Opinion: Helen Roberts’ article ‘The risks and rewards of social housing’ concluded that investment in social housing is unattractive to pension funds.
The issue, though, is not the intrinsic nature of the sector but that the traditional investment model has yet to adjust to the new economic reality.
The idea that loans to housing associations (more than £3bn in 2012) could be affected by bad debt provisions due to universal credit is a red herring.
More to the point, the article acknowledges, social housing supply has been underwritten by the flow of government investment over the past 20 years (around £80bn).
The severe reduction of this support has undermined the viability not only of social housing schemes but the mixed-use development of which it normally forms part.
Nevertheless, social housing is a well-regulated, stable sector, providing secure yields – albeit perhaps lower than could be achieved from other areas of residential investment.
Although, when it is combined with other residential incomes, then mixed residential housing truly becomes an attractive source for pension fund investment.
There’s no doubt the economic incentives are there, but what is needed is a solution that combines social and private-rented.
The answer needs to resolve viability affected by reducing subsidy while offering a balance of low risk but inflation-linked income streams.
These issues along with liquidity, scalability and commercial returns are the key attractions mixed residential investment including social housing can easily provide.
Given this potential, it is unfortunate that the National Association of Pension Funds seems reluctant to recognise housing investment as part of its infrastructure platform. Investment in housebuilding would have huge economic and social advantages.
Councillor Richard Greening of the London Borough of Islington recently said: “If you took the same proportion – 2.5 per cent – of all Local Government Pension Scheme funds, it would generate 20,000 new homes across the UK, with the potential for 200,000 new jobs.”
So, if a comparison of combined yields generated by funds using mixed residential incomes is made against those from large illiquid infrastructure projects, you have to hope that the NAPF will be prepared to reconsider its stance of seemingly excluding residential as an investment option.
Adam Sampson is non-executive chairman of community-focused investment provider C4H and former CEO of Shelter
