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Private equity firms and pension funds are betting on Britain’s rental housing, spending record amounts over the past two years amid soaring demand and a house price crisis.
The value of transactions for the purchase or construction of detached rental homes exceeded £1.5 billion by the end of September, more than three times the amount deployed in the whole of 2021 or 2022, according to data from estate agent Savills. This followed a record deal of £1.9bn last year.
Investors prefer detached houses to large flats, known as multifamily developments, because they want to attract more stable long-term tenants and because it is easier to build homes within the UK’s restrictive planning system. I’m starting to like it more and more.
“We think detached homes will become the biggest mainstream asset class in the (housing) space,” said James Stephens, global head of real estate investment at Aviva, which has invested around £600m in the sector since 2020. spoke.
Savills said the share of new UK rental investment in detached homes rather than apartments reached 54% in the year to September, up from 32% a year earlier and just 5% in 2019. said. .
Savills said investors bought nearly 5,000 homes in the first three quarters of this year, an increase of 20% on the same period last year.
More and more international companies are joining UK institutions such as Aviva, L&G and Lloyds. Blackstone, the world’s largest property investor, has bought around 4,500 rental homes from Vistry in two deals worth £1.4bn since the end of 2023.
Blackstone has been investing in homes for years in the US, has taken over tens of thousands of homes in Europe and is focused on financing new homes in the UK. The group’s UK housing business has a portfolio of 17,000 affordable homes and is now also expanding its open market lettings.
In October, the Canada Pension Plan Investment Board (CPPIB) launched a £1 billion joint venture with real estate manager Kennedy Wilson to invest in single-family homes, with an initial investment of £500 million. It became.
In November, another £750m joint venture was launched between private capital manager Greykite and property group Gatehouse, which already has a strategy with Carlyle Group. Ta. Sigma Capital Group, an early player in this space, has expanded its portfolio to over 8,500 units.
Critics point to the influx of private capital into rental properties in various countries as an indictment of a housing crisis that has forced many families to lock out homeownership and live in long-term rentals at the mercy of steep rent increases. I’m looking at it.
Institutional investment in rental housing in the UK remains low compared to other countries, with only 3% of rental housing owned by major investors (compared to 37% in Germany and 41% in the US).
Investors argue that institutionally owned rental housing is more stable and has higher standards than those managed by small private landlords, and the plans are being built at a time when sales for home builders are falling. They argue that this will increase the total number of housing units.
James Seppala, head of European real estate at Blackstone, said: “Institutional investors can play a key role in increasing new supply while generating stable, inflation-linked returns for end investors. ” he said.
Last year, investors received discounts of 15-20% on unsold homes from major developers who faced weak demand after mortgage rates were hiked in Liz Truss’ 2022 “mini” budget. I was hopeful.
“The majority of[2023 deals]will probably be home builders struggling to sell product for sale. A big part of what’s happened this year is home builders thinking much more strategically. “That’s the case,” said Piers de Winton, head of national residential investment at Savills.
Those discounts have narrowed as developers cut production, creating a challenge for investors. Some companies acquire land and contract with housing construction companies to deliver new properties.
Some private equity managers hope to build large portfolios that they can sell to pension funds, such as the steady income that comes from rental housing. Blackstone has completed one of the first such transactions, selling 3,000 shared ownership homes worth £405 million to the UK’s largest private pension fund, the University Pension Scheme.