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Private equity firms and pension funds are betting on rental homes in the UK, spending record sums in the past two years amid rising demand and a housing affordability crisis.
Deals to buy or build single-family rental homes exceeded £1.5 billion by the end of September, more than three times the amounts distributed in the whole of 2021 or 2022, according to data from estate agency Savills. This followed a record £1.9bn in deals last year.
Investors are increasingly preferring single-family homes to large blocks of apartments, known as multi-family developments, as they hope to attract more stable, long-term tenants, and because homes are easier to build within the UK's restrictive planning system.
“We believe single-family will be the largest dominant asset class within (residential),” said James Stevens, head of global real estate investment at Aviva, which has invested around £600m in the sector since 2020.
The share of new rental investment in the UK going to single-family homes rather than multifamily complexes reached 54 per cent in the year to September, up from 32 per cent the previous year and just 5 per cent in 2019, Savills said.
Investors acquired nearly five thousand homes in the first three quarters of the year, a 20 percent increase on the same period last year, according to Savills.
UK organizations including Aviva, L&G and Lloyds are joined by a growing number of international companies. It was bought by Blackstone, the world's largest real estate investor About 4,500 homes for rent From Vestry since late 2023, in two deals worth £1.4bn.
Blackstone, which has long invested in housing in the United States, has acquired tens of thousands of homes in Europe, and in the United Kingdom it has focused on financing new construction. The group's UK residential businesses have a portfolio of 17,000 affordable homes – and are now expanding rentals into the open market too.
The Canada Pension Plan Investment Board (CPPIB) launched a £1-billion joint venture with property manager Kennedy Wilson in October to invest in single-family homes, with an initial investment of £500 million.
A separate £750m joint venture was launched in November between private capital management firm Greykite and property group Gatehouse, which already has a strategy with the Carlyle Group. Sigma Capital Group, one of the first players in this sector, has expanded its portfolio to include more than 8,500 homes.
Critics see the influx of private capital into rental properties in various countries as an indictment of the housing crisis that has prevented many families from home ownership, leaving them forced to live in chaos. Rent for a longer period At the mercy of huge rent increases.
Institutional investment in rental homes in the UK remains at a low level compared to other countries, with major investors owning just 3 per cent of rental homes – compared to 37 per cent in Germany and 41 per cent in the US.
Investors say institutionally owned rental homes offer more stability and higher standards than those managed by small private landlords – and that their plans will increase the total number of homes being built over time. Home Builders Sales They fell.
“Institutional investment can play an important role in adding new supply while generating stable inflation-linked returns for end investors,” said James Seppala, head of European real estate at Blackstone.
Last year, investors could expect discounts of 15 to 20 per cent on unsold homes from major developers, who faced a slump in demand after Liz Truss's “mini” Budget in 2022 led to a rise in mortgage rates.
“A big part of (the deals in 2023) may have been housebuilders struggling to sell their for-sale products,” said Piers de Winton, head of national residential investment at Savills. “A big part of what has happened this year is housebuilders are thinking more broadly.” More strategic.
These cuts have diminished as developers reduce their production, posing a challenge to investors. Some are also buying land and contracting with housebuilders to deliver new properties.
Some private equity managers hope to build large investment portfolios that they can sell to pension funds, which like the steady income generated by rental homes. Blackstone concluded one of the first such deals, selling 3,000 shared ownership homes worth £405m to the UK's largest private pension fund, University Pension Scheme.
