Solving the affordable homes crisis

The UK has a huge shortfall of affordable homes and there are currently around 1.2 million households on the waiting list for these properties. Legal & General (L&G) is at the forefront of a quiet revolution that aims to tackle the problem by using the money we all pay into our pensions to invest in this essential housing.

Our affordable homes business was launched in 2018 and last year we sold or let more than 600 properties across the country, but we want to do much more. We aim to deliver around 3,000 homes a year by 2023 and offer levels of service and environmental sustainability that are unheard of in the affordable sector.

By investing pension money into such properties, thousands more people will be able to enjoy a home of their own and we can generate long-term, index-linked returns for pensions, which is exactly what we all need when we retire, explains Ben Denton, Chief Executive of Legal & General Affordable Homes. 

Filling the gap

The UK needs between 100,000 and 140,000 new affordable homes a year but only around 50,000 are currently being built annually. In order to meet the demand, we recently announced an acceleration of our efforts and now have a development pipeline of 5,500 homes in place across the country, and have contracted a gross investment of nearly £1 billion.

These include over 1,000 new homes in London, which has seen housing starts fall by 66% during the pandemic, including schemes in Hammersmith and Fulham, Hounslow, Wembley, Lambeth and Tower Hamlets. In addition, there will be a further 2,200 homes across the South East, 900 in the South West and 1,400 in the Midlands and the North. Most recently, L&G handed over its first scheme in Doncaster to residents and has more affordable homes planned there.

Denton explains that the introduction of institutional funds is the latest in a series of major changes to the affordable housing sector which began when Victorian philanthropists like the Cadbury family first began providing homes for workers. After the Second World War, the Government took on the task of affordable housing development, which was then followed by not-for-profit housing associations in the 1970s and ’80s.

“Some commentators have suggested that for-profit organisations will come in and extract value, whilst not delivering quality service and not care about the customers,” says Denton. “I would argue the opposite is true. Coming into this space, L&G already has 10 million customers and we do everything we possibly can to uphold their trust and confidence, whether it’s a customer living in one of our homes or taking out a pension with us.”

High-quality service

Denton says that while sometimes we buy homes from developers and, sometimes, we buy land and build the properties ourselves, all schemes are assessed against 12 quality criteria, such as accessibility, sustainability and quality of the development. And not only are the buildings themselves of a high standard, but high levels of service should mean that customers can be sure of quick answers when they have questions and a commitment for prompt action if repairs are needed. 

Denton says: “There are some things we provide that are just common sense and maybe others in the sector don’t provide. For example, every home that we hand over has carpets and white goods. Some in the affordable housing sector hand over homes without those.

“When people move in, we spend time building a relationship with them to understand their needs and how we can make the process of moving as straightforward as possible. Sometimes it’s small things like when you move in you might not have your kettle and you might not have your cooking equipment, so we give people a moving in pack that includes things like Just Eat vouchers.

“We measure customer service at move-in based on a Net Promoter Score – which goes from -100 to +100.  We set out target at +50 or above and we currently achieve above our target. This is a great example of delivering sensible risk-adjusted returns to the investor community alongside excellent customer service experience.”   

Carbon neutral

We are also targeting for all our homes to be capable of being net-zero carbon by 2030. Legal & General Affordable Homes is working to ensure its own business operations are net zero by the end of next year. We are developing a plan to make sure all the homes we build ourselves are net zero and to retrofit all of the affordable homes we buy to ensure they can meet our ambitions. That will involve introducing air-source and ground-source heat pumps as boilers come to the end of their lives as well as other energy improvement measures including some battery storage. We are also looking to work with the Group’s modular housing business to deliver schemes, due to the high energy efficiency these types of properties can deliver. This is a great example of how L&G’s businesses can work together.

There is a long way to go to solve the UK’s affordable housing crisis, but we believe that by employing patient capital from pension funds we can offer a solution for society that both provides the homes we need and secures pension incomes for those in retirement.