Whitehall looks to pension funds for project financing as banks withdraw long-term lending
The eurozone crisis has left the government engaged in a race against time to persuade pension funds to invest in construction and infrastructure projects as traditional bank lending dries up, experts have claimed.
Richard Threlfall, KPMG’s UK head of infrastructure, building and construction, said that the availability of bank funding for construction had now fallen back to “2008” levels, and claimed attracting institutional funding was now a matter of “life and death.”
The warning came as chancellor George Osborne prepares to use his autumn spending review at the end of this month to announce a £50bn programme of investment in infrastructure projects, expected to be based on attracting institutional investors. A new housing strategy, to be published on Monday, will also focus in part on garnering institutional investment to
Osborne also this week announced a review of PFI designed to attract pension funds to put money into revamped PFI-style schemes in future.
Threlfall told Building: “It is not just a matter of value for money, it is becoming a life and death issue of whether there is a source of long-term finance for these projects in the near future.”
He said the government was right to look to pension funds for long-term project investment as this ought to be cheaper than that provided by banks. But he underlined the stakes by predicting the eurozone crisis would see banks stop long-term lending to UK construction projects entirely.
“This is no idle worry,” he said. ”One lender has already decided that it will only lend short term. There is an expectation that by 2012 the whole market will have followed suit.”
The previous Labour administration tried hard to get institutions to put money into housing and school schemes with limited success.
Steve Beechey, group investment director at Wates, said institutional funds could not cover all required funding.
He added: “With institutional investors unlikely to provide capital for the riskier, early stages of projects, this would create a dilemma in terms of where the initial funding comes from.”
Building understands the forthcoming housing strategy will include reforms to Real Estate Investment Trusts and to stamp duty for bulk purchases designed to boost institutional investment in the private rented sector.
Steve Partridge, director of financial policy at the Chartered Institute of Housing, said: “We expect to see quite an emphasis on institutional investors. It is the key to new supply.”
The strategy will be split into three sections: affordability; housing supply; and quality.
The housing supply section will include identification of more public land for homes and a consultation on ways to reform the Right-to-Buy initiative to generate money for new housing.