The nation’s volume house builders are often criticised for being short-term, profit driven construction machines largely uninterested in the wider problems of the housing market.
One exception to this rule is Legal & General, which over the past five years has been on a significant growth curve in a bid to become a major player in the provision of high-quality privately rented and also affordable housing, all delivered with a social purpose that, it claims, also suits its pension fund clients.
Legal & General has a 180-year tradition in housing, and already has a huge foothold in traditional home building with its ‘top 20’ house builder CALA, which constructs approximately 3,000 homes a year.
But it also has an ambition to build similar numbers of units for the affordable homes market, helped by its £90 million investment in a recently completed 550,000 sq ft modular factory in Sherburn, outside Leeds.
The company also has significant growth targets for its build-to-rent business and it is this that has witnessed some of the most spectacular projects including a few weeks ago its largest, a two-site development in Wandsworth.
When completed it will have gross development cost of £500 million which, when finished, will be the UK’s flagship build-to-rent community with over 1,000 homes and 85,000 sq ft of commercial space.
Legal & General also intends to eventually be able to build 3,000 affordable homes a year and this, together with its other growing divisions, means the group expects to build up to 100,000 homes over the next ten years.
If it can manage this, then it could soon be one of the largest home builders in the UK, outstripping more famous competitors such as Wilmott Dixon, L&Q, Bovis and Berkeley Homes.
But comparisons with volume house builders end there, as Simon Century, Head of Affordable Housing and Build to Rent at Legal & General, is keen to make clear.
“Our angle in the affordable housing and build to rent spaces in particular is that we are a long-term, patient investor,” he says. “We’re not just there for the short-term development return.
“We have a genuine and very, very long term horizon and high standards and that is the nature of our investment which is different than traditional builders.”
Century also sees Legal & General as stepping in to plug the huge breach in affordable homes left by successive governments’ reluctance to directly fund it and that it, along with other national institutions, should ‘fill that gap’.
“In recent years we’ve been scaling up our position into what we call direct investment in housing.”Simon Century, Legal & General
What also makes the group unique is the diverse range of tenures it is involved in.
As well as constructing build-to-rent developments it also operates them through a third-party management arm, as well as using its growing modular abilities to provide both the private market and housing associations with an affordable product.
“All our divisions have their own individual objectives but with one caveat that they are there as a group; what we find is, particularly when we focus on more complex opportunities or sites, these divisions will come together as a team,” he says.
This approach also makes long-term financial sense; diversified tenures on a single site are what “our pension fund clients want – relatively stable, long-dated income streams,” he says.
Century also claims this approach means Legal & General can talk to partners and negotiate the best mix of tenures depending on the objectives of each partner whether it’s a housing association or, in the case of its recent Oxford project, the city’s university.
Talking to Century it’s clear that Legal & General sees itself leading the key debates in housing through its activities including, as he points out, that its approach to large sites is exactly the policy thrust contained within the recent Letwin review of house building.
“Others are trying to create more diverse sites but I think we’re a leader in having those multiple routes to market,” he says.
But it is affordable housing that clearly gets Century’s blood running. He says Legal & General is part of the answer, not the problem, and that he’s passionate about finding a solution to the UK’s 100,000-a-year affordable homes shortfall, and help the 1.3 million households currently on local authority waiting lists.
“Government must provide more capital funding into a sector that needs more subsidy,” he says.
“But if you look at the existing players who are almost all housing associations the you realise that, although they have a huge desire to do something, because they are charities they can only raise debt but not equity.
“The problem is that as they take on more debt, they can’t bring in new equity funding so they’ve got little room for manoeuvre.
“The only way to fill that gap is for new capital to come in through other routes and we believe we are entering that space as a long term stakeholder.”
Century does not mince his words when promoting build to rent. He describes ‘99% of the private rented market’ as ‘low quality’ when compared to the kind of build-to-rent units being constructed at the moment.
“It’s a relatively small sector with only 30,000 units coming out of the ground each year but it’s an important opportunity to scale,” he says.
“It is also part of the direction that UK residential housing is moving and has a considerable weight of capital being deployed behind it; build to rent is only going in one direction, and at a very sharp pace in terms of public policy, quite rightly.”
Legal & General is also a founding partner of the English Cities Fund, set up with it and Homes England and Muse Developments, which is currently on track to deliver five new schemes in England with a total value of £1. 6 billion including in Liverpool, London, Plymouth, Salford and Wakefield.
The initiative, which has been going since 2001, is typical of its desire to offer more than just bricks and mortar, and be part of the solution to the ongoing housing crisis.