UK - A real estate debt specialist has slated UK local authority pension funds for failing to invest in domestic social housing.

Adrian Bell, head of debt advice and origination at Evolution Securities and chair of Genesis Housing Group, told IPE Real Estate: "It's curious that local authority pension funds are not making large allocations when local authorities are responsible for housing services.

"They need to reassess their policies on housing associations and social housing. There's a direct link between what they're managing what they're investing in."
Yet he suggested it was a matter of time before the promise of secure rental, the need to hedge inflation and minimal demand risk drove pension funds to invest in government-backed residential.

"Pensions funds are beginning to look at inflation," he said, "and housing associations are looking at alternatives to the banking market.  Banks are reluctant to provide 25-30 year loans, even though these are high quality, inflation-related assets."

Bell pointed to credit ratings of A+ and AA in a sector comprising 3.8 million properties - 17% of UK housing stock.

"Housing associations are looking at a £50—60bn debt requirement. That is large enough to be interesting to institutional investors, and you already have investors in public issues via managed funds."

Few pension funds to date have invested in development finance house building projects in the UK, although Ropemaker, the property subsidiary of BP Pension Fund property, owns greenbelt land earmarked for substantial new residential.

The UK's fragmented residential market has largely deterred institutional investors. However Ros Rowe, a tax partner at PwC, said student accommodation suggested it could be a workable proposition.

"The issue is that once you move away from the institutions there are concerns about the cost of managing it. But if you look at social and private housing, located in defined areas, the cost per unit will come down," she said.

"There's a choice for the government.  It can contribute nothing - which is not an option; it can build the houses itself; or it can reduce the tax cost. Its best option is to put some money on the table."

An election manifesto issued this week by the ruling Labour Party pledged support for the professionalisation of the sector and a commitment to new-build residential.

Rob Weaver, head of residential at Invista, said: "Buy to let is a massive £3.6trn (€4.2trn) sector and it's no more than a cottage industry.  We've seen £200bn invested in the buy to let sector over 10 years in the most inappropriate way."

He added that a lack of industry expertise - not pension-fund appetite - was behind a relative absence of institutional investment in the sector.

"There is a lack of talent. There are few specialists in the market who really get it," he said.  "The appetite is there but there is a lack of expertise. Residential delivers all the benefits pension funds are after."
 

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