A financial fix for the broken housing ladder

England alone needs 145,000 new affordable homes each year, but current build rates mean we’re delivering less than one-third of the needed homes, and even less social and affordable housing. Local authorities and housing associations simply cannot meet these targets alone. They, too, are impacted by rising interest rates and constrained by borrowing limits and must meet increasing regulatory standards to improve existing stock, which means new build capacity has stalled. 

We can’t simply build our way out of this crisis; we need bold and innovative financing solutions. If we keep doing what we’ve always done, we’ll end up with the same results. 

“For institutional investors. it is a no-brainer to pursue place-based partnerships and invest in communities where we steward their capital”

Local government purses may be constrained in this environment, but councils’ ambitions certainly are not, and patient capital has a role to play in helping them meet their duty of care obligations to create thriving places.  

For institutional investors, it is a no-brainer to pursue place-based partnerships and invest in communities where we steward their capital: we can step in where the funding capacity isn’t there, but the values alignment is. 

For example, Legal & General (L&G) takes a socially oriented, impact-led approach to investing, identifying precise social and investment needs in collaboration with local partners. This allows us to deploy appropriate finance that will generate assets at scale to both address society’s social, economic, environmental and health needs, and meet our shareholder obligations and annuity commitments. 

In housing, we have successfully scaled up operating businesses across multiple tenures, like Legal & General Affordable Homes, and delivered more than 16,000 homes since 2020 to help tackle shortages across all dimensions of the market. 

We also help structure partnerships and investments for local authorities to meet their housing needs, such as providing 250 homes in south London to offer homeless families a stable and safe alternative to temporary accommodation, which drains millions of pounds from precious local government subsidies. 

Housing is a demand-led asset class that is, in the long term, less vulnerable to more immediate market forces. This, combined with using local and public sector partners’ expertise to identify need and precisely target investments to address this need, can de-risk and enhance financial returns.  

The opportunities for partnership go beyond housebuilding. The UK has one of the oldest and leakiest housing stocks in Western Europe, resulting in higher energy bills, damp homes and poor occupant health. Existing housing stock must be retrofitted to meet sufficient quality and energy performance standards – 80% of buildings in use today will still be inhabited by 2050.

“Retrofitting buildings not only directly benefits tenants by reducing energy bills and improving health outcomes, it is also an operational optimisation strategy for asset owners”

Without urgent, nationwide action, our buildings will continue to waste precious and increasingly expensive heat, leading to a substantial portion of household and business income being spent on energy, rather than other important goods and services necessary to grow the economy. 

Retrofitting buildings not only directly benefits tenants by reducing energy bills and improving health outcomes, it is also an operational optimisation strategy for asset owners while meeting mandated decarbonisation targets. Scaling up technology to rise the challenge of reaching net zero ambitions is crucial to decarbonising real estate.

L&G, for example, has partnered with and scaled up multiple clean technology businesses, such as Wales-based Sero Technologies, whose novel digital solutions and expertise helps housing providers to better understand their housing stock energy consumption and in turn develop simple and affordable solutions to decarbonise their homes. 

Place-based partners like housing associations or local authorities – which are embedded in their communities, understand local needs and often already own significant housing stock – can be the instrument through which our capital has an impact, helping places to thrive, not decline.

We have a measure of the scale of the challenge – and therefore the opportunity – to shape the UK housing landscape to meet the national need. Dedicated, thoughtful, long-term collaboration across all sectors can unlock its full potential.