The business will be a subsidiary of its Legal & General Capital arm which invests into sectors where there has been a shortage of investment and innovation, focusing on growth opportunities and scale ups.
An L&G spokeswoman confirmed that the organisation would be using its modular homes business to deliver some of the demand, along with other external builders.
“We are strongly supportive of the underlying need for modern approaches to house building and we will be working both with internal teams and also identifying best in class external partners to realise the ambitions for this business,” she said.
Evolution of sector
L&G said the new business will “lead the evolution of the affordable housing sector with an aim to become the leading private affordable housing provider in the UK”.
It noted that the UK continues to have a chronic shortfall of over 100,000 homes per year with this being particularly stark in the affordable housing sector.
More than 1.3m households are on waiting lists but an average of only 30,000 properties a year have been added over the last 10 years.
All areas of the affordable housing market will be targeted including new build Section 106 and grant-funded affordable rent, social rent and shared ownership units.
In March, Legal and General bought the 52.1% of builder CALA Homes previously owned by Patron Capital Partners and added that to its L&G Capital portfolio.
Head of affordable housing Simon Century noted that many housing associations are becoming increasingly highly leveraged, as they have funded significant amounts of development through debt funding for many years.
“They have no ability to raise equity and maintain a sustainable financial structure – therefore forcing many to significantly limit their growth ambitions,” he said.
Instead, Century said Legal & General Capital is building “a more natural and sustainable model” where institutional investors are the long-term holders of the assets working alongside affordable housing operators.
Legal & General CEO Nigel Wilson added: “Despite the fact that the UK is a great place to invest, thirty years of underinvestment have led to poor productivity, low real wage growth and numerous market failures.
“Affordable housing is a classic example of underinvestment with minimal new equity capital being deployed to the sector. This is not a sustainable position – either for the sector or for the 1.3m households currently on a waiting list.
“This important sector has now been added to Legal & General’s £15bn UK direct investment programme.”