Localis, the independent neo-localist think tank have yesterday published an important report exploring the role of the Local Government Pension Scheme (LGPS) in driving forward the delivery of affordable housing in the UK.
The report titled "New Stable" argues that the LGPS, with its substantial surplus, can be a significant source of patient capital to address the UK's chronic under-investment in affordable and social housing, contributing to both social prosperity and national economic growth.
The report comes at a time of acute housing need (which is itself putting immense pressure on local authorities themselves through the cost of temporary accommodation) but also in the context of the government's Mansion House Accord (which places pension funds at the centre of the government's growth agenda) and the proposals to consolidate LGPS funds into "megafunds".
Key findings of the report
The growth agenda and LGPS
- The UK government has placed housing delivery at the centre of its agenda, aligning with a policy push to increase institutional investment in the economy. The LGPS, valued at £392bn, is seen as a key means to achieve this through pooling assets into larger investment entities.
- The pooling process aims to consolidate LGPS funds into "megafunds" to enhance governance, professionalisation, and investment in UK growth-related assets.
Addressing the housing crisis
- Perhaps a statement of the obvious, but the housing crisis is a significant barrier to economic growth. There is a need for more genuinely affordable and social homes.
- Investing in affordable housing aligns with the long-term characteristics of pension schemes, offering stable, inflation-linked returns.
Creating the right conditions
- Utilising the LGPS for social housing requires collaboration among local government, housing associations, and central government bodies. Effective vehicles for collaboration and investment, such as joint ventures, are crucial.
- As has been argued by others (including the National Housing Federation and the British Property Federation), investment can be better facilitated by a stable policy environment for affordable housing more generally – including a need for long term stability on rent policy.
Recommendations
Maximising LGPS investment
- Extend the pooling deadline to 2027 and provide guidance for investments linked with national missions, highlighting social returns.
- Promote metrics that evaluate the broader social and environmental impact of investments in affordable housing.
Unlocking housing investment
- Consider reclassifying social housing as significant national infrastructure.
- Facilitate joint ventures between local authorities, housing associations, and LGPS pools to develop housing projects.
Conclusion
The report underscores the importance of leveraging the LGPS surplus to address the housing crisis, which is a major barrier to economic growth. By creating the right conditions and fostering collaboration among various stakeholders, the LGPS can play a pivotal role in driving affordable housing and contributing to the UK's growth agenda.
Martin McFall, Head of Pensions at Trowers & Hamlins comments:
"The Localis report is a timely and engaging document. The LGPS, with its substantial assets, can play a transformative role in addressing the UK's housing crisis. By overcoming barriers, fostering collaboration, and creating a favourable investment environment, LGPS investments can drive the development of affordable housing, contributing to both social prosperity and national economic growth. The success of this approach amongst other things, hinges on those strategic partnerships, clear government support and a commitment to measuring and ensuring the impact of investments. Central to achieving this will be revised LGPS regulations, guidance and direction to ensure LGPS administering authorities can deliver those solutions whilst meeting their fiduciary duties to Scheme employers and members alike."
Rob Beiley, Real Estate partner at Trowers & Hamlins and expert in institutional investment in affordable housing and who participated in a research roundtable that informed the report added:
"This report is important. We have already seen LGPS funds that have invested in affordable housing and this report shows how government can do more to unlock even greater investment in the sector. The need for investment in affordable housing is urgent and the report demonstrates what could be done now and without the need to wait for the suggested 'megafunds'."
