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From medieval pensions awarded for service to the King to today’s global trillion-pound investment vehicles, pensions have transformed from gestures of royal generosity into a cornerstone of modern welfare.
Throughout history, they’ve evolved to reflect society’s changing needs and seek income in retirement. Now, that evolution has reached a new level: pension funds are helping to tackle one of the most pressing issues of our time – the shortage of affordable housing.
Cracks in the foundation – the housing shortage
According to the Centre for Policy Studies1, the UK is short of 6.5 million homes compared to European averages. That’s based on having only 446 homes per 1,000 people. To close this gap by 2040, the UK would need to build 565,000 homes per year, far above current targets.
The National Housing Federation (NHF) 2 states that poor housing costs the NHS approximately £1.4 billion per year, and societal costs are estimated at £18.5 billion annually.
Without significant intervention, the NHF warns that, by 2045, projections show:
▪ Children in temporary accommodation could rise to 310,000
▪ Social housing waiting lists may exceed 1.8 million households
▪ 5.7 million households could be spending a third of their income on housing
The UK faces a persistent shortfall in housing supply, particularly when it comes to social and affordable homes. At the same time, property prices have outpaced income growth over the long term, placing intense financial pressure on middle- and lower-income households, together with younger individuals. This affordability crisis doesn’t just strain budgets – it ripples through society.
Recognising the urgent need, the UK government announced a £39 billion commitment (July 2025 Spending Review) to social and affordable housing, marking the largest public investment in a generation.
However, long seen as the domain of government and charities, the affordable housing problem can no longer be solved with public funding alone.
Pension investments into affordable housing are increasingly vital – not just for seeking returns for pension savers, but for broader social impact.
Public meets private – Mansion House Accord
In July 2023, the UK government introduced the Mansion House Compact, a landmark agreement between DC pension schemes and the treasury. Under this Compact, several of the country’s largest pension providers (including L&G) pledged to allocate at least 5% of their assets into unlisted equities by 2030.
In May 2025, a new Mansion House Accord was formed with a commitment from signatories to allocate at least 10% of DC default fund assets to private markets by 2030 – with a minimum of 5% directed toward UK based investments. According to the UK government, this shift could unlock up to £50 billion in funding for critical sectors such as property.
While framed as a move to boost UK economic growth and support domestic startups, the initiative also opened the door for significant investment in affordable housing and regeneration projects.
The idea is to align pension funds’ objective to aim to deliver long-term, inflation-linked returns for pension savers with the country’s need for sustainable, affordable places to live.
Do DC savers want their money invested in affordable housing?
This all reflects a broader shift: pension capital could go beyond growing retirement pots and also help support and rebuild the nation’s infrastructure.
But what do DC savers think about pension money being used in this way? To find out, we surveyed 4,411 UK pension savers, exploring their views on affordable housing from both a social and financial perspective.
Released in July 2025, our latest DC pensions research – Savings to shelter: Pensions’ role in addressing the UK housing crisis – found that nearly all pension savers surveyed (97%) felt it’s important to address the issue – both to buy and rent.
Worryingly, our research highlighted that most renters surveyed want to own a home in the future, but 20% of renters don’t think they will ever be able to afford it.
The Pensions Policy Institute 3 forecasts a significant rise in the number of households renting in retirement, with projections indicating a potential increase to 3.6 million by 2041 – including an estimated 1.7 million households in the private rented sector.
This growing trend raises serious concerns for those aspiring to homeownership and underscores the urgent need for more affordable and sustainable housing solutions.
In fact, over half of renters surveyed said they are very/extremely concerned that someone in their household might be impacted by the lack of affordable housing in the future. This was echoed by 37% of homeowners.
Our research further illustrates the affordability challenge. Renters said they are struggling with increased rental costs, while homebuyers said they face difficulties in saving for a deposit and affording mortgage payments.
Beyond examining the societal need for affordable housing, we also sought to gauge respondents’ broader views on property as an investment.
When asked if property in general is a good investment for retirement, 74% of pensions savers agreed it was. The renters category had the highest support at 77%.
There were slight variances in generational splits among pension savers, with Gen Z and Millennials leading the way at 80%. Gen X and Boomers came in at 77% and 74% respectively.
Attitudes to pensions being used specifically for affordable housing were similar. Approximately two-thirds agreed that investing pension money in affordable housing is a “win-win” situation, offering potential returns on investment while also helping to address the high costs of housing.
Over half of pension savers noted they would pay a little bit more for a pension which included investments in affordable housing, rising to 67% of Gen Z. From a monetary perspective, 83% said they would pay more than £50 extra a year and 33% said they would pay more than £100.
Overall, 73% of all pension savers surveyed said they were happy with pension companies using their money in this way.
When determining the priority for pension providers to support affordable housing development, homes for low-income families, first-time buyers and retirees emerged as the most favoured options.
The investment building blocks
Based on our research, pension savers support the public and private aim to address the UK housing crisis.
Property and infrastructure have long been staples in pension funds, seeking inflation-linked returns. Affordable housing, however, is a more recent entrant, emerging as a core component of private markets. As DC pension schemes increasingly diversify into private markets, affordable housing is starting to shape long-term investment strategies.
Our Private Markets Access Fund (PMAF) and default Lifetime Advantage Funds (LAF) are examples of this, including affordable housing building blocks as part of their overall investment mix.
Pensions have always been a reflection of the times – and today, they are being used to help deliver more than ever before.
The Mansion House Accord is just one example of how policy and capital are converging to tackle long-standing societal issues. Affordable housing, once seen solely as a government responsibility, is becoming a shared mission — where pension funds are not just observers, but active builders of the future.
As pension savers seek long-term returns, the call is clear: invest not only for the retiree, but for the society they retire into.
Project Examples
A London-based project seeks to deliver sustainable, high-quality rental accommodation for over 1,500 residents and over 50k square feet for commercial use in Wandsworth. The scheme includes 35% affordable housing and is one of the UK’s largest developments, helping tackle the critical housing supply shortage. (LAF and PMAF)
A Scotland-based project provides 346 apartments in Glasgow together with a range of retail and commercial units at ground floor level creating an attractive and accessible public space. This scheme is designed to meet the increasing demand for affordable and high-quality city centre rental accommodation of 325,000 square foot. (PMAF only)
In Cardiff, we’ve delivered 318 build-to-rent homes located in the heart of Central Square, partnering with the Welsh government and Rightacres Property. The built project was awarded the Resident Choice Awards (Homeviews) 2025 as the top-rated rental-only community in the southwest of England and Wales. (LAF only)
Based in the US, Homestead Communities is a manufactured housing platform. The company is dedicated to addressing the affordable housing crisis by providing safe, clean, and supportive communities for working families and retirees where they can own or rent affordable, high quality manufactured homes. The affordable price point and very limited supply within the US residential space support growth in the sector. (PMAF only)
*Source: L&G. Information and data as at July 2025 and is subject to change. Case study is shown for illustrative purposes only. The information does not constitute a recommendation to buy or sell a security.
Our ‘savings to shelter’ research examined perspectives across genders and generations, capturing insights from both homeowners and renters. It also explored how the attitudes of those actively saving for retirement compare with those already retired. You can read the full report here.
1 Centre for Policy Studies. 2 National Housing Federation. Assumptions, opinions, and estimates are provided for illustrative purposes only. There is no guarantee that any forecasts made will come to pass. 3 Pensions Policy Institute UK Pensions framework series. Assumptions, opinions, and estimates are provided for illustrative purposes only. There is no guarantee that any forecasts made will come to pass.
