Have you allocated 3% to housing?

By Dan Batterton | 25 March 2019

With long-term, inflation-linked income streams, investments in traditional real estate, such as retail and offices, have been commonplace for Local Government Pension Schemes (LGPS). As investors look to further diversify their portfolios, however, there has been an increasing shift towards alternative options which share the same return characteristics.  With more pressure on local authorities to invest in sectors which positively impact their constituents, there is also an increasing move towards social impact investments which can help reshape local communities.

Against this backdrop, Natalie Elphicke’s 2015 Government report recommended that 3% of LGPS allocations be invested in local housing projects, helping to tackle the UK’s chronic housing crisis. However, until recently, the fragmented nature of the market made it an unappealing investment for institutions. Despite a structural shift towards renting in the UK, the Ministry of Health, Communities and Local Government estimates that 70% of privately rented homes are owned by landlords with fewer than 10 properties. This means the sector has been unable to offer the required scale to attract investors whilst portfolios have been composed of ‘Build for Sale’ homes, not designed with residents in mind. The Build To Rent (BTR) sector is changing this.

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Pensions Housing