PLANS for a £150 million fund to invest in more than 1,000 homes across Scotland have been hailed as an “excellent” move by the country’s newly appointed private rented sector “champion”.
Fund manager Hearthstone Investments, which specialises in residential property, has already secured £30m from Falkirk Council Pension Fund.
Hearthstone chief executive Chris Down told Scotland on Sunday that the firm is now in talks with other local authorities and government pension schemes in a bid to create more than 1,000 affordable, social and private rented homes.
Gerry More, a former chairman of Homes for Scotland, took up his post as the trade body’s private rented sector champion last month and said Hearthstone’s model was “exactly the sort of template that we’re looking to create”.
He added: “It’s a very encouraging first step for a council pension fund to amend their mandate to invest in new-build rental properties. It’s something I’d like to see others having a look at.”
According to the Scottish Government, 465,000 new homes are required by 2035, and Homes for Scotland last year asked the London School of Economics and Cambridge Centre for Housing & Planning Research to examine ways of boosting construction. One key recommendation was to develop a prospectus to attract institutional money back into new rental housing – an area that pension funds largely withdrew from in the 1970s.
Alastair McGirr, pensions manager at Falkirk Council Pension Fund, said: “The lack of affordable and social housing is an increasingly important policy matter and this represents a significant step forward. We chose Hearthstone because of its sector specialism, customised approach and track record in delivering strong returns.”
The Housing Fund for Scotland’s private rented activities are expected to focus on the central belt, along with other areas of “strong and stable” rental demand such as Aberdeen and Dundee.
It is also targeting corporate pension schemes, but Down believes the strongest market will be local government funds “because there’s been a rising trend among those to make ‘impact investments’ – ones that meet their financial criteria but also benefit the local economy”.
He added: “One of the challenges for pension schemes is generating long-term and low-volatility returns to match their obligations to pensioners that are inflation-linked. Residential property is a very good way of securing inflation-linked returns.”
Council pension schemes across the UK hold investments worth more than £200 billion, of which about £15bn is invested in property – although commercial offices make up the bulk of that figure.
Down said: “We agreed with Falkirk that we would launch the Housing Fund for Scotland to give other local government pension schemes around the country the opportunity to create a much larger fund.
“Although new housing starts have improved slightly, activity in Scotland is still about 40 per cent down on what it was prior to the financial crisis, but demand for housing has not dropped at all. Over the past eight years, there has been a growing gap caused by that shortfall in supply, so it’s an important opportunity for investors to try to fill that.”
More said that he had spoken to other fund managers that have expressed an interest in this market “and the next tie-up is with the development community to deliver the product”.