the last three years that contributed to L&G closing a factory manufacturing homes in prefabricated modules which are put together on site, and hailed as a possible solution to the housing shortage.
L&G clocked up losses of £236m in the operation, based in Leeds, before shutting it down last year. L&G has also put its housebuilding arm, Cala Homes, up for sale.