The Local Government Pension Scheme (LGPS) could increase investment in UK affordable and social housing if it develops a stronger pipeline of suitable investment opportunities, according to a report by LGPS Central that outlined six measures it said could grow pension fund investment in the sector.

The report, Growing LGPS Investments in UK Housing, examined how some of the challenges facing long-term pension investment in housing can be overcome and how housing investment can meet the investment objectives and fiduciary responsibilities of local government pension funds.

The report said pension funds could increase investment in UK housing where opportunities offer an appropriate balance of return, risk, diversification and liquidity, and remain consistent with their fiduciary duties.

It also highlighted LGPS Central's plans for a Social Housing Fund in 2027, through which partner funds could increase their collective investment in social housing from around £600m to £1bn.

According to the report, while the government has made several announcements to support the building of affordable and social homes, further action could help attract institutional investment into the sector.

These include maintaining macroeconomic stability, with lower interest rates and a more predictable economic environment supporting housing investment; maintaining a consistent housing policy to give investors greater confidence over long-term returns; and improving the planning system, particularly on the supply side.

Further recommendations included supporting small and medium-sized housebuilders; helping local authorities, housing associations and strategic authorities increase development; and strengthening financial incentives while reducing regulatory barriers to long-term investment.

LGPS Central Limited chief executive officer, Richard Law-Deeks, said: “The UK needs more homes, particularly affordable and social housing.

"Long-term investors like the LGPS can help, where opportunities meet the investment needs of our Local Authority pension fund clients.

“Housing, including affordable and social housing, can offer stable, potentially inflation-linked income, diversification and exposure to strong underlying demand.

“Our report, published today, sets out practical solutions: stable and consistent policy, more effective planning, and more support to local authorities and others to build, and the right approach to the fiscal and regulatory regime.”

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