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Private equity firms and pension funds are betting on British rental houses, spending record sums in the past two years amid rising demand and a crisis in housing affordability.
According to data from real estate agency Savills, deals to buy or build detached homes totaled over £1.5bn to the end of September, more than three times as much as in all of 2021 or 2022. This was followed by a record £1.9bn of transactions last year.
Investors are increasingly favoring single-family homes over large blocks of flats, known as apartment buildings, because they want to attract more stable, long-term tenants and because houses are easier to build within the UK’s restrictive planning system.
“We believe single-family homes will be the largest mainstream asset class in (residential),” said James Stevens, head of global real estate investment at Aviva, which has invested around £600 million in the sector since 2020.
The proportion of new rental investment in the UK that went into single-family homes rather than multi-family homes reached 54 percent in the year to September, up from 32 percent the year before and just 5 percent in 2019, Savills said.
According to Savills, investors bought almost 5,000 homes in the first three quarters of the year, 20 percent more than in the same period last year.
British institutions such as Aviva, L&G and Lloyds are being joined by a growing number of international companies. Blackstone, the world’s largest real estate investor, has bought approx. 4,500 rental apartments from Vistry since the end of 2023, in two deals worth £1.4 billion.
Blackstone, which has long invested in homebuilding in the United States, has acquired tens of thousands of homes in Europe and has focused on financing new construction in the United Kingdom. The group’s UK housing companies have a portfolio of 17,000 affordable homes – and are now expanding into open market lettings.
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 formed in November between private capital manager Greykite and property group Gatehouse, which already has a strategy with Carlyle Group. Sigma Capital Group, an early player in the industry, has expanded its portfolio to more than 8,500 homes.
Critics see the influx of private capital into rental properties in various countries as a sign of the housing crisis, which has excluded many families from home ownership and leaves them to live there rent longer They are at the mercy of steep rent increases.
Institutional investment in rental housing in the UK remains at a low level compared to other countries: only 3 percent of rental housing is owned by large investors – compared to 37 percent in Germany and 41 percent in the US.
Investors say institutionally owned rental properties offer more stability and higher standards than those managed by small, private landlords – and that their plans will increase the total number of homes built at the same time Sales of home construction companies have fallen.
“Institutional investment can play an important role in expanding 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 percent on unsold homes from major developers who faced a drop in demand after Liz Truss’s “mini” Budget in 2022 hiked mortgage rates.
“A large portion (of deals in 2023) probably had difficulty selling their product for sale. “A big part of what has happened this year is because housebuilders are thinking far more strategically,” said Piers de Winton, head of national residential investment at Savills.
These discounts narrowed as developers reduced their production, creating a challenge for investors. Some also purchase land and commission house building companies to deliver new properties.
Some of the private equity managers hope to build large portfolios that they can sell to pension funds that like the steady income from rental properties. Blackstone completed one of the first deals of its kind, selling 3,000 residential apartments worth £405 million to the UK’s largest private pension fund, the Universities Superannuation Scheme.
