Commitments from several regional pension schemes have boosted the fund’s capacity to invest in the development and acquisition of affordable housing in the UK, where there is an acute shortage.
UK impact investor Octopus Investments said it has raised a further £150m (€178m) for its Affordable Housing Fund from Local Government Pension Schemes (LGPS), bringing total commitments to the fund so far to £210m.
New LGPS investors include the pension funds of Avon, with a £50m commitment, Gloucestershire (£50m), Devon (£40m) and Clwyd (£10m). Avon, Gloucestershire and Devon also opted for a co-investment arrangement to deliver a share of affordable homes in their specific regions.
These commitments add to £50m raised by the first close of the fund in December 2023, which came from London CIV, an investment pool for 32 of London’s LGPS funds. A further £10m investment from social impact investor Big Society Capital (BSC) was announced in January.
Octopus said the capital raised last year had already been fully allocated to affordable housing projects, in partnership with its own registered social housing provider NewArch Homes.
In a deal announced in May, NewArch acquired 180 affordable homes from housing association Golding Homes, based in Kent, south-east England. The capital injection would allow Golding build more affordable housing, Octopus said.
That deal was first major deployment by the affordable housing strategy, which aims to deliver high quality, affordable homes in the UK, either by funding the construction of new housing or acquiring existing stock.
The UK faces an increasingly acute shortage of affordable housing with construction having failed to keep up with growing demand over the past two decades. Affordable housing now accounts for around 16% of total housing stock in England compared to 20% in 2000, according to government data.
Local impact
Octopus Investments is part of the Octopus Group, a B Corp that owns Octopus Energy, which has expanded rapidly in recent years to become one of the UK’s largest energy suppliers, as well as a growing force in green power development. Octopus Investments said its ties with Octopus Energy would allow more energy-efficient homes to be built to reduce residents’ outgoings.
Jack Burnham, head of affordable housing at Octopus Investments, said the opportunity for co-investment to boost the level of capital allocated from the fund for social impact in the region covered by an LGPS was “an approach that should be embraced”.
Shaun Stephenson-McGall, chair of Avon’s investment panel said the £50m it was investing in the affordable housing fund represented the equivalent of building 250 new homes for up to 1,000 people, at least 20% of which would be in the Avon region of southwest England.
“This investment will help us meet our new net zero 2045 goal, while delivering attractive financial returns, to help us meet future pension promises,” he said.
Burnham told Impact Investor that what might seem like a low threshold for building homes in the investor’s local region reflected the need to generate both impact and adequate returns for LGPS investors.
“It’s important to balance fiduciary duties and balanced returns with achieving local impact,” he said. “The fund is therefore geographically agnostic and our main aim is to invest anywhere across the UK where there is stretched housing affordability.”
