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The affordable housing system needs a radical gear change to step up delivery
The public and private sectors must come together to deliver a step change in affordable housing provision, writes Ben Denton, chief executive of Legal & General Affordable Homes
Ben is Chief Executive of L&G Affordable Homes. L&G Affordable Homes is the 2nd largest institutionally backed affordable ...more
The UK’s housing crisis is an all-too-familiar fact. The consequences of a lack of housing fall hardest on those least able to manage, resulting in 1.3 million households on social housing waiting lists.
Looking forward, this government is asking for 300,000 net additional homes to be built annually (even though the 10-year average to March 2022 was 178,300), with a target of 100,000 affordable units each year.
If we are to stand any chance of reaching these ambitious targets we need a radical rethink of our housing system. We need more funders driving housebuilding. In the past 20 years, the UK predominantly relied on funding for housebuilding coming from housing associations and private purchasers. These two sources cannot increase at the scale necessary to provide the additional 120,000 homes required annually.
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Institutional ownership in UK housing remains low, at just 2%, with less than 1% in affordable housing. If we are serious about solving this crisis, the public and private sectors must come together to deliver a step change in affordable housing provision.
State investment needs to be used as a lever to attract institutional investment. Pension capital is a largely untapped source of capital that can have a transformative impact. Pension schemes can play a part in addressing the crisis while providing their members with reliable, inflation-linked returns.
Encouragingly, local government pension schemes have already begun to make strides by partnering with investors and housing providers, such as their recent investment into L&G’s Affordable Housing Fund. Recent consolidation plans will enhance their ability to invest in projects at scale.
“Pension capital is a largely untapped source of capital that can have a transformative impact. Pension schemes can play a part in addressing the crisis”
Insurers are another sector that can be tapped. UK insurers hold over £2tn in assets, and approximately 30% is in liquid assets. If we can create an environment where more of that funding is in housing, we could make meaningful inroads into the estimated shortfall of four million homes in the UK.
What would increase the pace of institutional investment in housing? First, a stable policy environment. This will take time to establish. However, the government needs to make positive statements about stability, with the time periods for stability of policy being 10 or 20 years, not five.
To plan for the long term and create a framework that catalyses investment, housing must be looked at as essential infrastructure.
This shift in mindset must be accompanied by policy changes that look beyond individual government terms, and by levelling the playing field faced by all market participants, whether they be institutions or housing associations.
In the Budget, we saw positive, but small steps, in the right direction. The announcement of a five-year rent settlement at the Consumer Price Index plus 1% is better than nothing, and the additional £500m for the Affordable Homes Programme is helpful, but at too small a scale if we want to create certainty and avoid future cliff edges.
If affordable housing delivery is to be scaled up, then so must subsidy. In the next Budget round, we should be looking at an affordable housing programme growing to £9bn a year if we are to deliver 100,000 affordable homes a year.
“Affordable housing stands out as both a societal crisis that needs addressing and an opportunity for willing investors to make a meaningful impact in communities alongside stable returns”
Delivery can be through institutions partnering with housing associations, developers, contractors, house builders and local councils, with a shared ambition to deliver high-quality homes and great customer service. Partnerships offer a win-win: they provide much-needed capital for more housing, they allow growth to take place through existing partners and they deliver reliable returns to investors and savers.
Affordable housing stands out as both a societal crisis that needs addressing and an opportunity for willing investors to make a meaningful impact in communities alongside stable returns.
Housing availability and cost also have a direct impact on economic growth and life chances, with the delivery of more housing bringing about a more dynamic and efficient labour market, while creating jobs in the process.
The challenge now is for private capital to build on its participation in the sector and help deliver the homes we desperately need, alongside bold and brave government decision-making.
Ben Denton, chief executive, Legal & General Affordable Homes
Housing 2025 Leadership Symposium
At the Housing 2025 Leadership Symposium, we are committed to raising the voice of the housing sector and creating new homes and thriving communities. We believe that the solutions to today’s housing crisis lie in innovative partnerships, sustainable practices, and inclusive policies.
Together, we can build a future where high-quality, accessible, and affordable housing is a reality for all.
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