I've been a pension trustee (of sorts) for about 16 years and during this time I have asked various property fund managers and professional advisers "why don't we invest in social housing?"
To which I have had a number of different replies, most of which have not been that convincing to be honest.
Why is there this apparent mismatch between social housing providers who say that there is not enough investment available for them to build while pension funds say there is inadequate opportunities to invest in such long term stable investments linked to inflation?
Usually the first response from a fund manager to my question is a blank look, followed by a little bit of waffle about how their current property portfolio is so good then saying this is a "very good question" and that they will speak to their people and get back to me (they don't).
However, over the years I have been told that there is a "reputational risk" if a pension fund invests in social housing since the fund agents may have to evict residents for non payment of rent etc. Well, Councils for example already evict tenants for non payment of rent up and down the country yet they still run pension schemes?
At a drinks reception after a pension conference (I admit not a reliable source for information) I was told by a property fund manager that no one invests in social housing because of the risk that "chavs" would turn up at their posh City HQ demanding that they fix their leaking central heating!
Only once or twice have I heard the argument that the return from investing in social housing is not good enough compared to other asset classes. Now this is a real argument but rather odd since pension funds normally invest in a range of investments with variable returns in order to spread risk. I also understand that the yields from bonds issued from housing associations are far greater than gilts or other bonds?
I am also aware that it may be possible to get a greater possible return from an investment by a pension fund if it was able to share in the capital appreciation of new build social housing stock? Obviously the funds would have to take more risk to get this return but I am informed that it is risk that is currently putting off existing social landlords from making new investments. So why can't Councils and Housing Associations share this development risk with pension funds?
I suspect that the real problem is that property fund managers and advisers are use to what they know. One adviser told me that the excuses put forward by such managers is just "lazy thinking". They are experienced in investing in shiny new retail parks, hotels and warehouses. Investing in Social Housing is outside their comfort blanket. Also Housing Associations are not use to sharing the capital appreciation of their assets either.
We need to sort this out. In other countries I understand that pension funds invest in social housing as a matter of course. They make decent money for their beneficiaries and they build affordable homes for rent. Kick starting the economy with new construction starts is another important consideration you would think. How often do we get a possible win-win-win on such a question?