Pension Insurance Corporation, developer Muse and the government’s Homes England have set up a £54m joint venture to create 3,000 affordable homes.

  

The 12-year public-private partnership, Habiko, plans to deliver 3,000 low-carbon, low-energy affordable homes for the rental market. Habiko is is due to become self-funding over its lifespan and aims to diversify the supply chain for future efficient housing developments, according to the stakeholders. PIC will have the ability to continue to forward fund the development of the affordable homes and will ultimately own them. 

 

The housing will be in accessible locations, close to employment opportunities, and designed to help residents save money on their energy bills, according to the investors. “Up to” 100% of it will be affordable homes with rents set 20% below the local market level, the partners said. The homes will be delivered across England in areas where there is high demand for this type of housing.   

 

PIC’s chief executive Tracy Blackwell said the UK’s affordable housing needs were best met through collaboration between government, developers, and private investors.  

 

“Habiko is a great example of public-private partnership,” she said.  

 

PIC has invested around £4bn in social and affordable housing to date, with Blackwell saying this type of investment provides “secure, long-dated, inflation-linked cashflows to back the pensions of its policyholders over coming decades” whilst creating social value. 

 

The chief executive of Homes England, Peter Denton, said: “Attracting institutional investment into the housing sector is critical to build the new homes the country needs. This partnership supports our partners’ objective to deliver low carbon, low energy, affordable homes, bringing together the technical expertise and capability of Muse with the financial capacity of one of the UK's largest pension fund insurers, cementing PIC as a significant force in delivering affordable housing.” 

  

Phil Mayall, managing director at Muse, noted that the government has set out “a bold and ambitious challenge to deliver a significant number of new affordable homes over the next five years”.  

 

At last week’s Autumn Budget, it was announced the government plans to help build 1.5m homes over this parliament and will invest £5bn in housing in 2025-26, giving £500m of additional funding for the Affordable Homes Programme among others.  

 

The Local Government Association welcomed this commitment, as well as curbing Right to Buy. Its chair, cllr Louise Gittins, noted that the LGA has been calling for more funding for affordable housing, adding: “It has become increasingly impossible for councils to replace homes as quickly as they’re being sold through the Right to Buy scheme.” 

 

The Local Government Association recently ran a call for evidence on institutional investment in affordable housing.  

 

A 2008 report by Greater London Authority’s GLA Economics found residential property was still a lower priority for UK institutional investors and put this down to their income requirements, small lot size in UK residential and resulting high management costs.  

 

Pension funds in some other countries built up significant allocations to property, often residential, during the era of low or even negative bond yields. Dutch pension funds’ direct domestic property portfolios consisted mostly of residential in 2022. Last year, Swiss pension funds on average held 23.3% of their total assets in domestic property according to Swisscanto. 

 

Earlier this year, Octopus Investments raised £10m for its Affordable Housing strategy from Better Society Capital, following an initial £50m capital raise from London CIV, an asset pool of the Local Government Pension Scheme. In 2023, Phoenix Group provided a £58m long-term financing package to support a joint venture between Bromley Council and housing manager Pinnacle to buy more than 200 affordable homes.  

 

Retailer John Lewis Partnership has also entered the housing sector, planning to build 781 homes with an ambition of 35% affordable housing, focussing on provision for key workers.  

 

What considerations are key when deciding about whether to invest in affordable housing?