Falkirk Council Pension Fund is joining the ranks of local authorities investing in social housing, with a £30m allocation, as experts debate the strengths of the asset class.
Social housing can provide the benefits of other property investments, but with the added potential for positive social impact.
However, some have questioned whether the sub-asset class would be as attractive a proposition in other circumstances.
In a statement accompanying the announcement, councillor John Patrick, convenor of Falkirk’s pension committee, said: “We can build 96 properties without it having any direct financial impact on the council but still help those tenants looking for an affordable home.”
Falkirk’s investment is through the Housing Fund for Scotland, created by asset manager Hearthstone Investments as part of an effort to unlock some of the £30bn of assets held by the 11 Scottish local authority schemes.
Many local authority schemes already invest in similar projects. Glasgow’s Athletes’ Village – created for the Commonwealth Games held in the city last year – benefited from a £35m direct loan from Strathclyde Pension Fund for the refitting of 700 properties in a bid to create private rental and affordable social accommodation.
Investment case
David Robertson, head of corporate finance at the Highland and Islands Pension Scheme, said the scheme was open to investing in social housing, but not actively pursuing it.
“There’s certainly no objection so long as it meets all the normal investment criteria,” he said.
Chris Down, chief executive of Hearthstone Investments, said: “Increasingly, schemes are having an eye to the social and economic factors of their investments.”
Down added it was in discussion with all of the Scottish LGPS schemes on social housing, but no firm decisions had been taken by all so far.
Mark Nicoll, partner at consultancy LCP, said social housing could be better suited to investors concerned with factors beyond risk and return.
He said: “It’s the sort of thing that we’d discuss with our clients who are looking to have an interest in social impact or ESG… It’s not an asset that we feel there’s an overriding opportunity that’s not available in the wider property sector.”
Private sector appeal
Interest in social housing has grown alongside wider pension scheme appetite for property and infrastructure, according to Jo Waldron, director of fixed income at asset manager M&G Investments.
“Only in the last five to seven years has social housing debt been an available product for pension funds,” she said. “Before that it was all from banks.”
She added affordable housing tended to have long-dated cash flows with inflation or fixed-rate linkage, and that housing associations tended to have high credit ratings.
"Demand is probably higher from private schemes," she said. "I think the requirement to exactly match cash flows is less of a focus [for public sector schemes].”
Housing associations have been publicly opposing the government’s proposed right-to-buy scheme, which they claim could lead to the erosion of public housing stock as they work to replace sold properties rather than build new ones.
However, Waldron said the government was unlikely to take steps that would harm private investors.
“From a debt investor's perspective we’re not exactly concerned by it, but we await the details with interest,” she said.
