I was speaking at the Scottish Federation of Housing Associations conference today. These are tough times for housing associations with the Scottish Government housing budget spread even thinner and the UK Government's welfare reform creating havoc for housing finance. Scotland needs new homes and I was presenting a paper I prepared for UNISON Scotland, with SFHA assistance, that shows how we might finance at least some of them.
Mary Taylor, SFHA Chief Executive, starkly set out the challenges for housing associations in Scotland. Housing grants now bear little relation to the cost of building houses after the grant cut leaves at least a £30,000 gap per house. Overall funding to all housing projects has on average been reduced by 53% since 2010. Some housing associations have struggled on using reserves and cross subsidy, but even that has a limited shelf life. Rents are also going up above inflation while wages are being cut in real terms. Housing associations are losing experienced staff and there is a knock on impact on the construction sector. I would commend the SFHA campaign document Keeping Homes Affordable for more detail on what's happening in the sector.
Our proposal is to use Scottish council pension funds to invest in much needed affordable social housing. Preliminary discussions with housing associations have shown keen interest in the plan which could potentially unlock many millions of pounds for building new homes.
At a time of tight public finances, with £11 billion of Scottish Local Government Pension Fund (LGPS) assets currently invested overseas, it makes sense to switch investment to socially useful projects like housing. The LGPS currently invests a massive 45% of its £24 billion funds in overseas equities. We believe that scheme members, many of whom are UNISON members, want to see money invested ethically and to benefit local communities. If we can invest in arms and tobacco companies - we can invest in houses.
Since we initially developed the idea others including Greater Manchester pension fund, John Smith Institute and the Future Homes Commission have all proposed using pension funds for housing. Richard Murphy of Tax Research put it more starkly:
“At a time when conventional pension fund investment policy is simply guaranteed to lose people money in the UK because of inept management, market corruption and excessive charges why aren’t pension funds being invested in things that we really need, like housing, where the payback over a period of, say, 25 years is exactly the sort of return a pension fund needs?"
We have discussed the idea with housing associations and propose developing initial projects to test the idea with one or more local authority pension funds. They offer stable, long term investment with a low risk of failure. If we have success with initial projects it could potentially lead to many millions of pounds for housing at a time when it is desperately needed. There may also be a role for government in supporting the initiative through guarantees, financial support or establishing housing development funds at Scottish or local level.
In summary, we have £billions generated in Scotland invested in overseas companies rather than where it is most needed. This idea could provide a secure return for pension funds and build the houses we desperately need. Let's get on with it!