Legal & General Capital is to pay annuities from the rental income generated by 3,000 new homes as part of a £600m deal with a Dutch asset manager.
The “build to rent” partnership with PGGM – which is involved in similar schemes in the Netherlands and US – will start by building 650 properties in Bristol, Salford and Walthamstow.
Rents will be used by L&G to pay annuities and will be open to institutional investors as an asset class.
L&G has become increasingly involved in residential property, purchasing housebuilder Cala in 2013 and signing a deal with Laing O’Rourke in 2015.
But this is the first time the insurer has built properties to rent.
L&G Capital managing director Paul Stanworth says: “The UK rental market, compared to the US and Europe, is dysfunctional, with ever increasing rents and increasingly poor accommodation.
“For this to change, and renting to become more affordable, we need to invest in the ‘new’, and build new homes to rent, and just stop inflating the prices of old housing stock. At Legal & General we’re going to play our part by disrupting the market, and invest significant sums of long-term institutional money to build new rental housing, and develop a UK institutional rental market.”
PGGM investment director real estate Mathieu Elshout says: “Investing in residential is the perfect long-term real estate investment, as it provides a relatively high income security and diversification relative to other sectors. This partnership allows us to build and own good quality residential assets in the UK at scale, with a high degree of control over our investments.”