During the Housing151 conference in London, Room151 brought together 14 Local Government Pension Scheme (LGPS) professionals to try to find a way to unlock private investment in developing more housing.
Roundtable attendees:
- Mona Dohle, LGPS editor, Room151
- Jack Burnham, head of affordable housing, Octopus Investments
- Andrew Davey, head of long income and housing, CBRE Investment Management
- John Bevan, councillor, vice-chair, pensions committee and board
London Borough of Haringey - Conrad Hall, director of resources, London Borough of Newham
- Richard Harbord, independent chair, pensions board, London Borough of Harrow
- Catriona Buckley, senior director, client solutions, CBRE Investment Management
- Paddy Dowdall, assistant executive director, Greater Manchester Pension Fund
- Aysha Gilmore, senior reporter, Room151
- Aoifinn Devitt, CIO, London CIV
- Athesan Gunar, director, SimplyPhi
- Chris O’Bryen, investment associate consultant, Hymans Robertson
- Drew Ritchie, investment director, Big Society Capital
- Sian Roberts, institutional sales director, Octopus Investments
- Sam Yeandle, director, investment consulting, Redington
- Jennifer Murray, assistance director, partnerships and equity, Homes England
Roundtable sponsors:
- Catriona Buckley, senior director – client solutions, CBRE Investment Management
- Andrew Davey, fund manager – UK affordable housing fund, CBRE Investment Management
- Jack Burnham, fund manager (head of affordable housing), Octopus Investments
- Sian Roberts, institutional sales director, Octopus Investments
A lack of supply of housing in the UK has seen house prices rise, rents soar and homelessness increase.
Last year, the number of people living in temporary accommodation in England hit a 25-year high at 105,000 households, with councils spending around £1.7bn on providing the service.
Meanwhile, 1.21m households are on local authorities’ waiting lists for social housing in England, according to the latest government figures.
However, UK government initiatives around creating housing have fallen short of the supply needed, with local authorities struggling to finance day-to-day services let alone the development of real estate.
Eight million people are in the wrong form of housing, whether that’s too expensive, not the right size, or isn’t the right quality
Jack Burnham, Octopus
Mona Dohle: Thank you for joining us for this roundtable on housing and the LGPS, sponsored by Octopus and CBRE IM, who both offer different strategies to solving the same problem – the housing crisis in the UK. There is so much interest in housing from the LGPS, which was shown in Room151’s LGPS Survey on funds’ investment strategies, conducted in collaboration with Schroders at the end of last year. Investing in residential real estate has emerged as a key topic, especially for making place-based impact. Some 74% of survey respondents said that this is a key strategy they want to look at in private markets.
Jack Burnham is going to talk about Octopus’ affordable housing strategy. He comes from a local authority background and will talk about the opportunities of making a place-based impact through housing investments. We also have Andrew Davey from CBRE IM, who is going to follow up, talking a bit more about the macro-economic background and the evolution of institutional investment in affordable housing.
Jack Burnham: I am head of affordable housing at Octopus and I run our affordable housing fund, which we launched at the end of last year, with the support of London CIV and Big Society Capital. Our strategy is really focused on solving the existential issues that are out there in the world now. There are currently 140,000 children across the country living in temporary accommodation, for example. We know there’s over a million people on housing waiting lists up and down the country, and there’s around eight million people that are in the wrong form of housing, whether that’s something that’s too expensive for them, that’s not the right size for them, or isn’t the right quality.
Octopus is a financial business with about $15bn of assets under management. We operate across venture capital, real estate, sustainable infrastructure and renewables. We also have our energy business as well and we’re trying to draw the expertise of that in our strategy and looking at some of the innovative things that we can do to help customers that might experience fuel poverty as well.
Of the four and a half million affordable homes across the country, only about 25,000 are owned by investors.
Jack Burnham, Octopus
Octopus is a financial business with about $15bn of assets under management. We operate across venture capital, real estate, sustainable infrastructure and renewables. We also have our energy business as well and we’re trying to draw the expertise of that in our strategy and looking at some of the innovative things that we can do to help customers that might experience fuel poverty as well.
I spent about 20 years working in the affordable housing sector, and started by working for local authorities. In my first job, they made everybody across the housing department spend a stint manning the homeless counter. It was a really eye opening experience to see the cutting edge or the extreme need that people are in when they turn to the local authority. The only solution for many people is to put them into bed and breakfast accommodation, which just isn’t good enough. I think that’s stayed with me as I’ve developed my career across the sector.
I also spent time on the developer contractor side to building affordable homes and five or six years as an executive director for a housing association, moving to Octopus a couple of years ago. Of the four and a half million affordable homes across the country, only about 25,000 are owned by investors. But all the skills and expertise currently sit on the other side of the fence with local authorities and housing associations. We think it’s really important to embrace that and partner with those people to deliver more homes.
Looking at the historic relationship between private capital and the affordable housing sector, 42% of the country lived in a council house in 1970 but today that number is 8%. The 1980 Housing Act impacted that, and with it came Right to Buy, which saw a big decrease in the number of social homes in the system.
Another, less documented change came in 1988, when housing associations were allowed to access the private capital market. The loan capital market has absolutely ballooned. Since then, there’s over £100bn worth of debts supplied to housing associations, who are the predominant delivery agent for affordable homes across the country.
In 2008, the Housing and Regeneration Act allowed private capital to come into the affordable housing sector through the creation of something called a for profit registered provider (RPs). Take up was a little slow at first, but it’s evolved quite rapidly. There’s about 70 RPs across the country and we’re starting to see more high-profile institutional investors coming through that lens and providing affordable housing themselves.
Looking at current challenges, housing associations are under significant financial strain. They are under pressure to invest in net zero. There’s also a lag in investment in existing homes. This is compounded by the fact that these are organisations which are heavily reliant on debt, and interest rates have gone up significantly.
We should be building around 150,000 affordable homes a year; we have been building 50,000 and that’s likely to fall. So it’s a sector where all solutions are welcome. Andrew and I collaborated on a deal at my old place, where we worked in partnership between the not for profit and for profit sectors. The idea was to help the not for profit organisation grow a little bit faster and there’s a lot of scope for that activity in the sector.
Looking at risk and return, I think there’s a perfect storm in terms of a lack of supply and a great deal of demand.
Andrew Burnham, CBRE Investment Management
Andrew Davey: Jack has provided some useful background information there about a sector which we all know is broken. But I want to add some optimism to what can be a gloomy topic sometimes, that there is institutional capital out there that is seeking to not be a silver bullet, but to help solve some of the issues within the housing sector as it’s clear that we can’t do it alone.
So, 74% of LGPS investors, as Mona mentioned, believed that residential was the best suited asset class to solve local investment issues and fix that agenda. We [CBRE IM] agree with that and one of the key drivers from our perspective is that it provides impact. We all know that there’s a lack of supply of affordable housing and the impact that we can bring by allocating capital on behalf of our institutional investment partners to provide some solution for this is quite high.
From our perspective at CBRE Investment Management and Octopus as well, we really feel that housing can create a virtuous cycle. It’s also self-fulfilling and, forgive the pun, housing effectively creates a great foundation for future societal benefits. When a family is in inappropriate housing, there can be an impact on education at home and at school as the ability to do homework is affected on a micro level. Also, the ability of youngsters to adapt in poor quality housing affects their older generation outcomes. From our perspective, we feel that through partnering with our investment partners from the LGPS, we have a great opportunity to provide impact directly into the housing sector but also impact local society.
The next step I wanted to look at was that 64% of LGPS investors will only support the levelling up agenda if it feels like the actual solution impacts and is aligned with their investment strategy. The reason I feel that the two are commingled is that from LGPS funds’ perspective, whilst they’re impacting positive societal benefits by investing in affordable housing, they still need to meet their fiduciary duty.
So, a lot of LGPS funds are saying ‘yes, residential is a great way to invest and do local impact investment’, but 64% are counterintuitively saying, ‘we will only do it if it meets our actual investment needs’. As managers we need to convince LGPS investors that we have their best interests at heart, and we can manage their fiduciary obligations to their individual trustees. This is because ultimately, they’re not sovereign wealth funds, they do not have an obligation to invest locally and invest in impact-based solutions. They have to get a return, which is consummate to the risks they’re taking.
When we’re providing a solution to those LGPS investors, we need to look at return and risk around the investment and we look at the return characteristics of housing. Everyone knows there’s a shortage of housing now and an increased demand. From my perspective, looking at risk and return, I think that’s a perfect storm in terms of a lack of supply and a great deal of demand and that’s a great basis to start a return fundamental discussion.
We’ve been running our funds since 2018, with the returns on our funds versus other in-house commercial assets having been significantly better performing. We’ve got the track record that is not only uncorrelated, but is outperforming during times of stress, which has been witnessed over the last 18 months to two years.
From a risk perspective, there is only one that a lot of LGPS investors focus upon – stewardship risk. Investors want to know that we are investing their money and getting a return consummate with the risks that are involved, but also aren’t doing so in a manner which is potentially impacting their reputation. We need to illustrate that we are a legitimate platform, seeking legitimate social good, whilst also seeking a return which is aligned to their investment.
A lot of that comes down to the way we operate our properties. How do we choose the partners that do the on the ground tenant engagement and the on the ground maintenance? What is the leasing model? We don’t do a full repairing and assuring lease, which puts all the obligation onto the local authority and the registered provider. This puts stress on the underlying occupiers and puts stress on the underlying tenant. We want to steer away from that and take that risk on ourselves but also take on the control of the resident experience.
We also want to make sure that the resident experience is effectively tenure blind. We don’t want to treat our residents as social housing tenants. We want to make sure that they’re going into a house which is for life and experiencing things that is in line with a full market rent tenant. This is why we incorporate private rented sector key performance indicators and put our managers feet to the flame on that to make sure that we are providing the best quality housing.
There is a real need. There is a real demand from our investors to invest into this space. Managers such as us [CBRE IM] and Octopus have a financial solution to implement this and we also have the platform to do so.
Mona Dohle: That housing must fit into the actual portfolio is interesting, in that it’s not just a charitable act but must fulfil an actual function. So, it would be nice to hear from investors of what housing has to offer for you and what are your concerns around investing more in residential real estate?
John Bevan: I don’t think we are going to solve this problem today because as one of the delegates suggested this morning during the Housing151 conference, there’s not a shortage of housing. According to a report by Shelter last year, if the full number of bedrooms in the UK were used every night, there wouldn’t be a homelessness issue.
I would like to reiterate the points that the first speaker [Jackie Sadek, chair, UK Innovation Corridor] said at the conference of the need for a radical change. So, second homes, holiday homes, Airbnb: they all need to incur such a financial cost that the incentive to hold those properties is greatly reduced.
Council tax needs to be completely revamped so that bigger houses pay much more than the average house. The council tax system is a complete nonsense now. The 25% single person discount also needs to go. All these things need to be done to encourage people to use facilities to their maximum capacity and not have places where a few rooms are empty. To get the government to do some of those things would be quite amazing but I think without that we’re not going to win this issue.
If there is one constant for local government responsible investment it is net zero – trying to decarbonise funds.
Conrad Hall, London Borough of Newham
Conrad Hall: Thinking in terms of returns for LGPS funds and investment strategies, you need to start off with the point that subsidised housing needs some sort of support subsidy to work – a subsidy which will offer low and steady returns rather than higher risk and value.
But a lot of LGPS funds are much more in the [housing] space because they can have a fair degree of risk in the investment portfolio. I suspect the total amount of capital that’s available for this [housing] is a small fraction of the total LGPS amount, but a small fraction of a large fund is still a lot.
We’ve all been on this journey over the last 20 or 30 years, where you started off as just being a pension fund paying pensions, where you couldn’t take anything else into account. Now that’s still hugely relevant but the current environment allows us to take account for much wider factors. If there is one constant for local government responsible investment it is net zero, trying to decarbonise funds and so on. You have a little bit of a tricky pitch when people suggest that we should pile into housing which has more carbon, but you can’t afford to pay for the decarbonisation. This is contradictory to the net zero aim and I’m not quite sure how it should be dealt with.
A final thought is that we don’t really know what our members think about this [investment into housing]. It would be really helpful for funds wanting to go down this route to understand the scale of what members think about investment beyond the simple rules of return.
Richard Harbord: There are so many different problems, with temporary accommodation becoming a very large problem. Hastings Borough Council announced that it would have to issue a section 114 notice simply because of temporary accommodation. That’s a major problem that should have been foreseen. It was obvious that asylum seekers would eventually work through to temporary accommodation, and nobody seemed to think about that because we never think of anything in advance.
Investment can actually trigger social change but it’s very important that you don’t ignore the return. It’s got to deliver a reasonable return and one that can be defended in regard to fiduciary duty.
Richard Harbord, London Borough of Harrow
The other problems are retrofitting because the stock is just not fit for purpose in a lot of places, and it tends to be quite expensive. All new housing needs to be passive housing to be the most energy efficient, as it is currently pointless to build houses that are not super-efficient. This also helps local authorities’ long term objectives.
Also, council’s Housing Revenue Accounts are not in a good condition, with examples of some very dire ones where they’re really struggling. So doing things themselves is going to become increasingly difficult. Even if interest rates go down, councils still won’t be able to borrow because they won’t be able to afford it. You only have to look at examples like Birmingham, which had to find £300m worth of savings this year and has put council tax up to 21%, so there isn’t any solution there. I think it becomes increasingly important that there is external investment in the sector one way or another. Investment can actually trigger social change but it’s very important that you don’t ignore the return. It’s got to deliver a reasonable return and one that can be defended in regard to fiduciary duty.
You talk about local; we’ve resisted attempts to invest in our own housing stock on the grounds that there’s a conflict of interest, which could be problematic. If local investment is going to be successful, local has to be nationwide [UK] I believe. It’s not possible to be that local and do it well because there must be opportunities elsewhere that are worth pursuing. I don’t think you need to be too narrow in regard to that.
The real challenge is that we have construction costs, with interest rates. Interest rates are rising faster than income and wages have not kept up with inflation.
Paddy Dowdall, Greater Manchester Pension Fund
Paddy Dowdall: Lots of institutional investors with a global perspective invest in residential property and indeed pension providers without any of the local government baggage, such as Pension Insurance Corporation and Legal and General Investment Management.
Theoretically, housing can provide index linked cash flows and, importantly, a base that increases with inflation over time but it’s not perfect. You can buy some contractual inflation linked income capital, but you will get zero return for it. It’s called an index linked gilt and we can build a portfolio with those. Unfortunately, the employer contribution rates will be north of 40%. I don’t think that will help local government with any of its problems. The premise comes down to, can we invest in this asset class and achieve a level of return that has this inflation linkage, but is at a yield that is affordable to the councils? As it’s the councils’ taxpayers who ultimately fund this pension as it is statutorily set up, it’s not the members of the scheme.
When we drill this down, can we invest in residential property and get a rent that gives us a return that’s commensurate to the risk? We go back to an index linked gilt, what do we think is a commensurate premium to that for the illiquidity [of housing investment], the complication and the other things that we take. You can look at markets, but it feels like it’s maybe 200 to 300 basis points.
The real challenge is that we have construction costs, with interest rates. Interest rates are rising faster than income and wages have not kept up with inflation. To maintain the affordability, deliver the return and factor in that construction costs are higher than anything else, that’s where the real challenge and viability is. At Manchester we spend a lot of our time trying to solve this.
Mona Dohle: Does that mean you have to compromise on the inflation linkage to keep it affordable?
Paddy Dowdall: You can get contractual inflation linkage; you just sacrifice all the return. Index linked gilts trade in negative real yields and have traded at negative real yields for as long as I can remember. One of the speakers at the conference said that if you track rents, it tracks consumer price index over time. Fortunately, we’re in the position as an open defined benefit scheme that we’re not an annuity contract provider. So that’s where we can take a little bit of risk, but there will be a bit of volatility over that matching.
Andrew Davey: It’s also punitive upon the on the ground RPs and the on the ground residents because often it can outstrip what they’re able to pay. We take the view that over the longer term, and often our capital is longer term, we would rather match that to policy instead of a fixed index and bank, where the policy is likely to track the index over the longer term. There may be some volatility around that, but over the longer term, we should get that inflation linkage via proxy.
On the return side, we offer a core return, it’s not value add, because we are long term investors taking low risks with our investors. So that can range typically from 7% to 8% unlevered, which is in line with what our LGPS investors want to see. Broadly speaking, we feel that the return is consummate with the risk we’re taking.
The ability for the LGPS asset management space to develop models which can tackle that social housing challenge is absolutely fundamental to continue the reputation of private capital.
Drew Ritchie, Big Society Capital
Drew Ritchie: You have also got the resilience of the income as well. Someone said to me that no investors ever lost a pound investing in a housing association because they are resilient entities backed by, in many cases, government guarantees.
We’ve invested in equity, social and affordable housing funds for ten years. What we have seen in that period is a reduction in scepticism about the role of private capital in the space. But tying back within the fiduciary duties and the financial aspects that we need to work on, one of the challenges that we see is that the equity funds by and large are delivering less social housing than the national housing supply as a proportion.
The ability for the LGPS asset management space to develop models which can tackle that social housing challenge is absolutely fundamental to continue the reputation of private capital.
It was reported yesterday that 55 homeless children had died in temporary accommodation since 2019 due to their parents being unable to regulate temperature well. That’s a fundamental, societal challenge that we are all committed to. But how do we think about tenure mix as a way to channel this private capital into delivering these goals?
Andrew Davey: I think tenure mix is an interesting question. From a social rent perspective, clearly the economics are difficult in a rising cost price environment. It’s effectively looking at the balance of that and looking at grants that are available to enable social rent, but also looking at sites in a creative way. This means approaching developers about additionality, looking at what the existing tenure mix is and looking at ways that we can creatively leverage our model to be able to meet out retired hurdles. This may mean that we’re incorporating shared ownership, which is typically higher returning to enable some additional social rent on the actual scheme. It’s really leveraging those different tenure mixes to be able to effectively give yourself a small opportunity to get some exposure to social rent that wouldn’t otherwise have been there.
It’s a real moment in time that if we can make the case to the pension funds, that housing is a resilient, reliable, diversifying asset class, and we can actually unlock that money.
Jennifer Murray, Homes England
Jennifer Murray: I’m in danger of going full Pollyanna here. I don’t deny for a moment that there are an awful lot of challenges out there, and I completely recognise that we can’t let stuff fall out at the bottom.
But my kind of Pollyanna feeling is that I joined Homes England about five years ago, and I joined having managed commercial real estate for the LGPS predominantly. The reason I joined was because I saw that there was this potential coalescence between a need for long term resilience, roughly inflation matching income with the needs of that longer term, and the more mature pension fund case. But I also saw a tension in that, being [pension fund] money that doesn’t necessarily want to take development risk. For us as an agency that gives you an automatic, but interesting tension, which plays back to the point, that there’s room for two sorts of actors here.
There is room in the world for return seeking, deficit reducing investors by taking the development risk piece. But there’s room in the world for the more mature, deferred retired members piece on the different return profile. I think one of the tensions we have right now is that the offerings that are available to investors are trying to pretend to be two things.
But I think my Pollyanna feeling is in the opportunity. When I joined Homes England, I couldn’t believe how little down the conversation we were five years on that there is still more demonstratable need for better housing. Everybody is recognising that now and they are also recognising that it is across tenures.
There has also just been a massive shift in investor appetite and thinking within those five years. And on the housing association side a willingness to work with that private capital. One of the things I was still quite surprised about, being a naive innocent fund manager, was the reticence there was about working with different types of capital, with those being very twitchy about being in equity with people. I think an awful lot of those barriers are now coming down. It’s a real moment in time that if we can make the case to the pension funds, that housing is a resilient, reliable, diversifying asset class, and we can actually unlock that money. But the asset managers need to deliver this data that demonstrates how this performs because that’s the real challenge as well.
Paddy Dowdall: That’s probably the problem in a nutshell. Another thing is that management structures and management approaches really need to get over the fundamental problem, which is I don’t see the purpose in the LGPS undercutting the Public Works Loan Board to fund RPs, because it’s just an inefficient use of capital. There’s absolutely no purpose to it.
Some of our managers will buy housing association bonds, but they won’t be charging 1% and 10% of their profits to do it. They’ll buy it based on the DLUHC’s bonds, which represent a good use of capital compared to other bonds. So what is the magic sauce that we get in return for effectively putting in equity into the structures?
The pace of deployment has been quite slow. What is causing that and what’s going to cause it to ramp up?
Aoifinn Devitt, London CIV
Aoifinn Devitt: At London CIV, we have a successful affordable housing fund that has been getting a lot of traction. I see the demand for the product of affordable housing around the impact side, around the sustainable development goals and the pressing needs. I would be surprised if we are leaning too much onto the income, more conservative side of things because that is not why we are here.
The other point I have observed as an outsider coming in, is that the pace of deployment has been quite slow. What is causing that and what’s going to cause it to ramp up? Because we get pressured from our investors, not just in this area but also in the sustainable infrastructure arena. We want to be invested in this yesterday. What is taking so long?
Paddy Dowdall: People are usually first to criticise the planning departments. Well, that’s possibly a factor but equally, there’s just no one to build anything. We can allocate as much as we want, if there’s no construction capacity, you can’t build new homes.
Aoifinn Devitt: Can this be unlocked somehow?
Andrew Davey: I think it can be unlocked. I think the drawdown time and the impact thesis sometimes hit against each other because by definition from an impact perspective, in our view, you need to build new homes. Yes, there’s an argument for retrofitting existing homes, but that tends to have less impact and you may not hit your financial return. If you’re building new homes, getting the impact that you eventually want to achieve, by definition that’s going to take longer than a standing asset, which would have less impact. It is a real juxtaposition.
There are a lot of investors who want their money, as you say invested yesterday. But it’s a case for the long term, building the right asset, with the right environmental, social and governance credentials is where we should be focusing our time. And, if that takes six months longer, then maybe that’s a sacrifice that needs to be made. But it’s an open discussion around where that balance lies.
Athesan Gunar: 80% of what we [SimplyPhi] do is not new build, 80% of what we do is street acquisitions. We buy them, we renovate them and then hand them over to local authorities, housing associations and fund managers. We do that at scale and with the right technology. The reason I make this point is because part of the debate is that there is enough stock in the country, it may not be institutional, it may certainly not be LGPS institutional, but we would like it to be. We have that ambition, but it may take some polishing of the diamond to get it to that state and readily available. This could also deliver a more immediate solution.
We believe that the solution really needs to happen on the balance sheet. It’s back to this sharing but getting that pace and scale in there is the challenge. No one is saying that the LGPS should dilute its return expectations because it has local government in the name. But trying to combine it with more philanthropic capital, I appreciate that Homes England has a new build mandate, but ultimately, they are holders of grants and that grant can be incorporated at low return. It might give you a shot at 200 to 300 basis points over an equivalent gilt. I think that is where the solution needs to focus if we’re going to create a more immediate impact.
Catriona Buckley: I think we’re all coming at this from different angles and essentially this is a hugely complex problem. There are absolutely investors who are there for development style structures that may or may not be from the LGPS around this table, but we’ve got to facilitate a way of enabling that to be accessible.
I think there’s a lot of capital looking for inflation linkage. I think that’s probably the direction we’ve come from. Absolutely, there is a space in the ecosystem for what SimplyPhi do.
I think what we need is investors to really give us feedback on what type of exposures they’re looking to ultimately generate; what are your goals? Because we as an industry can probably scratch our heads and find a way of providing solutions, but we need you to escalate it in your own committees.
What we need is investors to give us feedback on what type of exposures they’re looking to ultimately generate; what are your goals?
Catriona Buckley, CBRE Investment Management
Ultimately, we are in a very immature asset class right now. There’s a lack of housing but we haven’t grown up enough as an industry yet to be able to articulate exactly what we’re looking to solve. So, my call to action on behalf of the group is: we have the Aoifinns who can work with us to be able to deliver solutions. We need to hear what’s the best solution for you [pension funds] coming out from the council’s perspective but also from an LGPS perspective.
Richard Harbord: There are ways you can quite clearly work out the social benefits from some of these investments, but you have to remember that we are actually there to represent our members. That’s why the wider social benefit is difficult to translate into benefit to the members of the pension fund. You have to bear that in mind the whole time.
Catriona Buckley: I think it’s a great opportunity for the LGPS pools to be involved, we as investors can come with up with a strategy that’s best suited to our capabilities, in regard to what we can deliver and build. I think the role of the pools here is to almost develop multi asset solutions and multi manager solutions in the space because you can get a range of different outcomes through blending these strategies together. I think that’s a really powerful way of doing it by almost trying to mirror the problem with solutions.
Mona Dohle: I just wanted to bring in Sam and Chris, maybe to provide a bird’s eye view. What do you think are the main obstacles or concerns that the funds that you work with have in terms of investing in housing?
Sam Yeandle: The first one is the point that’s been discussed quite a lot around financial suitability and whether it’s a part of your fiduciary duty, which is always going to be a question in an asset class where there is quite an explicit trade off. I think the way we [Redington] approach it is trying to think about the wider portfolio and the wider metrics that are relevant to the scheme. It’s not necessarily just about risk and return but it’s about, for example, inflation linkage, it’s about your environmental, social and governance, levelling up and funding objectives.
How can we manage reputational risk and ensure investment managers have the correct processes in place that they’re properly engaging with tenants and engaging stakeholders?
Sam Yeandle, Redington
I think the other big challenge is around exactly what part in the market the funds want to play in; some are thinking more affordable, and some are thinking more impactful. The third big challenge is around reputational risk. How we can manage that and how we can ensure the investment managers around this table have the correct processes in place that they’re properly engaging with tenants and engaging stakeholders.
Chris O’Bryen: We have some clients who have ambitious net zero targets. Everyone’s very sensitive to ensuring that any new units are of high quality in terms of energy efficiency and how that impacts the returns. Similarly, the most energy efficient solutions are going to be the units you don’t have to knock down. We must get that right.
We also recognise quite a lot of tension about the pace of drawdown. Realistically, we don’t want to be accelerating the deployment of capital in an opportunity that isn’t appropriate. We are also managing expectations of how realistically that capital can be drawn down.
Everyone is sensitive to ensuring that any new units are of high quality in terms of energy efficiency and how that impacts the returns.
Chris O’Bryen, Hymans Robertson
Mona Dohle: That was a fantastic discussion but unfortunately all we have time for, Andrew and Jack would you like to close the roundtable?
Andrew Davey: I think the one takeaway from my perspective is that we’ve got people around this table, regardless of background and regardless of position, that are coming together to solve this problem.
That for me is really encouraging and I leave this room with a lot of optimism that whilst we won’t come up with a silver bullet, hopefully we’ll come up with individual solutions that will eventually go some way to solving what is quite a wide societal problem.
Jack Burnham: I think all the conversations around value add are really interesting. That’s something we’re looking forward to hopefully exploring with partners over the coming years because there’s definitely a need to catalyse the homes from being a bare piece of land to being something people can live in. There’s lots of room for solutions and it’s really interesting to hear that balance between financial return and impact as well.
