Ministers should set up investment vehicles and give clear support and incentives to harness the significant £392bn worth of assets held across the Local Government Pension Scheme (LGPS) to address the UK’s chronic underinvestment in affordable and social housing, a new report by the think-tank Localis has urged.
In a report published today entitled “New Stable: expanding and reforming the role of the LGPS in driving affordable housing”, Localis makes an evidenced case that institutional investment in affordable and social housing would boost social prosperity and national economic growth in a way that aligns with the long-term nature and ethical principles of town hall pension funds.
The report highlights the government's ongoing reforms to the LGPS, including the push for "megafund" pools, to enhance investment in UK growth-related assets, and also notes the substantial aggregate surplus currently held by LGPS funds in England and Wales.
Drawing attention to the government's focus on housing delivery and increasing institutional investment, the paper outlines key recommendations for creating the right conditions to channel LGPS funds into a crucial sector where underinvestment and underfunding are a serious impediment to national growth plans.
Among the key recommendations in the ‘New Stable’ report, Localis calls for the:
- Reclassifying social housing as national infrastructure: The government should consider reclassifying social housing as significant national infrastructure to unlock more capital funding and align it with other priority investments. This would bring social housing under the remit of NISTA and the government’s 10-year infrastructure strategy, and potentially extend the mandate of the National Wealth Fund (NWF) to include it.
- Strategic use of pension surpluses: When contribution rates are lowered due to pension fund surpluses, local authority employers could be mandated to allocate a proportion of these savings towards their capital spending budgets.
- Strategic alignment through Local Growth Plans: Statutory local growth plans and spatial development strategies should effectively outline housing investment opportunities and align with LGPS local investment strategies, requiring sufficient central government support and resources. Collaboration between strategic authorities, housing associations, and regional Homes England teams is essential. Prospectuses must offer clear incentives to make these investments attractive to LGPS funds while respecting fiduciary duty.
- Enhanced guidance and support for LGPS investment: Central government should provide explicit guidance to LGPS fund managers on local housing investment, ensuring it aligns with their fiduciary duties. The government should also promote metrics that evaluate the broader social and environmental impact of these investments alongside financial returns.
- Optimising the LGPS pooling process: The government should consider extending the LGPS pooling deadline to 2027 and offer clear guidance linking investments to national missions, emphasising social returns. A review of current allocations towards social and affordable housing within individual funds and guidance on pooling illiquid assets is also recommended. Furthermore, the new LGPS investment pools should be encouraged to inform scheme members about the social impact of their investments.
- Central oversight by Homes England: Homes England is well-positioned to provide central oversight of the national affordable housing development pipeline, potentially packaging it into a more attractive investment proposition for institutional investors. Homes England should also offer investment expertise to LGPS pools to encourage more diverse housing investment strategies.
Localis head of research, Joe Fyans, said: “By implementing these recommendations, the ‘New Stable’ report argues that the LGPS can become a pivotal source of patient capital, contributing significantly to alleviating the housing crisis, supporting local economic development, and fostering national economic growth.
“The challenge lies in ensuring the right incentives and strategic tools are in place for all involved parties to deliver meaningful and impactful outcomes.”
Adele Gritten, chief executive, Local Partnerships, said: “Affordable housing is a priority for both central and local government.
“Local Partnerships is delighted to support this timely report that offers practical ways to unlock investment from the Local Government Pension Scheme, enabling local authorities to take a leading role in tackling the housing crisis and supporting national growth.”
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