PGGM is investing in the UK’s private-rented sector (PRS) for the first time.

The Dutch pension fund manager joined Legal & General Capital in a partnership to invest £600m (€790m) in the construction of 3,000 homes in the UK.

The partnership has been seeded with three developments in Bristol, Salford and Walthamstow, which will include an initial 650 homes.

L&G’s Real Assets arm will manage properties for the joint venture.

Mathieu Elshout, PGGM real estate investment director, said: “Investing in residential is the perfect long-term real estate investment, as it provides relatively high income security and diversification relative to other sectors.

“This partnership allows us to build and own good-quality residential assets in the UK at scale, with a high degree of control over our investments.”

Elshout said investing in UK PRS addressed the “supply/demand imbalance” in the UK, which currently does not achieve its minimum house-building target, building only around 50% of its 250,000 annual requirement.

The more established markets of the US and Europe have seen an increase in the supply of homes, with more institutionally funded and managed assets being delivered.

Paul Stanworth, managing director of Legal & General Capital, said: “The UK rental market, compared with the US and Europe, is dysfunctional, with ever-increasing rents and increasingly poor accommodation.

“For this to change, and renting to become more affordable, we need to invest in the ‘new’ and build new homes to rent, and just stop inflating the prices of old housing stock.

“We’re going to play our part by disrupting the market and invest significant sums of long-term institutional money to build new rental housing, and develop a UK institutional rental market.”

PGGM currently owns around £3bn of residential investment through partnerships in the Netherlands and the US.