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Association calls for new national affordable housing fund backed by pension money
Politicians are being urged to back “radical” plans to persuade pension funds to invest in a proposed new scheme aimed at building affordable housing on a mass scale.
Your Housing Group (YHG) proposes in a new report that a government-backed national fund be established to create an appealing investment proposition for pension funds.
Housing associations and councils would bid to the fund for investment to build houses, while investors would get a steady return from rental yields.
The aim is that a central fund capable of financing 30,000 new affordable homes would be operational in 24 months.
YHG is calling on the government to kick-start the fund with an equity loan of £2bn to “get it working quickly”.
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Brian Cronin, chief executive of the 28,000-home landlord, said: “The biggest scandal in housing today is the way the big developers that dominate the market are deliberately failing to deliver enough affordable homes. This report sets out a radical but simple approach to eliminating the deficit. I would urge policymakers to back these plans.”
The report was authored by former government economist Chris Walker who spent 12 years as a civil servant in the Treasury, the Department of Work and Pensions and the Department for Communities and Local Government, where he was senior economic adviser.
To achieve the plan, the report said that social rents for the affordable homes built through the fund needed to be guaranteed, rising at the same rate as the Consumer Price Index (CPI) or CPI+1. It also said that pensions regulations must be amended to enable direct contributions from pension funds.
A report by Sir Oliver Letwin commissioned by the government and published last year recommended that developers be required to provide “a diversity of offerings” on large schemes, determined by a new national expert committee. However, the National Housing Federation criticised the review for not going far enough.
The government’s target for tackling the housing crisis is for 300,000 homes to be built a year.
Partnerships between pensions funds and new rental developments are not new, Mr Cronin admitted. But he pointed out that these links-up are small-scale and “cannot hope to make a dent in current levels of demand”.
Looking ahead, Mr Cronin said the fund could permit individuals to invest, potentially in new housing in their areas. He also said local authorities in England could generate revenue from their land holdings and reduce their reliance on money from central government.
The report does acknowledge there are risks. For example, if there is a fall in the market value of the homes, the government could fail to recover its £2bn equity loan.
Fund managers could also make “bad investment decisions, such as investing in homes in locations where there is insufficient demand or need.
But David Weeks, co-chair of the Association of Member Nominated Trustees (AMNT), which consists of pension trustees, added: “Affordable housing as an asset class could provide pension schemes with a reliable, socially-responsible, long-term investment option that they need.
“The big catalyst needed to boost pension-fund investment in housebuilding is a mechanism to collect and distribute the funds at scale, so the ideas in this report are very welcome.”
