Legal and General Capital has announced a partnership with a Dutch pension fund to build flats to rent, so it can use the income to pay pensions.

The project known as the ‘build to rent’ partnership, will see L&G Capital pair with PGGM. Initially the partners will invest £600m into the new builds, providing 3,000 homes across the UK.

PGGM has 40 years of experience in investing in build to rent housing; it currently owns close to £3bn of residential investment exposure through its strategic partnerships in the Netherlands and the US.

The partnership hopes the project will address the UK housing crisis by increasing the supply of new homes. Currently, the UK builds only around 125,000 new homes a year, half of its 250,000 annual requirement.

However, in America and Europe projects similar to the ‘build to rent’ partnership by institutions that fund and manage rental property have increased the supply of homes, lowered prices and provided better quality homes.

L&G Capital managing director Paul Stanworth described the UK rental market as “dysfunctional” with ever increasing rents and increasingly poor accommodation.

“For this to change, and renting to become more affordable, we need to invest in the ‘new’, and build new homes to rent, and just stop inflating the prices of old housing stock. At L&G we’re going to play our part by disrupting the market, and invest significant sums of long-term institutional money to build new rental housing, and develop a UK institutional rental market,” he explained.

L&G Capital believes the partnership signals a different approach in addressing the UK housing crisis as long-term capital will now be building and owning assets in scale, for the long term. It said the developments will be purpose built, and of high standard to suit institutional investment. The sites will help urban regeneration, and incorporate modern green design and infrastructure.

The partnership has already started with three ‘build to rent’ development schemes in Bristol, Salford and Walthamstow, which are expected to create 650 new homes. It is also in detailed discussions on the acquisition of numerous sites, all situated in well-connected urban locations where there is strong demand.

PGGM investment director real estate Mathieu Elshout said investing in residential is the “perfect long-term real estate investment” as it provides a “relatively high income security and diversification relative to other sectors”.

“As a responsible investor we believe that we have an obligation to contribute to a sustainable world. We can do so via impact investment, or investing in solutions, as we call it. This partnership not only addresses the supply/demand imbalance, it also aims to improve the UK’s built environment; acting as a catalyst for wider urban regeneration and creating rental stock in sustainable urban schemes centred around key transport hubs,” he added.

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