Pensions and housing - Pensions PlayPen - 4 June 2024 v3 (1).pdf

Wayhome's analysis of the UK market and how pension schemes can help solve the problems it presents younger people

1. Pension Playpen Online Coffee Morning –4 June 2024
Reinventing Homeownership

2. The problem
2
The UK housing market is broken

3. A whole UK generation is increasingly
locked out of homeownership:
•5.5m households (c. 10m adults)
privately rent, c. 2x in 20 years3
•3.8m households include adult
children, c. +50% in 20 years4
Homes are 8x1 income
Mortgages are 3.2x2 income
Most would need +50% deposit
to buy a standard home
Ordinary homes no longer
affordable for ordinary,
hardworking families
1. ONS ASHE, 2023; Land registry
2. ONS Quarterly House Price data, Q4 2023
3. ONS English Housing Survey 2022-2023, ONS Census 2021,
Scottish Government, Northern Ireland Housing Executive
4. ONS Census 20213

4. 4
The problem
House price inflation has far
outstripped wage inflation
Over the past 25 years house
prices have increased by
288%, while wages have only
increased by 99%
Sources: ONS House Price Index; ASHE (Annual Survey of Hours and Earnings)
£0
£50,000
£100,000
£150,000
£200,000
£250,000
£300,000
1999200020012002200320042005200620072008200920102011201220132014201520162017201820192020202120222023
House prices vs Wages, 1999-2023 (£)
House PricesIndividual Income

5. 5
The problem
In 2023 a full-time employee
could expect to spend over 8
times their annual earnings buying
a home
But the amount a first-time buyer
can borrow with a mortgage is
currently only 3.18 times their
income
Historically, mortgages have been
2.5x-3.5x income, while average
prices have increased from under
5x to 8x-9x income
The LTI flow limit means that
lenders are restricted to no more
than 15% of their lending above
4.5x
x
1x
2x
3x
4x
5x
6x
7x
8x
9x
10x
2002200320042005200620072008200920102011201220132014201520162017201820192020202120222023
Multiple of Income
Housing Affordability in England and Wales, 2002-2023
Ave. property value vs incomeLTI flow limit vs income
Actual FTB mortgage vs income
Source: ONS Housing affordability in England and Wales: 2023

6. 6
The problem
Source: ONS House Price Data May 2024
Today the average first-time
buyer in the UK buys a home
for £249,000 with a £192,000
mortgage
They have a £57,000 deposit
and an average household
income of £60,000
Almost 100% of their gross
salary is required as a deposit
0.00%
20.00%
40.00%
60.00%
80.00%
100.00%
120.00%
140.00%
160.00%
£0
£10,000
£20,000
£30,000
£40,000
£50,000
£60,000
£70,000
19921994199619982000200220042006200820102012201420162018202020222024
Deposit Needed by Ave. FTB as a % of Income
Income Needed by Average FTB (£)
Income and Deposit Requirements for First Time Buyers (whole of UK)
1992 - 2024

7. 7
13% of private rented homes cause a
threat to health and cost the NHS
£340m per year1
Health impact of renting vs owning
is greater than the impact of being
a former smoker vs a never
smoker2
Private renters are twice as likely to
suffer from anxiety3
Renters’ physical and mental
health is at greater risk
Renting is driving major social
risks for the UK
Renters are less connected to
the fabric of society
Harder to quantify, but private
rented sector transience believed
to undermine community
belonging and cohesion
Only 65% of private renters are
registered to vote vs 88% of those
who own with a mortgage or
shared ownership and 95% outright
owners7
The problem
Why does homeownership matter?
Renting-in-retirement could treble
by 20414, consuming 59%–131% of
median retirement income5
Birth rates are much lower among
renters: 46% of mortgagors have
dependent children vs 32% of
private renters6
Unaffordable housing believed to
drive public sector worker attrition,
and disproportionately affects
marginalised groups, eg Muslims
1. Public Accounts Committee Report April 2022
2. British Medical Journal Research, October 2023
3. Joseph Rowntree Foundation Report, Nov 2022
4. Pensions Policy Institute, 2024
5. Scottish Widows, 2023
6. English Housing Survey, 2021-22
7. Electoral Commission, 2022

8. 8
The problem
UK institutional investors are underweight residential property
vs global benchmarks
Why?
1%
Less thanInstitutional investors own <1% of
residential property, the UK’s largest
single asset class. Low by global standards.Hard
to scale
Tough
to predict
Single family homes are c. 85% of
UK market vs c. 71% in the US, c.
41% in Germany, c. 34% in Spain2
Traditionally, hard to cost-
effectively scale and stay
diversified
Legislation has driven an
adversarial and short-term culture
Very short rental periods mean
less predictable cashflows
Landlord control = higher costs
40%
13%6%3%
USAGermanySpainUK
Institutional ownership of multifamily residential, 20221
1. Multifamily Attracts Record Global Investment, Savills, May 2022
2. European Residential Markets 2023/2024, Patrizia

9. 9
Freedom and control
Choice
Security
Aspiring HomeownersInstitutional Investors
Day-to-day maintenance costs eliminated
Diversification and scale
Long-term (inflation-linked) cashflows
Towards a solution
However, institutional investors’ incentives are uniquely well-aligned
with prospective homeowners
Some financial upsideNot ‘extractive’: robust risk-adjusted returns (and
your reputation protected)
Pension scheme membersResponsible pension scheme providers

10. 10
Towards a solution
How can institutional investors help to address the housing crisis?
Back strategies that support the building of dwellings
But don’t forget strategies that re-utilise existing stock – particularly on environmental
impact
Challenge all residential property strategies on their social impact, transparency and
operations
Demand innovative ideas to use your pension scheme capital to help your scheme members
and your community onto the housing ladder – they will thank you for it!
Remember that ESG is more than just ‘E’
Back strategies that address the homeownership affordability problem

11. 11
Towards a solution
Why now?
The housing crisis is acute and it’s only getting worse1
For DB and LGPS schemes that are open, it will be the number 1 financial problem for a high %
of your members2
For schemes that are closed it will be the number 1 financial problem for many of your
members’ children and grandchildren3
Residential property has proven resilient to (and at times thrived in) a global pandemic and a
dramatic interest rate shock – we’re unlikely to see a repeat of 2008 for a long time4
There are innovative models that can offer residential exposure without the expected risks of
old, and technology has helped to make property investment more profitable and less risky5
Rightly or wrongly, the government is asking you to help it address UK issues6

12. 12
Towards a solution
A little plug for Wayhome – how it works
Min 5%
Max 95%
(bought by pension
funds)
The customer buys at least
5% and rents the rest
(there’s no debt)….
On day 1
7%
93%
…they buy more as they go,
whenever they want, reducing
their rent…
In their home
100%
(with a mortgage)
…eventually they buy us out with
a mortgage (est. 7-15 years), or
move on.
In the end

13. 13
Towards a solution
A little plug for Wayhome – where we are and what we can offer
A home worth 2x-3x your
mortgage budget, with only a
5% deposit
With no debt, and no risk of
negative equity
295,000+ registered users
Buying at £60m pa. Capacity
for £150m-£200m pa now, and
multi-billions in the future
Gradual Homeownership:
launched Sept 2021
Backed by an initial £75m of
DB pension fund capital
Secured £75m of DB pension
fund capital in August 2021
Two LGPS investors and one
corporate DB investor
Capital fully-deployed into 222
homes
Actively raising capital: can
offer place-based impact and
member-based incentives
1. Robust risk-adjusted returns
2. Highly scalable
3. Constant, rapid deployment
4. High quality origination
5. ESG
6. Low reputational risk

14. 14
Towards a solution
A little plug for Wayhome – save our socials

15. 15
Nigel Purves
Co-founder & Chief Executive Officer
Phone: [phone]
Email: [email protected]
Q&A