Why affordable housing is right for DC schemes

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. 

Why affordable housing?

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. 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. 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. 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. 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.

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 from Pensions UK shows that more than half of UK savers prefer their pension invested in the UK, even if it means slightly lower returns. Another UK-wide survey from Legal & General 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.

This shift is most pronounced among younger members. 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

 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 Homes England reported that shared ownership sales across the sector produced £740m, with around 2–3% of homes staircasing to full ownership each year.

LGPS has shown the way

Local Government Pension Scheme (LGPS) funds have already proven the model. Funds such as London CIV have committed nearly £470m to UK housing. Their motivations – long-term stability, inflation protection and measurable impact – are precisely those that resonate with DC. 

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. 

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. 

Sian Roberts is head of UK institutional distribution at Octopus Capital