Investing in social housing to combat ‘Generation-Rent’ crisis

Pension schemes should consider investments in social housing to combat ‘Generation-Rent’ crisis – Isio panel

Greater investment in the subsidised social housing sector is the best way to avert the growing trend of housing poverty in retirement and investment from pension schemes has a major role to play in providing the funding, concluded a discussion panel of social housing leaders, convened by leading pensions advisory firm Isio.

The panel’s audience heard that the UK is sleepwalking into a crisis of pensioner poverty, with more than 600,000 millennials in so-called ‘Generation Rent’ unlikely to be able to get on the housing ladder as they age. People’s incomes typically halve after retirement; as a result, those in the private rented sector who pay 40% of their earnings in rent could be forced to spend up to 80% of their income on rent in retirement and little has been done to ensure middle-income earners have a steady income stream once they stop work despite the success of policies such as auto enrolment.

Katy Taylor, social housing lead at Isio said “The poverty of income and housing in retirement is going to hit a whole new set of society if nothing is done now, not just those already struggling. For example, typical retirement targets in use such as the PLSA standard do not currently include rent. We already have a savings gap – adding rent into this gives a ‘double whammy’. Isio is on the steering group developing a ‘living pension’ standard and housing clearly needs to play a part in this.”  

The panel included Lord Richard Best, a well-known social housing leader and former director of the National Federation of Housing Associations. He is currently chairman of Housing our Ageing Population Panel for Innovation (HAPPI). Lord Best also led work on a report, published in 2019, on ‘Rental Housing for an ageing population.’ Lord Best was joined by Jamie Broderick, previous head of UBS Wealth Management and currently a board member at the Impact Investing Institute, Darren Baxter, partnerships manager at the Joseph Rowntree Foundation and John Butler, policy leader at the National Housing Federation (NHF). The panel was chaired by Katy Taylor, social housing lead at Isio.

Lord Best powerfully made the case for social and subsidised housing as the key ingredient in any recipe to address the crisis. He estimated somewhere in the region of 630,000 households will need lower-cost rented accommodation in less than 30 years. He argued social rather than private rented tenancies would be best way to meet this demand. Social housing would provide ageing residents greater security and rents in the sector should not rise to levels that cause hardship and distress. Lord Best also warned that Housing Associations need to step up the provision of social housing that specifically caters to the needs of retirees.

Lord Best said: “We reckon about 600,000 people will be in trouble in 30 years’ time. We ought to be building now in the private sector and in the social housing sector. We should be trying to get ahead and there is a bit of a window of opportunity now to produce more accommodation at affordable rents through the social housing sector that will make a big difference.”

Jamie Broderick argued private investors have an important role to play in addressing the crisis warning that not every private investor who wanted to invest in social housing was a ‘rapacious private equity vulture.’ In addition, he argued there is a strong case for pension funds to invest in social housing, both through equity and debt.

Jamie Broderick said: “Pension funds are increasingly interested in the social housing equity sector as a source of indexed linked income streams. The sector has good strong credit fundamentals, low and stable vacancy rates, it has high rent collection rates and so it can be a good source for a pension fund of resilient stable inflation linked cash flow.”

Chair of the event Katy Taylor, concluded: “This is our growing poverty puzzle. Auto-enrolment has been massively successful in getting people to save, but we are not saving enough. We also do not have the housing provision. This discussion was all about exploring who is responsible for filling the gap, how do we best do that effectively and what actions can we all be taking now?

“If you are wondering what you can do: housing associations can be anticipating this need and potentially looking for finance from wider sources, all employers can be asking their pension schemes what social investments they have and whether it supports their own values, and as individuals we can be aware of our own needs and what our pension schemes are doing too.”

The recording of the panel discussion is available at Housing, pensions and the growing poverty puzzle

Lord Richard Best’s discussion echoed key findings from the 2019 ‘Rental Housing for an ageing population,’ report.

Jamie Broderick’s discussion was backed by findings from the Impact Investing Institute’s report ‘Is there an investment case for social and affordable housing in the UK?’ The report was published in October 2021.