Can Council Pension Assets Solve the UK’s Affordable Housing Crisis?

Welcome, Net Zero News readers,

In an era where the UK grapples with a chronic shortage of affordable housing, a fresh and compelling report from the think-tank Localis has emerged, urging ministers to take decisive action. The report, titled “New Stable: Expanding and Reforming the Role of the LGPS in Driving Affordable Housing”, shines a light on the potential to harness an impressive £392 billion held within the Local Government Pension Scheme (LGPS) to address this pressing issue.

Localis presents a well-reasoned argument that institutional investments in affordable and social housing can not only enhance social prosperity but also stimulate national economic growth. This approach aligns seamlessly with the ethical principles that underpin town hall pension funds, making it not just a financial decision but a moral imperative.

The report comes at a crucial time, coinciding with ongoing government reforms aimed at optimising the LGPS. These reforms include the establishment of “megafund” pools, designed to increase investment in growth-oriented UK assets. Additionally, it notes the substantial aggregate surplus currently held by LGPS funds across England and Wales, highlighting an opportunity that cannot be overlooked.

As the government continues to focus on housing delivery and the need for increased institutional investment, Localis outlines several key recommendations aimed at creating the right conditions to direct LGPS funds into a sector that has long suffered from underinvestment. Here are the pivotal proposals put forth in the report:

• Reclassifying Social Housing as National Infrastructure: The report advocates for the government to consider reclassifying social housing as critical national infrastructure. This move would unlock additional capital funding and align social housing with other priority investments, bringing it under the remit of the National Infrastructure Strategy and potentially expanding the mandate of the National Wealth Fund (NWF).
• Strategic Use of Pension Surpluses: When contribution rates are lowered due to surpluses in pension funds, Localis suggests that local authorities should be mandated to allocate a portion of these savings towards their capital spending budgets. This strategic use of funds could significantly bolster local investment in housing.
• Strategic Alignment through Local Growth Plans: Local Growth Plans and spatial development strategies must effectively outline housing investment opportunities while aligning with LGPS local investment strategies. This alignment requires robust support and resources from central government. Collaboration between strategic authorities, housing associations, and regional Homes England teams is essential for success.
• Enhanced Guidance and Support for LGPS Investment: Central government should provide clear guidance to LGPS fund managers regarding local housing investments. This guidance should ensure that such investments are in line with fiduciary duties while also promoting metrics that assess the broader social and environmental impact alongside financial returns.
• Optimising the LGPS Pooling Process: The report suggests extending the LGPS pooling deadline to 2027 and providing clear guidance that links investments to national missions, with an emphasis on social returns. A review of current allocations towards social and affordable housing within individual funds is also recommended, as is guidance on pooling illiquid assets.
• Central Oversight by Homes England: Homes England is uniquely positioned to provide oversight of the national affordable housing development pipeline. By packaging these initiatives into attractive investment propositions for institutional investors, Homes England can also offer investment expertise to LGPS pools, encouraging a more diverse range of housing investment strategies.

Localis head of research, Joe Fyans, expressed optimism about the potential impact of these recommendations. He stated, “By implementing these recommendations, the ‘New Stable’ report argues that the LGPS can become a pivotal source of patient capital, contributing significantly to alleviating the housing crisis, supporting local economic development, and fostering national economic growth.”

“The challenge lies in ensuring the right incentives and strategic tools are in place for all involved parties to deliver meaningful and impactful outcomes.”

Adele Gritten, Chief Executive of Local Partnerships, echoed this sentiment, asserting, “Affordable housing is a priority for both central and local government. Local Partnerships is delighted to support this timely report that offers practical ways to unlock investment from the Local Government Pension Scheme, enabling local authorities to take a leading role in tackling the housing crisis and supporting national growth.”

The recommendations outlined in the “New Stable” report are not merely theoretical; they present a tangible pathway for local authorities and pension funds to work collaboratively towards a common goal: addressing the UK’s housing crisis while fostering economic growth. As we stand at this critical juncture, it is imperative that stakeholders across the board—government officials, local councils, and financial institutions—come together to embrace these proposals. The potential for positive change is immense, and the time to act is now.

As we delve deeper into the implications of this report, it becomes evident that the path to resolving the housing crisis lies not just in traditional funding mechanisms but in innovative approaches that leverage existing assets. The LGPS represents a significant opportunity to make a difference, and with the right strategies and incentives in place, we can pave the way for a more sustainable and equitable future in housing.

In conclusion, the “New Stable” report serves as a clarion call to action. It challenges us to rethink how we approach housing investment and to recognise the potential of the LGPS as a vital source of funding for affordable housing. By reclassifying social housing, strategically utilising pension surpluses, and fostering collaboration among key stakeholders, we can transform the landscape of affordable housing in the UK, ensuring that everyone has access to a place they can call home.

Let us champion this cause together and strive towards a future where affordable housing is not just a dream but a reality for all.