Local government pension schemes could fund more than 20,000 new homes, almost a fifth of the number built in England and Wales last year, according to property fund manager Hearthstone Investments. Investing 2.5 per cent of their capital in property the schemes could ease the housing crisis, without any additional funding, it claims.

Hearthstone chief executive Christopher Down, said: “Despite a modest upturn in house building in 2013, the UK continues to face significant challenges in addressing the shortage of supply in new homes.”

The manager highlighted Islington Council’s decision in November to invest £20m of its £800m assets in the TM Hearthstone UK Residential Property Fund, which last Summer became the UK’s first regulated residential property fund. The fund aims to match the average increase in UK house prices by investing in private rented homes.

“The recent landmark investment by Islington Council in the Hearthstone Fund provides a case study for how investment by Local Government Pension Schemes can play a role in alleviating this crisis without requiring new sources of capital at a time of austerity,” Down said.

“We expect to see other schemes follow the precedent set by Islington over the coming months, which will provide a vital boost for the supply of housing in this country.” Repeated across the £157bn held in the 89 Local Government Pension Funds in England and Wales, Islington’s 2.5 per cent allocation would fund the 24,215 homes, on average house prices, the manager calculates.

Islington Council executive member for finance and performance Cllr Richard Greening, said Islington’s decision was based on expectations of good long-term returns, but acknowledged the impact on housing.

“We look forward to other pension schemes joining the fund and to starting a mass movement which will help to increase the supply of much needed new housing in our country,” he said.

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