Reclassifying housing as infrastructure could take the housebuilding revolution to the next level

When we talk about assessing and addressing housing needs, we often focus on what we can quantify: over 300,000 new homes needed each year in England; £1.1m households on social housing waiting lists; 1.5m new homes by the end of the current Parliament. Whatever the quantum we use, we know that scaling up housebuilding is a key solution. At current levels of housing need, building enough homes to access these benefits requires a radical response.

Supportive policy and leadership are vital to deliver a step change in housing supply. Through various changes in the housing policy landscape, we have seen a significant and welcome ambition from the government to rise to this challenge – not just through the commitment to delivering 1.5m new homes, but also through tangible changes like reforming the planning system to get Britain building again. However, these efforts will inevitably be constrained by competing demands on the public purse. To take national housing ambitions to the next level, we need to unlock additional investment on a scale we haven’t seen before.

Capital from long-term, institutional investors will be essential for government and local leaders to bridge the gap between available public financing and the levels of investment needed to turbocharge housebuilding. For institutional investors, who steward the capital of millions of citizens, housing is a compelling investment opportunity that can offer attractive long-term returns alongside supporting positive impacts on people’s lives. Having enough secure, good-quality homes enables people to fully participate in society, education, and work: it is part of the foundation of healthy, productive societies.

To unlock even greater levels of investment, we should consider housing as infrastructure.
At Legal & General (L&G), we see housing as the heart and soul of national infrastructure. Access to housing not only underpins functioning communities in a similar way to water, power, and transport infrastructure, but also acts as a point of access for those very same essential infrastructure classes. Our enduring commitment to housing reflects the opportunity both to secure steady, inflation-linked returns and to generate positive social impact within local communities.

Fellow long-term investors are also recognising this opportunity. For example, Local Government Pension Schemes ACCESS and GMPF (Greater Manchester Pension Fund) have both invested into the Legal & General Affordable Housing Fund to scale up affordable and shared ownership housing delivery across England, and NEST are partnering with L&G and PGGM to collectively invest up to a billion pounds into building Build to Rent schemes across the UK.

By shifting our perspective to view housing as infrastructure, we can make the most of investor allocations to create even more opportunities for investment. Investors often have set allocations for their investments, and infrastructure (which doesn’t typically include housing) accounts for around 10% of this; 48% of investors* also believe that they are underweight in their infrastructure allocation. Putting housing in the same category is likely to spur increased investor interest, which would go a significant way to boosting supply. It would also help to overcome one of the biggest barriers to scaling up long-term investment: the unpredictable nature of the public policy environment.

Policy decisions are often made according to short-term political cycles. This introduces a significant level of uncertainty for long-term investors that even the most supportive policies cannot fully ease. The current government is already making strides to address this within the housing sector by removing sources of undue delay and unreasonable objection introduced by the planning system. It can shore up even more certainty by adopting a long-term policy horizon so that policy decisions relating to housing reflect its longer lifespan as an asset class, and its fundamental role in supporting social and economic growth.

The National Infrastructure and Service Transformation Authority (NISTA) offers a precedent for this. Originally established in 2015 as the National Infrastructure Commission, the NISTA’s role is to provide impartial, expert advice on major long-term infrastructure challenges and needs, thereby detaching infrastructure from short-term political cycles. Adding housing to the NISTA remit would lead to opportunities for longer-term and integrated planning of housing, infrastructure, and transport policy.

New housing is often needed in or in proximity to economic centres, which can place strain on other public assets like traditional infrastructure. The NISTA flagship National Infrastructure Assessment – which analyses the UK’s long-term infrastructure needs – could provide integrated solutions to the UK’s housing crisis, including recommendations for creating new homes and communities with appropriate access to transit and other essential infrastructure.

Shifting the paradigm through which we view housing could move us towards more long-term decision-making, creating opportunities for more integration between housing and other essential infrastructure, and offering greater reassurance and opportunities to encourage investors. Driving more long-term capital into the sector will allow us to deliver the volume of housebuilding we need year on year to meet enduring housing needs.

Reclassifying housing as infrastructure can take the housebuilding revolution to the next level.

*Campbell Lutyens Infrastructure Market Report H2 2023