Legal & General suggest housing will become the biggest driver of inequity in the UK

Since the mid 1990’s house prices have doubled in real terms, but the UK is only building 125,000 houses a year, compared to 400,000 per annum after the war.

Related topics:  Mortgages
Amy Loddington
2nd May 2014
Mortgages

This has meant that baby boomers who bought houses in the 60s, 70s and 80s have lived for free, with capital appreciation far outstripping the cost of their mortgage. Their children will not be as fortunate.  In fact, without parental support, the vast majority will never be able to buy their own homes. This cannot be the right outcome for a fairer society and soon an Englishman’s home will only be his castle if first owned by his parents.
 
Legal & General has today published “Let’s House Britain” at a seminar of housing experts. The report outlines key issues around housing and calls for consensus on how to tackle the supply side problem of how to build more homes in the UK.  As one of the largest UK property investors, Legal & General has identified high quality housing stock as a key asset for society and wants to work with the Government, local authorities, housebuilders, social housing providers, charities and other specialist organisations to create more housing stock in the UK, overcoming issues around access to land, planning and affordability in all forms of tenure.

Campbell Robb, Chief Executive of Shelter, said: “The thousands of young people and families forced to watch their dream of a stable home slip further out of reach are already paying the price for successive governments’ failure to build the homes we need. But we know that the next government can turn the tide on the housing shortage within a single parliament.

“The reality is that government backed mortgages like Help to Buy or tweaks to planning rules will only ever be sticking plaster solutions that risk making the problem worse, not better. We will only build the homes we need by creating a healthier housebuilding market through boosting small builders, giving towns and cities more power, finding new investment, and getting land into the hands of those who can get building high quality, affordable homes.”

To that end, Legal & General has today announced that it is currently involved in a pipeline of over 25,000 new homes across a range of tenures, as well as more than 17,000 student accommodation beds.  Forming part of its larger UK housing and infrastructure investment strategy, L&G continues to participate in a growing range of supply side housing activities including financing affordable homes, the house building sector, urban regeneration, student accommodation and care homes.  

Matching its long-dated pension and annuity liabilities with risk adjusted returns whilst also supporting UK economic growth, L&G is one of six UK insurers that has committed to investing £25bn in the UK by 2018.  Looking to cater for all types of home ownership, in order to help provide the UK’s population with high quality, affordable living at all stages in their life cycle, it is also exploring other new initiatives such as building modern retirement villages, institutional-grade large-scale homes for rent and equity release models.

Affordable housing

Representing the largest direct investment made to date by an institutional investor into the affordable housing sector, in March this year L&G secured a portfolio of over 4,000 housing units, let to Places for People Homes on a new 50 year lease, for £252m, enabling the association to build 7,000 new housing units over the next seven years.  On the lending side, it also agreed a £102m, 15 year debt facility to the Hyde Group, one of the largest housing associations in England, and a £40m, 25 year loan Thames Valley Housing Association, which will be used to support on-going development.
 
David Cowans, Group Chief Executive at Places for People, commented: “Enabling us to build a further 7,000 new homes in the UK, our partnership with L&G allows us to tackle the serious shortfall in housing construction and free up resources to stimulate innovative investment in the infrastructure required to support it.”  
 
Student accommodation

Totalling over £1.4bn, L&G’s student accommodation deals have included nine university-backed forward-funding’s including those with Imperial College, University of the Arts London, University of Southampton, Greenwich University, Aberystwyth University, Newcastle University and Bournemouth University.  In March, L&G subscribed to a £210m, 50 year bond, enabling the specialist Australian fund, Campus Living Village (CLV), to acquire and manage a portfolio of eight student accommodation buildings of close to 5,000 beds across seven UK cities.  Additionally, it financed the University of Hertfordshire’s 3,000-bedroom student accommodation scheme through an index-linked unwrapped private bond placement.  It also secured a £121m, 10 year debt facility to UNITE and provided a £149m, nine year loan to UCC, a joint venture between UNITE and GIC.

David Podestra at the University of Southampton said:  "Sharing a forward-thinking long-term approach to investment, our partnership with L&G at Mayflower Halls has allowed us to secure a high quality, well connected, city centre student accommodation that we feel best supports the modern educational needs of generations to come."
 
Residential regeneration


Through L&G’s investment in the English Cities Fund, a long term partnership with the Homes & Communities Agency (HCA) and Muse developments, it is involved in a five major inner-city regeneration projects in Liverpool, Plymouth, Canning Town, Salford and Wakefield.  Bringing back into productive use acres of urban brownfield land, together these are delivering over 5.4m sq. ft. of mixed-use floor space including 3,000 housing units.

Bill Hughes, Managing Director of Legal & General Property, said: “Through our partnership with the HCA and Muse, we are able to bring about the critical regeneration of previously unloved and neglected city centre locations, fundamentally repositioning them to provide much needed homes, jobs and office, retail and leisure space, as well as the improved infrastructure to support our cities going forward. “

Build to sell

In March 2013, L&G and Patron Capital Partners jointly acquired a 93% equity stake in leading housebuilder, CALA Homes, by way of £140m of equity and £70m of debt, valuing the house builder at £210m.  Significantly accelerating CALA’s growth plans, its purchase of Banner Homes in March 2014 has provided it with the potential to deliver around 2,000 homes per annum and a turnover in excess of £800 million by 2017.  A developer of high specification luxury homes operating across central and southern England, Banner represents a strong strategic fit for CALA and the combined business directly employs over 600 people, with net assets of £200m and a projected turnover of more than £500m in its first full year.

Paul Stanworth, Managing Director of Legal & General Capital, says: “CALA has been a strategic and successful direct investment, providing equity finance to supply new housing in the UK, when it is at a severe shortage.”
 
L&G also recently obtained planning consent for its former Transport Research Laboratory site in Crowthorne, allowing for the construction of 1,000 new homes over 250 acres, including a neighbourhood and retail centre, primary school, community centre and care home, together with public open natural green-space and infrastructure improvements.

Last time buyers

Retired people own over £1tn of the UK's housing equity.  Many - an estimated 4.5m - want to move, perhaps to free up income or as a lifestyle choice, but lack of suitable local property prevents them doing so. Legal & General believes there is significant scope for more specialised housing which meets this need and is exploring a variety of approaches towards a better built environment for older people.

Aged Care / Retirement Living

At the end of last year L&G acquired a portfolio of 13 care homes for £70m.  Let to Methodist Care Homes (MCH), a leading care home provider that delivers a range of services to over 16,000 individuals, L&G worked closely with the tenant to restructure the lease terms to the benefit of both parties. It extended the leases to 30 years with annual RPI linked rent reviews whilst substantially reducing the annual rent commitments to eliminate the unsustainable over-renting that was endemic across the portfolio. A property swap was also facilitated, with an older property being released to the tenant for redevelopment in return for a newer property let on identical lease terms to the portfolio.

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