A new partnership model proposed by L&G between housing associations, the government and institutional investors could unlock more than £9bn (€10.4bn) in additional annual investment for UK affordable housing if adopted.
The UK insurer and asset manager is calling on institutional investors, housing associations and government to adopt its Partnership Registered Provider (Partnership RP) model, which it says is “designed to re-capitalise the social housing sector, unlock long-term capital for affordable housing and increase delivery without additional cost to the taxpayer”.
According to a whitepaper, Delivering Affordable Housing Growth, under the Partnership RP model, a housing association would sell homes to the joint venture and use capital from the sale to build new affordable homes and upgrade existing stock. All homes would remain within the regulated social housing sector, with rents and resident protections unchanged and the condition of the homes improved.
L&G, which has developed and already implemented the model, said it would be an option for housing associations with suitable stock and growth ambitions, alongside institutional investors seeking long-term, inflation-linked income.
“The standardised approach is designed to channel more pension and insurer capital into the sector, helping housing associations rebuild their balance sheets, improve existing homes to benefit occupiers, and increase affordable housing delivery.”
Aligning pension capital with social housing needs
The whitepaper highlights a growing disparity between affordable housing demand and delivery in England. Housing associations, which have historically delivered the most affordable homes, have cut back development amid higher borrowing costs, tighter balance sheets and rising bills to maintain and upgrade existing homes. At the same time, institutional investors are looking to increase deployment of their long-term pension capital into assets that offer stable, inflation-linked returns.
Regulated affordable housing can provide those long-dated returns, while supporting new supply and the upgrade of existing housing stock, L&G argues.
There are currently around 2.9m homes owned by housing associations across England, according to L&G. Analysis in the whitepaper shows that, for every five homes transferred into a Partnership RP, the model can create capacity to deliver at least one additional affordable home, over and above existing delivery and at no cost to the UK Exchequer.
If adopted widely, new affordable home delivery could reach up to 800,000 in a decade – without expanding the government’s grant programme. Delivering this volume of homes without Partnership RPs would require over £2bn a year in additional government grant funding.
Assuming 35% of social housing held by housing associations is transferred into Partnership RPs over the next decade, the model is projected to generate £9bn in additional annual investment.
António Simões, group CEO of L&G, said: “Solving the UK’s housing challenge is a shared responsibility which requires fresh thinking and long-term commitment – pension capital has a unique role to play in this transformation. Our new partnership model with housing associations is designed to unlock investment at scale – accelerating the delivery of affordable homes across the country.
“If adopted widely, this approach could mobilise over £9bn of net new investment every year and support the delivery of more than 80,000 affordable homes annually, all without adding pressure to the public purse.”
Gareth Mee, CEO, institutional retirement at L&G, said: “Investors like L&G are already helping to deliver social and affordable homes across the UK, and this model gives us – and other institutional investors – the ability to go further by putting long‑term pension capital to work where it is needed most, while delivering returns for our investors.
“Through our partnership with Hyde, we have already put some the principles of a Partnership RP into action. We now hope other long term investors and housing associations will join us in adopting this model to help deliver the affordable homes the country needs.”
L&G has already begun implementing the Partnership RP model through a 50:50 joint venture with Hyde Group, a housing association managing approximately 125,000 homes, which launched last month with an initial portfolio of over 1,000 affordable units.
Andy Hulme, group CEO of the Hyde Group, said: “This country needs a growing and vibrant affordable housing sector so we can provide high quality homes that people can afford. We welcome this work. It shows the potential for scalable partnerships between institutions and traditional housing associations which can support building more new homes alongside investing in existing homes.”
To read the latest IPE Real Assets magazine click here.
