The UK’s pension funds are increasingly stepping in to build affordable homes as the housing crisis worsens.
Pension Insurance Corporation (PIC), a specialist insurer of defined benefit pension schemes, is the latest to enter the market. It is building 125 affordable homes in Kingston upon Thames, south-west London, in partnership with the developer London Square and its affordable housing subsidiary, Square Roots.
The £50m project, which is due to be completed by November 2025, is backed by a £4.9m grant from the mayor of London’s affordable housing programme. It is the firm’s first direct investment in affordable housing. PIC intends to invest £500m over the next five years to build about 1,000 affordable homes across England and Wales.
“For every pension scheme that we take on, we need to back each of those schemes with a portfolio of assets,” said Allen Twyning, PIC’s lead manager on the Kingston project.
“What [affordable housing] offers is very predictable rental cashflows linked to inflation, a lot of these driven by central government policy. They are sustainable investments. They’re there for the long term; it is a really good match for what we’re trying to do in terms of paying pensioners and helping create homes for people who desperately need them.”
PIC, which insures 339,900 pension scheme members at FTSE 100 companies and in the public sector and has £44.9bn in financial investments, has also invested in build-to-rent developments, student accommodation and senior living.
Across the West Midlands, Legal & General pledged last year to construct 3,000 affordable homes over five years, starting with The Junction, a brownfield site which has been empty for two decades. Partnering with Lovells, L&G is in discussions about creating affordable 1,000 homes in the region. The total programme is backed by L&G’s £138m grant from Homes England.
In Kingston, the homes will be built on the site of an NHS clinic that closed two years ago, with 44 apartments to be made available at London affordable rent, and 81 apartments for shared ownership. The former will be set at rents that the mayor of London views as “genuinely affordable”.
About 340,000 new homes are needed in England each year, of which 145,000 should be affordable homes, according to research commissioned by the National Housing Federation and the homeless charity Crisis from Heriot-Watt University.
However, only about 50,000 affordable homes were built each year on average between 1991 to 2022, according to government figures. Last year, 59,175 affordable homes were completed in England, up by 13% on the previous year, and similar to pre-pandemic levels.
Housing associations have built most of those homes in the past, but this has slowed dramatically because of high inflation hitting construction and operating costs, rising borrowing costs and rent caps introduced by the government.
The king’s speech last week contained no new measures to tackle rising homelessness and lack of affordable social housing. However, Labour’s deputy leader, Angela Rayner, has said the party will create the biggest increase in affordable housing “in a generation” by getting tough on developers and reforming planning rules, if it wins the next general election.
