Building infrastructure

Step change: increasing affordable housing supply at pace

Affordable housing brings with it countless societal benefits, but the UK still suffers from a chronic undersupply. Legal & General has been working with the British Property Federation to develop a series of recommendations to address the problem

28 Feb 2022

Meet our experts

Simon Century

Managing Director of Housing

Legal & General Capital

In England, there are more than than 1.2 million households on the social housing waiting list, and of these, one in ten have been waiting more than five years. It’s a serious situation that the pandemic has only worsened, but still the number of homes being built is falling short. Supply will need to increase threefold from the current levels of around 50,000 new affordable homes a year to meet the long-term demand of around 145,000.

There are a number of reasons for this, explains Simon Century, Managing Director of Housing at Legal & General. “In recent decades, around 95% of affordable housing has been funded by housing associations”, he says. However, housing associations are not able to raise new equity capital because of their not-for-profit structure. This, combined with historically low government funding levels, has left housing associations reliant on debt – but borrowing levels can’t keep going up forever.

Then there are other demands on funding to consider, says Simon. Fire safety work following the Grenfell tragedy is likely to “run into the billions of pounds”, but even that pales in comparison to the estimated £100 billion of work needed to make existing housing stock more efficient in pursuit of net zero, which is crucial in the fight against climate change. All these factors have left housing associations with limited capacity to deliver the homes we need.

One of the reason we’ve come into the sector is that we can use our capital to provide some of that equity that’s missing in the sector.

Simon Century

Managing Director of Housing

Legal & General Capital

A step change

Last year, the British Property Federation (BPF) set up an affordable housing committee to try and tackle the problem, inviting Simon to be its vice-chair. “The committee has been superb in bringing investors and housing associations together for the first time, alongside a number of key advisors”, he says. “Getting together gave us the impetus to try and work out the true scale of the problem, and what we could do about it”.

The result is a new white paper that Simon, together with Jayson Parmar in Legal & General Capital’s housing team, produced jointly with the BPF. Titled Delivering a Step Change in Affordable Housing Supply, the paper sets out the problems with the current affordable housing funding model, as well as proposing a solution: partnership between housing associations, government, and institutional investors like Legal & General.

“One of the reason we’ve come into the sector is that we can use our capital to provide some of that equity that’s missing in the sector”, says Simon. “At Legal & General, we look after the pensions of several million people, and we have to make sure we can make those pension payments every month well into the future. One of the best ways to do that is to take that money people have invested with us and put it to use in areas of the economy where it’s desperately needed – and there are few areas with a greater need for funding and a greater potential benefit to society than affordable housing. It’s a win for our pensioners, it’s a win for society, and it’s a good thing from a company perspective as well”.

“The societal benefits are huge”, agrees Ian Fletcher, Director of Policy for Real Estate at BPF and a member of the white paper’s steering group. Investment in housing generates a multiplier effect by stimulating economic activity and creating jobs, he explains, but investment in affordable housing goes a step further by reducing the state housing benefit bill, as well as helping to tackle the mental and physical health problems associated with housing insecurity. 

The paper makes a number of recommendations for increasing the capacity to build affordable homes in England. 

For example, housing associations should consider bringing their decades of expertise into partnerships with investors instead of pursuing mergers with other housing assocations, which, Simon says, “can improve efficiency but not capacity at any meaningful scale”.

Investors should use their experience of working across other related customer-centric sectors to take the best of their learnings and insights and apply it to the affordable housing sector. Similarly, government should ensure a “level policy playing field” that removes obstacles to collaboration, he says.

“I’ve been around the sector for 20 years, and a question I’m constantly asked is ‘why don’t institutional investors invest in affordable housing?’, so it’s great to see it happening”, says Ian.

Click here to download the full whitepaper