Stay informed with free updates
Just enter the UK property myFT Digest — delivered straight to your inbox.
Private equity firms and pension funds are betting on UK rental housing, spending record sums over the past two years amid strong demand and a housing affordability crisis.
Contracts to buy or build single-family rental homes reached £1.5bn at the end of September, more than three times more than the sums booked in 2021 or the whole of 2022, according to data from estate agency Savills. This follows a record £1.9bn in deals last year.
Investors are increasingly favoring single-family homes over large blocks of flats, known as multi-family developments, as they hope to attract stable, long-term tenants and because it is easier to build houses within the UK's restricted planning system.
“We believe single family will be the largest asset class within (residential),” said James Stevens, head of real estate investment at Aviva, which has invested about $600 million in the sector since 2020.
The share of new rental investment in the UK into single-family homes rather than multi-family blocks reached 54 per cent in the year to September, up from 32 per cent a year earlier and just 5 per cent in 2019, Savills said. .
Investors snapped up almost 5,000 homes in the first three quarters of the year, up 20 per cent from the same period last year, according to Savills.
UK institutions including Aviva, L&G and Lloyds are joined by a growing number of international firms. Blackstone, the world's largest investor, bought it about 4,500 rental homes from Vistry from the end of 2023, in two deals worth £1.4bn.
Blackstone, which has long invested in real estate in the US, has bought tens of thousands of homes in Europe, and in the UK is focusing on financing new buildings. The UK's group housing businesses have a portfolio of 17,000 affordable homes – and are now increasing the rents of the open market significantly.
The Canada Pension Plan Investment Board (CPPIB) launched a partnership with housing magnate Kennedy Wilson in October worth £1bn to invest in single-family homes, with an initial investment of 500mn.
The £750mn joint venture was launched in November between private equity firm Graykite and real estate group Gatehouse, which already has a plan with the Carlyle Group. Sigma Capital Group, the first player in this sector, has expanded its portfolio to over 8,500 homes.
Critics see the influx of private capital into rental property in various countries as the cause of the housing crisis that has locked many families out of home ownership, and left them long term rent at the mercy of increased rent.
Institutional investment in rental properties in the UK remains at a low level compared to other countries, with only 3 per cent of rental properties owned by major investors – compared to 37 per cent in Germany and 41 per cent in the US.
Investors say that institutional rental housing offers stability and higher standards than those managed by small landlords, and that their plans will increase the total number of housing units built over time. home builders ads they have fallen.
“Institutional investment can play an important role in adding new supply while generating sustainable, inflation-adjusted 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 are facing a slump in demand after Liz Truss's 2022 budget raised mortgage rates.
“A large part (of the deals in 2023) were home builders who are probably struggling to sell their retail product. “A big part of what happened this year is housebuilders thinking more strategically,” said Piers de Winton, head of national investment at Savills.
Those discounts have shrunk as developers cut back on production, posing a challenge for investors. Others are also acquiring land and contracting real estate firms to deliver new buildings.
Some of the private sector managers are hoping to build large portfolios that they can sell to pension funds, such as fixed income from rental homes. Blackstone has pulled off one of the first such deals, selling 3,000 shared ownership homes worth £405mn to the UK's largest private fund, the University Superannuation Scheme.