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How the LGPS can help solve the housing crisis

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The affordability challenges in today’s UK housing market are widely known. But could build-to-rent be part of the solution, while also providing a long-term investment opportunity for Local Government Pension Scheme (LGPS) funds?

First, what is build-to-rent? It provides fit-for-purpose rental accommodation at scale, with a clear focus on delivering stable, long-term income streams.

By owning the initial process through which rental assets are developed, we can control their design, reduce long-term operational costs and provide a high-quality, professional service to residents. This is closely aligned with the needs of LGPS funds to own assets that generate the reliable inflation-linked cashflows required to help meet their long-term liabilities, all with a close eye on reducing costs.

The UK private rental market has become the essence of a cottage industry. With 70% of privately rented homes owned by landlords with portfolios of fewer than 10 properties, the market is fragmented, with little alignment in the interests of developers and occupiers.

What’s more, the private rental market can be subject to short-termism, with too much of a focus on capital values.

With a focus on delivering a stable income for our pension fund investors, we put our residents at the heart of every decision, turning the rental sector into a service industry with customers rather than tenants.

We want to provide our investors with inflation-linked income, so we offer our customers family-friendly leases that clearly set out rental payments over the long term, providing security and flexibility.

Our five-year lease is crucial: we want to offer our residents certainty of long-term occupation and affordability while retaining the flexibility renting offers.

As a social impact investor, we can also support our customers’ lifestyle costs through our buying power. We buy in bulk for considerable discounts and pass the savings on to our residents.

This includes furniture, insurance, car club, internet, TV, cleaning – the list goes on. Furthermore, we can build more energy-efficient buildings, resulting in reduced bills for residents.

The public scrutiny of affordability has also shone a spotlight on build-to-rent’s role in delivering more homes to the UK. The UK needs a further 100,000 homes per year more than are currently being built, so it goes without saying that build-to-rent cannot fill this void alone.

However, it offers genuine net additional supply to help close the gap. Keeping things simple, the 100,000 shortfall could be met by build-to-rent, retirement living and the public sector equally.

Therefore, we believe build-to-rent makes an important contribution towards speeding up housing supply. Since launching three years ago, we have already committed more than £1bn to the project, delivering 3,500 new homes right across the UK.

We strongly believe in the power of build-to-rent. Not only does it aim to deliver attractive investment returns but it is simultaneously improving UK housing supply, as well as making the rental sector a positive and aspirational choice for all.

James Sparshott, head of local authorities, and Dan Batterton, fund manager, LGIM

Column sponsored and supplied by LGIM

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