The UK has a severe housing crisis with profound social, economic and political ramifications. A chronic shortage of affordable, quality housing has left many people in substandard accommodation or enduring lengthy commutes to work or to see friends and family.
The Need for Housing
Author: Ashley Manning-Brown, Head of UK Investor Solutions, Pluto Finance
The UK has a severe housing crisis with profound social, economic and political ramifications. A chronic shortage of affordable, quality housing has left many people in substandard accommodation or enduring lengthy commutes to work or to see friends and family. Our new Government has set industry a target of delivering 300,000 new homes annually for the next five years, recent delivery averages 188,000 new builds per annum. To put this figure into some perspective, net immigration to the UK has averaged 250,000 per annum of late and is forecast to continue at this level for the foreseeable future. The effect is ‘overcrowding’, not always visible but very real for those impacted – more Houses in Multiple Occupation, more renting and more young people living with their parents for longer and with no prospect of home ownership.
The majority of the UK’s housing undersupply can be resolved through redeveloping brownfield sites, be they disused industrial areas, obsolete offices or other abandoned buildings. Not only does this drive urban regeneration (good locations with proximity to existing infrastructure) but such redevelopments can also offer a low carbon solution by utilising the embedded carbon from the existing frames and groundworks.
The Role of Private Credit
Since the 2008 Global Financial Crisis and the introduction of Basel III regulations, commercial banks have scaled back their development lending activities. Private Credit providers such as Pluto are now the majority lenders in the sector, playing a pivotal role in the delivery of new homes, particularly for the multitude of SMEs responsible for 40% of overall housing delivery. Unlike national developers, SMEs are agile and innovative, contributing significantly to local economies, supply chains, wider employment sectors and fostering closer community ties. Private credit providers are fast and flexible, delivering to SMEs the tailored financial solutions that recognise their unique site, planning and development opportunity.
Delivering Impact
Institutional investors can deliver impact from their private credit allocations as a supplement to financial returns. Bridge and development lending to the residential sector deliver the following impact:
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Environmental: homes that meet the highest environmental standards (ie exceeding current building regulations and standards). Pluto’s Low Carbon Lending Programme provides a financial incentive to SMEs for the delivery of homes that meet optimal operational carbon (EPC A) and embodied carbon (LETI B) standards.
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Social: creating affordable housing, social housing, local employment opportunities and robust supply chains is a social good. To date, Pluto’s institutional investors have funded the delivery of over 10,000 homes, translating into the creation of 31,100 jobs in construction and the supply chain, generating £1.5bn in tax receipts, with £260m directly benefiting local communities (statistics from National Housebuilding Federation).
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Governance: new house building planning and construction governance regimes are well established and rigorously enforced. Local impact can also be a target, as is the case with a Local Government Pension Pool recently invested with Pluto. They have committed an Impact Sleeve that targets lending in its region - utilising local pension fund money to deliver economic benefit and much needed housing locally, aligning credit quality and financial returns with social outcomes, whilst bringing other investors into their region.
To conclude, Private Credit is playing a critical role in the delivery of affordable housing in the UK and provides a route for institutional investors to deliver environmental, social and governance impact within their community.
Ashley Manning-Brown, Head of UK Investor Solutions, Pluto Finance
Pluto Finance is the leading real estate private credit platform specialising in the UK residential sector. The firm was established in 2011 and, to date, has advanced over £3bn across 273 SME bridging and development loans. Pluto lending vehicles are funded by institutional investors, including Universities Superannuation Scheme (USS), the UK’s largest private sector pension scheme. In 2021, USS also made a significant, minority investment in Pluto itself supporting the Co-Founders with their growth plans for the business.
