The UK faces a housing crisis, with demand far outstripping supply. In this article, we explore how Defined Contribution (DC) schemes can, under the Mansion House Accord, invest in affordable housing to deliver inflation-linked returns while creating safe, secure homes and supporting UK growth.
A moment where market meets mission
UK pension funds are being asked to play a central role in the country’s renewal. The Mansion House Accord set out a bold ambition: to unlock up to £50bn of Defined Contribution (DC) pension scheme capital into private markets by 2030, much of it in UK-based assets.1,2
To make that vision real, schemes must find investments that deliver strong returns and visible benefits for society. Affordable housing is one of the few that can do both.
It can deliver dependable, inflation-linked returns, backed by deep and enduring demand. At the same time, it creates something members can see and touch – safe, secure homes for people who need them most.
As Sian Roberts, Institutional Sales Director at Octopus Capital, explains: “This moment marks the intersection of pension reform, social need and capital-market innovation.”
Why affordable housing fits the bill
The UK’s housing shortage is one of the country’s most pressing challenges. Successive governments have pointed to the need for around 300,000 new homes every year just to keep pace with demand.3,4 That shortfall represents a significant opportunity to invest in one of society’s most fundamental needs – quality, affordable homes that strengthen communities and support long-term social and economic stability.
The high level of demand for affordable housing results in high occupancy levels, which in turn, provides a stable income profile for investors. The case is strengthened by the quality of cash flows: in affordable and social rent models, rents are supported by regulatory frameworks and housing-benefit systems, which underpin both affordability for residents and stability for investors.
Crucially, affordable housing is also DC-ready. With the right structures, strategies can sit comfortably within the 0.75% charge cap, provide regular valuations, and deliver the transparency trustees need.5 Increasingly, pension consultants are recognising affordable housing as core social infrastructure. That classification makes it eligible within both real asset and ESG allocations, and a natural candidate for productive private market exposure.
Affordable housing also delivers strong diversification benefits, with returns that show low correlation to listed markets – adding resilience to default portfolios.
Roberts puts it simply: “Affordable housing offers inflation-linked income, social impact and UK real-asset exposure – all within reach of DC investment parameters. The tools are there – it’s about choosing the right platform and partner.”
Importantly, affordable housing not only provides environmental value, but also delivers social and financial benefits – supporting national housing needs while contributing to the UK’s transition to net zero.
Decarbonisation members can feel
Energy efficiency is no longer a secondary consideration – it has become central to the investment case.
Poorly insulated homes drive up energy costs for residents and increase arrears risk. By contrast, new-build affordable housing can be delivered to high efficiency standards, helping households reduce costs while strengthening the resilience of income streams for investors.
Within Octopus Capital’s Affordable Housing strategy, we’ve already delivered our first Zero Bills™ homes in Epping – with more to follow across our growing portfolio. These homes combine high insulation with solar panels, a heat pump and a battery, all orchestrated by smart technology, so residents face no energy bills for up to 10 years (subject to eligibility and scheme design).6
For investors, this demonstrates how affordable housing can deliver measurable decarbonisation outcomes while maintaining financial strength – tangible, real-world impact that members can relate to.
For trustees, it underlines why affordable housing aligns so closely with the demands of this moment: supporting national decarbonisation targets while easing financial pressure on households.
Member sentiment is shifting
Savers increasingly want their pensions to work harder – not only for retirement, but for the society they will retire into. Polling shows that more than half of UK savers prefer their pension invested in the UK, even if it means slightly lower returns.7 Another UK-wide survey found that 97% of respondents see the housing crisis as urgent, and two-thirds view affordable housing as a win-win for financial returns and social good.8
This shift is most pronounced among younger members.
As Roberts notes: “There’s a generational shift in expectations. Baby boomers may not have prioritised impact in the same way, but younger savers increasingly want to see their money working harder for society as well as for their retirement.”
For trustees, this is clear permission to act. Allocating to affordable housing does not only make sense financially; it aligns with the values of the members they serve.
The liquidity question – and how to answer it
Liquidity is often seen as a stumbling block for DC investors, but in practice it can be managed. There is an established secondary market across private markets, offering a mechanism for investors to access existing, income-producing portfolios, particularly during periods when primary redemption liquidity may be limited.
Another important mechanism is shared ownership. When residents buy additional equity in their homes – known as staircasing – it generates regular receipts for funds. In 2023 alone, shared ownership sales across the sector produced £740m, with around 2–3% of homes staircasing to full ownership each year.9 At Octopus Capital, we’re seeing regular staircasing activity across our own portfolio – a reminder that in practice, these portfolios are cash generative and, over time, can offer liquidity.
As Roberts puts it: “Liquidity in private markets isn’t binary. Mechanisms like staircasing and secondaries can provide flexibility and cash flow, while the underlying income profile remains strong and dependable.”
From capital to community
Deploying institutional capital into affordable housing goes beyond balance sheets. It requires building the right partnerships to deliver homes at scale.
That means working closely with housing associations, developers and local authorities to unlock sites, accelerate planning and bring forward new supply. It also means operating through regulated provider models, which ensure strong governance and oversight.
Transparency is another vital piece. Investors increasingly expect clear reporting on both pipeline and outcomes, from arrears and rent affordability to EPC ratings and local jobs supported.
At Octopus Capital, that includes detailed reporting on Zero Bills™ performance, showing how investment in affordable housing can contribute to both social and environmental progress.
Roberts summarises it well: “It means building long-term partnerships – and turning capital into homes people actually live in.”
LGPS has shown the way. DC can follow.
Local Government Pension Schemes have already proven the model. Funds such as London CIV have committed nearly £470m to UK housing,10 including £108m into Octopus Capital’s Affordable Housing strategy, alongside other LGPS investors such as Strathclyde. Their motivations – long-term stability, inflation protection and measurable impact – are precisely those that resonate with DC.
“With the right structures and transparency, DC schemes can absolutely follow the LGPS model,” says Roberts.
If even a fraction of the £50bn targeted by the Mansion House Accord were directed into affordable housing, DC schemes could eclipse current LGPS flows and make a material difference to supply, while capturing inflation-linked UK income streams that fit neatly within default objectives.
A strategic building block for the future
Affordable housing goes beyond policy ambition; it’s a strategic, scalable building block for DC portfolios.
It can offer reliable, inflation-linked income with diversification benefits and low correlation to listed markets. It provides visible social outcomes that resonate with members and employers alike. It gives schemes exposure that supports the UK economy. And it aligns with the UK’s net zero ambitions by delivering homes that are both affordable and efficient.
As Roberts concludes: “Affordable housing doesn’t just meet the criteria for investment – it delivers on policy, performance and purpose.”
Proven in practice
Octopus Capital’s Affordable Housing strategy has already provided safe, secure homes for more than 500 families, with another ~500 in contract and ~1,000 in pipeline across the UK. With over £460m ($600m) committed as new LGPS partners join – the strategy is demonstrating how institutional capital can deliver both scale and speed.
The focus is not only on volume but also on quality. Homes are being delivered to high efficiency standards, including pioneering Zero Bills™ pilots that demonstrate what sustainable and affordable living can look like in practice. As the strategy grows, DC schemes are the natural next partners in turning long-term savings into long-term solutions.
Want to explore how affordable housing could fit within your DC portfolio?
Get in touch to see how Octopus Capital could support your goals.
1 HM Treasury. Mansion House Reforms: unlocking investment in productive finance. July 2023.
2 Department for Work and Pensions (DWP). Supporting DC schemes to invest in productive finance. 2023.
4 House of Lords Built Environment Committee. Meeting housing demand. 2022.
5 The Pensions Regulator. Charge cap guidance for DC default arrangements. 2024.
6 Octopus Energy. Octopus launches global Zero Bills™ Standard for energy-bill free living.
7 PensionsUK / PLSA. Half of pension savers show preference for UK investment.
8 Legal & General: Renting into retirement: The future cost of the affordable housing crisis
10 London CIV. London LGPS investment in UK housing reaches £470m. Press release, 2023.
