Affordable housing has been identified as a priority asset class for defined contribution (DC) pension investors, with research from Legal & General (L&G) revealing strong saver support for DC pension capital to be invested in affordable housing.

The research, based on a survey of over 4,400 DC pension savers, found strong support amongst DC savers across both accumulation and decumulation for their pension capital being invested in affordable housing, viewing it as an important social issue to address (97 per cent).

L&G’s research found that over 65 per cent of respondents identified affordable housing to rent as a 'critical' issue, rising to 80 per cent among renters, over a fifth of which felt it should be the government's top priority. The findings were similar for affordable housing to buy.

The survey also found that 60 per cent of savers said it would make them want to engage more with their pension if they knew their money was helping to solve real-world problems like housing.

Over half (54 per cent) said they’d be willing to pay more for a pension if it was building affordable housing, rising to 67 per cent among Gen Z.

In addition to this, 83 per cent said they’d be willing to pay more than £50 extra a year and one in three (33 per cent) said they would pay more than £100 extra.

L&G argued that investment in affordable housing not only works to engage savers with their pensions by investing in initiatives that can improve the local communities in which they live and work, but can also address supply-side demand.

Indeed, L&G's research also found evidence of the "critical need" to boost the supply of affordable housing to account for the growing number of individuals renting into retirement.

According to the report, "millions" of renters could be heading into retirement with a financial blind spot, underestimating how much they’ll need in later life compared to homeowners.

L&G found that one in five (20 per cent) DC savers who do not currently own their own home think they never will.

And despite the extra costs of renting, 8 per cent of renters believe they won’t need any additional savings in retirement.

Among those who did estimate a gap, the vast majority (90 per cent) significantly underestimated the amount they would need compared to homeowners, often by hundreds of thousands of pounds.

Most thought they’d need £250,000 extra or less – £150,000 short of industry forecasts, which suggest retirees who rent may need closer to £400,000, driven by rising rents and longer retirements.

Commenting on the findings, L&G head of UK DC distribution, Jayesh Patel, said: “The rise of renters in retirement underscores the urgent need for more affordable housing solutions.

"Our latest research demonstrates the power of private markets to deliver the change that savers wish to see.

"For asset managers and providers there is an opportunity to deploy DC capital towards creating homes for those most in need, while for members, they get to invest in initiatives that directly improve the communities in which they live.

"It is incredibly positive to see DC members support allocation to this critically important sector.”

Adding to this, L&G head of impact strategies - real estate, asset management Ali Farrell, said: "A lack of affordable housing is a crisis which affects millions of people across the UK.

"We believe there is a compelling investment case for investing in affordable housing, an asset class which aims to generate a stable, inflation-linked cashflow alongside meaningful societal benefits in local communities.

"The research supports L&G’s commitment to mobilising pension capital towards an area of acute societal priority – helping savers with their current housing needs, as well as securing their retirements.”

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