L&G and Croydon Council ink £45m deal to ease housing crisis

Legal & General has partnered with Croydon Council to provide 167 homes for families on the housing waiting list. With more than 1.3m people on social housing waiting lists in the UK, the move exemplifies how councils can ease the burden on the public purse by working alongside an investor like L&G. The British insurance and pensions giant has leased the properties, which are scattered across Croydon and neighbouring boroughs, to Croydon Council on a 40-year term, after which they will belong to the council. The council will pay L&G a rent that is less than half of the Local Housing Allowance, saving it around £20m in loan costs. The council identified the properties itself before L&G, on behalf of L&G Retirement Institutional, stepped in to acquire them for £44.6m. Pete Gladwell, head of public sector partnerships at L&G, told EG: “An important part of the model is the proactivity of the council to go out and buy the properties. The properties are pepper-potted, rather than in one place. We provided the criteria but the council led on the acquisition. They bought them, but we were in the background. This was agreed nine months ago, so they knew we were there with the capital lined up.” Councillor Alison Butler, Croydon Council’s cabinet member for homes and gateway services, said: “At a time when the government is squeezing how much it funds local authorities, this innovative partnership offers us better value for money than more traditional loans available to councils, and I hope this encourages other councils and financial institutions to follow suit.” The venture forms part of the council’s overall goal to rent out at least 340 local homes costing a maximum 65% of the usual private rent to borough residents by 2020. For L&G, the deal works financially because the firm does not require a high rental income. Instead, it is looking for a reliable, long-term investment. Gladwell explained: “We need 40 years of income to pay our pension commitments. Over a million people across Britain have entrusted their pension savings to L&G. While that goes into a well-diversified pot, we have invested the equivalent to thousands of people’s pensions into this investment, and we will use the rent we receive from Croydon to directly meet those pension contributions.” Gladwell added that L&G has spoken to several councils that have housing issues and that this model would be replicable elsewhere. “There’s so much social benefit around this investment. It will provide homes for families currently living in emergency accommodation. It also saves the council a fortune, both in costs saved versus B&Bs and the surplus income they generate from the homes. “There are several other local authorities that are very interested. Some councils are already trying to do this, using their own cash to go out and buy properties.” Given the deal did not require a grant or a Section 106 planning application, other parts of London might be tempted to follow suit. “Any other borough could put a similar arrangement in place with us,” said Gladwell. “It would work well in an area like Islington, where there is very little land on which to build, whereas the council could buy stock on the open market.” Last year, L&G said it wants the company to be the leading private affordable housing provider in the UK, delivering 3,000 homes per year as part of a plan to establish institutional investors as landlords. To send feedback, e-mail anna.ward@egi.co.uk or tweet @annaroxelana or @estatesgazette Image: High Level/Shutterstock