Planned retrofit ramp-up sees Legal & General’s affordable arm double assets target

Legal & General’s affordable housing arm has doubled its targets for the decade under a new strategy focused on ramping up purchase and retrofit of existing stock.

In an interview with Housing Today, Ben Denton, chief executive at the for-profit provider, revealed that the business had “refreshed all of our strategies at the beginning of the year”, after António Simões took over as chief executive of the parent company.

Under its previous strategy, L&G Affordable Housing (LGAH) was expecting to grow to have between £3bn and £3.5bn in assets under management by the end of 2029, which Denton said would equate to between 25,000 and 30,000 homes.

“As a result of refreshing our strategy, the aim was to double that growth,” he said,putting the new target as high as £7bn.

Denton said LGAH’s plan to ramp up to build 3,000 affordable homes a year would be “exactly the same within the plans” and that “what we layered on top is effectively purchase and retrofit of existing homes”.

He said this approach was driven by the fact that “capacity in the sector is shrinking”, opening an opportunity for institutional capital.

“[Simões] reset the capital strategy of the business in the middle of the year and he saw that affordable housing was a really important component of using capital to deliver a really societally useful outcome,” said Denton.

He explained that the benefit of the retrofit-focused growth strategy was that “it brings capital into the sector, into those homes, and it benefits the customers”, while taking a cost off under-pressure housing associations, allowing them to recapitalise their business plans. 

Denton said the business was now on a “learning journey” around the best ways to approach retrofitting homes, explaining that there were “lots of different typologies in different places all over the country”.

“What we know is when we move into large scale stock acquisition, you need focus in places, and you need critical mass,” he said.

The idea of critical mass and focusing on constrained geographical areas came up repeatedly in Housing Today’s conversation with Denton.

LGAH typically has about 80 sites in contract and about 50 being built across the country at any one time, but Denton says they are “always looking to grow concentration within certain areas”.

Of its stock under management, about 15% of its homes are in London, 25% are in the rest of the south-east, 15% are in the North and the rest are in the Midlands and the South West.

Going forward, Denton said the strategy was to build a “bigger set of relationships with a certain number of places”.

This consolidatory approach extends to its relationships with the housing associations that manage the homes LGAH owns.

“We are concentrating on a smaller number of management providers with a greater stock in each of their areas, which delivers economies of scale for them, and it delivers a more efficient business from our perspective,” he said.

LGAH recently reduced the number of housing associations it partners with from 13 to 12 and is now looking to reduce that to six.

Denton said he was hoping the new government would make some policy changes to make development easier in some of LGAH’s target markets. 

He explained that complicated urban regeneration schemes in cities outside the capital were difficult under the Homes England’s five-year grant programme for the Affordable Homes Programme. 

He explained the Greater London Authority has its own deal with government around affordable housing spending, other areas are constrained by Homes England’s five-year grant programme for the Affordable Homes Programme.

More complicated urban regeneration schemes are more difficult to deliver within a five year programme, according to Denton, who called for longer term grant settlements with overlap of more than a year between programmes.

“What we’ve been seeing, particularly in the West Midlands and Greater Manchester, is these sort of bigger, longer term schemes that bridge two programs are all stopping,” he said.

He suggested a 10-year programme would make sense, even if it was only for “a proportion of their programme”, for instance by having a separate settlement for large-scale regeneration schemes.

Denton said that handing a similar deal to the GLA’s to other combined authorities under the upcoming devolution deal could also have some benefits.

“You’ve got to build the capabilities of the organisations to be able to run those programs efficiently and effectively within an area and some might be there already,” he said.