Legal & General (L&G), the insurance and pensions group, has issued a stark warning that the UK’s affordable housing crisis will take more than a decade to resolve at the current pace of construction. As one of the country’s key investors in housing, L&G has called for a significant acceleration in building efforts to meet the pressing demand for affordable homes.
In a move to address this issue, L&G has partnered with the Greater Manchester Pension Fund (GMPF), the UK’s largest local government pension scheme, to increase funding for affordable housing projects. GMPF has committed £120 million to L&G’s recently launched affordable housing fund, bringing the total to £280 million. This fund aims to finance the development of 750 new affordable homes across the UK, including in areas like West Sussex and Cornwall. Some of these homes will be offered at significantly reduced rents, between 30% to 50% of the market rate, or sold through shared ownership schemes. L&G expects to raise additional funds by the end of the year to expand the number of affordable homes being built. GMPF’s investment is also set to facilitate several projects in northern England, aligning with L&G’s broader strategy to address regional disparities in housing availability.
The scale of the housing crisis
Simon Century, head of housing at L&G, highlighted the severity of the affordable housing shortage, noting that an average of only 40,000 to 50,000 affordable homes have been built annually over the past two to three decades. This figure is well below the estimated 145,000 affordable homes needed each year to meet demand. Century emphasized that the shortage has been exacerbated by rising house prices and rental costs, making it increasingly difficult for individuals to purchase their first home or afford rent in the private sector. The current situation is compounded by the growing number of households on local authority waiting lists for social housing, which has reached 1.3 million—the highest level since 2014. Century believes the true demand for affordable housing far exceeds this figure, suggesting that millions of people across the UK are in need of such accommodation.
Industry challenges
The UK government, under the leadership of Chancellor Rachel Reeves, has recognized the urgency of the housing crisis and has pledged a significant increase in homebuilding. The government aims to construct 1.5 million homes over the next five years, supported by reforms to the planning system. These efforts are part of a broader strategy to leverage private pension funds for investment in UK infrastructure and housing, with a particular focus on delivering more affordable homes, especially for social rent. L&G has been at the forefront of efforts to address the housing shortage. Since launching its affordable homes business in 2018, the company has invested £1 billion and now oversees a portfolio of 8,000 homes, including over 5,500 existing properties and 3,000 under development. Last year, L&G built 1,304 homes, the highest annual total since the division’s inception. The company has set an ambitious target to expand its affordable housing portfolio to £4 billion by 2028.
However, L&G’s journey has not been without setbacks. The company recently shut down a factory in Leeds that manufactured prefabricated modular homes, a venture initially hailed as a potential solution to the housing crisis. The operation incurred losses of £236 million before its closure last year. Additionally, L&G has put its housebuilding arm, Cala Homes, up for sale as part of its efforts to refocus on its core strengths. L&G’s new chief executive, António Simões, is continuing the work of his predecessor, Sir Nigel Wilson, who advocated for "inclusive capitalism" a philosophy that emphasizes the importance of businesses contributing to society as well as generating profits. Laura Mason, CEO of private markets at L&G, underscored the role that pension capital can play in rebuilding the UK, particularly in addressing the housing crisis.
A long road ahead
Despite these efforts, L&G warns that resolving the housing crisis will require sustained investment and collaboration between private investors, local governments, and housing associations over many years. Century noted that reversing the decades-long undersupply of affordable housing will be a "decades-long-plus investment programme" that demands the involvement of multiple stakeholders working together. As the UK grapples with its housing shortage, the need for a coordinated and accelerated approach to construction is more critical than ever. L&G’s efforts, alongside government initiatives, are crucial steps toward addressing the crisis, but the road ahead remains long and challenging.