Insurance firm Legal & General is on track to become a landlord after launching a £600m scheme with a Dutch pension scheme to fund “build to rent” properties.
The FTSE 100 company, which has pushed into property development through its L&G Capital business, is aiming to build more than 3,000 homes that will be rented out to private tenants.
It has signed up the pension manager PGGM to contribute to the building programme, with an initial £600m commitment between the pair. The companies hope the rental revenues will generate income to pay their life insurance customers, while putting some of their capital to work in long-term property investment.
The plan also plays into L&G chief executive Nigel Wilson’s calls for more house building to ease the shortage of suitable homes.
“The UK rental market, compared to the US and Europe, is dysfunctional, with ever increasing rents and increasingly poor accommodation,” said Paul Stanworth, managing director of Legal & General Capital. “For this to change, and renting to become more affordable, we need to invest in the ‘new’, and build new homes to rent, and just stop inflating the prices of old housing stock.”
The partnership with PGGM will begin with three existing projects in Bristol, Salford and Walthamstow, which together are set to deliver 650 homes once completed.
The rest of the properties will be built in “well-connected urban locations where there is strong demand”, and will mostly consist of two- to four-bed homes with various lengths of tenure.
Legal & General is yet to decide whether it will manage the properties directly or employ an agent. The firm is also exploring a possible move into pre-pack modular housing, an alternative to bricks and mortar that is scarcely used in Britain but more established in the US and on the continent.
Numerous life insurance firms have ploughed into property to generate income and preserve their long-term capital. Prudential’s M&G arm has invested more than £370m in homes over the past two years, while others such as Hermes have launched residential property investment funds.
L&G’s other direct investments in real estate include a 50pc stake in Media City UK in Salford. The firm has also committed £162m to a redevelopment project in Leeds.
PGGM, meanwhile, has £3bn invested in residential property in the Netherlands and the United States.