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Local government pension funds ‘should invest in housing’

By Richard Johnstone | 26 October 2012

Local government pension funds should invest up to £10bn in new housing, a report from the Future Homes Commission said today.

The commission, set up by the Royal Institute of British Architects and chaired by former Audit Commission controller Sir John Banham, said this amount would build 300,000 homes for rent and shared ownership. It suggested the largest council pension funds could contribute up to 15% of their assets.

Currently 100,000 new homes are being built every year on brownfield land and land close to existing cities and towns, the report said. Increasing pension fund investment on this scale could triple this number.

Overhauling the current ‘dysfunctional’ housebuilding process would also encourage further construction investment and allow homes to be built ‘without an extra penny of government spending or debt’.

The report called for a ‘greater focus’ on the design of new homes to ensure they were ‘fit for future generations’ and provided a long-term return for pension funds.

Local authorities would need to take on a greater leadership role on behalf of their local taxpayers to ensure local areas had the housing developments they needed, the report added.

Banham said today that there was ‘no better time to tackle the UK housing crisis’.

He added: ‘After a year-long national inquiry, the Future Homes Commission has concluded a housing revolution is entirely possible and will lead to economic growth. We need to increase massively the number of quality homes being built for many years to come, but also to develop communities which enhance the quality of life for both new residents and those living in existing communities nearby. All this has to and can happen without any additional government funding.’

Local Government Association chair Sir Merrick Cockell said ‘the real stumbling block’ to new developments was a lack of finance, both for developers and prospective buyers.

‘Councils are very keen to explore the opportunity to use pension funds to drive local economic growth. A few projects are already off the ground but with a bit more support we could put even more of the schemes’ billions of pounds in collective assets to work,’ he added.

‘The LGA has been discussing the potential for unlocking further investment with pension funds to explore the obstacles to this type of investment that exist at present. We have asked the government to help clear the barriers standing in the way of direct investment in job-creating infrastructure projects.’

Cockell also called on the government to lift restrictions on local authority borrowing through the Housing Revenue Account reforms to help councils ‘unlock finance to boost development’.

Nigel Keogh, technical manager for pensions and central government at CIPFA, said the report raised ‘an interesting idea’.

Some funds are already investing in housing, albeit on a smaller scale, such as the Greater Manchester Pension Fund’s agreement with Manchester City Council to finance construction of more than 240 homes.

‘There’s nothing to stop funds investing in this if it fits with their investment criteria,’ Keogh added. He said the recently announced Pensions Infrastructure Platform ‘could be a way into this, providing the pension funds platform is minded to look in that direction’.

However, some guarantees may be needed, Keogh added. ‘Whenever using pension funds to invest in infrastructure has been mentioned before, some form of minimum return guarantee from the government has been mentioned. That has been to take away some of the risk.

‘Clearly, pension funds need to look across the range of investments and balance that risk and reward.’

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