UK – Fifteen of the largest UK local authority pension funds should team up to launch a £10bn (€12.4bn) residential housing fund to develop 6m homes over the next two decades, a report backed by the UK architectural society has argued.
According to the Future Homes Commission, convened last year by the Royal Institute of British Architects and publishing its final report today, the matured developments stemming from the proposed fund would be "ideal investments for UK and international institutional investors" – despite the report itself noting that, according to IPD, UK institutional investors currently invest less than 1% of assets in residential property.
Following consultation with the London Pensions Fund Authority (LPFA) on the creation of the £10bn Local Housing Development Fund, the report suggested that any vehicle would have to offer a total return of 8-10% from income and capital growth, with an initial return in line with benchmark Gilt yields or inflation.
Additionally, the report recommended a limited 7-10 year lifetime for any fund, with 15 of the largest local authority funds committing 15% of their assets each.
In the case of Strathclyde, the largest UK local authority scheme, a 15% commitment would amount to a £1.7bn commitment, more than twice the size of its current property portfolio.
However, the report added that any commitments would not necessarily need to take the shape of cash commitments.
"For example," it said, "the local authority might agree to invest land in the development, or the authority's pension fund could be prepared to invest in a local project whose viability has been independently endorsed."
Such an approach is not unheard of, with the Greater Manchester Pension Fund in February committing as much as £25m towards a housing project in Manchester where the city's council contributed the land.
Calling on the National Association of Pension Funds (NAPF) to identity any constraints being placed on its members that would hinder residential investment, the report concluded: "Local authority pension funds are ideally placed to kick-start the development of new, mixed-tenure communities with rental homes through an independently managed Local Housing Development Fund structured along private equity lines."
The NAPF is already involved in its own fund project after it signed a memorandum of understanding with the Treasury last November to launch an infrastructure platform.
At the time, the Treasury hoped to attract £20bn in pension fund investment to UK infrastructure, but the Pension Infrastructure Platform since unveiled by the NAPF and Pension Protection Fund is aiming to attract initial seed capital of £1bn.
It hopes a further £1bn would then be contributed from other investors at a later date, resulting in investment power of £4bn once leveraged.