UK – Residential fund manager Hearthstone welcomed a report from architects calling for local government pension funds to set up a £10bn (€12.4bn) fund to invest in housing, saying the social and financial benefits of this were aligned.

The recommendation came last week in the final report of the Future Homes Commission, which was convened last year by the Royal Institute of British Architects.

The matured developments from the proposed fund would, the commission said, make ideal investments for UK and international institutional investors.

Hearthstone's chief executive Christopher Down said: "An increase in pension fund investment, along the lines of the recent Greater Manchester Pension Fund initiative to finance construction of 240 homes in their local area, would be a quick win that allows public sector-related capital to make tangible contributions to domestic infrastructure."

Down said many people would prefer to see this type of investment than public sector funds investing in overseas companies that had very little to do with the UK.

Hearthstone, which manages the UK's only FSA-authorised residential fund, said it was already working with local authorities and industry to facilitate badly needed investment in residential property.

However, Down also said government should not ignore the fact pension fund trustees usually had to manage investments strictly in accordance with the financial interests of their members.

"However compelling the social benefit, they cannot and should not pay more than incidental attention to the qualitative advantages of a particular investment when compared with the financial risks and rewards," he said.

But he added: "Fortunately, in this case, the both the social benefits and financial arguments are aligned."

Over the last 40 years, residential property had proven the least volatile asset class per unit of return generated, he said, adding that the UK private rented sector was growing rapidly, to nearly 17% of households today from 10% in 2000.

That growth needed to be funded, with more than £200bn required in the next five years to match further demand for rented accommodation, Down argued.

"For investors in the sector, not only do the supply/demand fundamentals look good for house prices medium to long term, there is no shortage of capacity in the rental market either," he said.

At the moment, institutional investment in residential property is remarkably limited in the UK, he said, with other European countries seeing much greater participation by larger investors in their residential property markets.

He cited research from estate agents Knight Frank estimating that more than 10% of housing stock in many European cities is owned by corporates and funds, compared with about 1% of UK housing.

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