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Council pension funds alone do not have enough money to save the housing sector, investor says
Local government pension schemes alone do not have enough money to save the housing sector, the director of a social impact investor has said.
Local government pension schemes alone do not have enough money to save the housing sector, the director of a social impact investor has said #UKhousingGemma Bourne, managing director at Better Society Capital, told Inside Housing that investors such as defined contribution (DC) pension schemes need to be persuaded to enter the affordable housing space to address the housing crisis.
Local government pension schemes have increased their allocations in affordable housing in the past few years, which is “really positive”, she said.
“They’re definitely getting it going. But LGPSs alone don’t have enough money to save the sector. Beyond that, we need DC schemes to come in.”
DC schemes include modern private workplace pension funds, which tend to invest in stocks and shares rather than property because they are quicker to buy and sell.
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LGPSs currently invest in affordable housing through funds, such as those operated by Legal & General (L&G), Savills Investment Management and CBRE.
These funds either finance traditional housing associations or build and acquire homes via a for-profit registered provider.
LGPS investors in affordable housing currently include: Greater Manchester Pension Fund and Access Pool (via L&G’s affordable housing fund); London CIV (via Savills IM); and Avon, Gloucestershire, Devon and Clywd LGPS (via Octopus Investments).
Other pension funds investing in affordable housing include Centrica (via ReSI Homes) and USS, the university pension fund, which owns 3,000 shared ownership homes.
Better Society Capital was created in 2012 by the coalition government to grow the amount of money invested in tackling social issues in the UK. Much of its money comes from dormant bank accounts.
It sees itself as a “market builder” helping to attract further investors, Ms Bourne said.
The social impact investor has allocated around £10m each to L&G, Octopus, Savills IM and CBRE’s affordable housing funds.
Ms Bourne explained that Better Society Capital is looking for funds that have the potential to raise “a significant amount of capital”.
“Often, where we’re invested is when a for-profit is working in partnership with the not-for-profit sector,” she added, for example when a traditional housing association is either managing the properties or leasing the new affordable homes from a for-profit.
It is also important that there is “additionality” and the funds are developing new homes, not just buying Section 106 homes from developers that would have been delivered anyway, she added.
Better Society Capital has been investing in affordable housing for 10 years. Its first investments were in alternatives to temporary accommodation via fund manager Resonance, which worked with the St Mungo’s fund and providers including Nacro and Notting Hill Genesis.
“Early doors in the overall market it was a mix of leasing to housing associations and local authorities, not using the for-profit structure so much,” Ms Bourne said.
Initial lease deals lasted for an average of 40 years, which made them inflexible for investors and providers. “It’s not just a lease model that’s wanted any more, and there tends to be a mix of leases and management agreements in the market and on far better terms for partners than there used to be,” she said.
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