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Private equity firms and pension funds are betting on UK rental houses, spending record amounts in the past two years amid soaring demand and a housing affordability crisis.
Deals to buy or build single-family rental homes had topped £1.5bn by the end of September, more than three times higher than sums deployed in the whole of 2021 or 2022, according to data from estate agency Savills. That followed a record £1.9bn in deals last year.
Investors are increasingly favouring single-family homes over big blocks of flats, known as multi-family developments, as they hope 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 will be the largest mainstream asset class within [residential],” said James Stevens, head of global real estate investment at Aviva, which has invested about £600mn in the sector since 2020.
The share of new rental investment in the UK going into single-family homes rather than multi-family blocks reached 54 per cent in the year to September, up from 32 per cent in the year before and just 5 per cent in 2019, Savills said.
Investors snapped up nearly 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 have been joined by a growing number of international firms. Blackstone, the world’s largest real estate investor, has bought about 4,500 rental homes from Vistry since late 2023, in two deals worth £1.4bn.
Blackstone, which has long invested in housing in the US, has swept up tens of thousands of homes in Europe, and in the UK has focused on funding new-builds. The group’s UK residential businesses have a portfolio of 17,000 affordable homes — and is now expanding open-market rentals too.
Canada Pension Plan Investment Board (CPPIB) launched a joint venture with real estate manager Kennedy Wilson in October worth £1bn to invest in single-family homes, with an initial £500mn investment.
A separate £750mn joint venture was launched in November between private capital manager Greykite and real estate group Gatehouse, which already has a strategy with the Carlyle Group. Sigma Capital Group, an early player in the sector, has expanded its portfolio to more than 8,500 homes.
Critics see the influx of private capital into rental property in various countries as an indictment of the housing crisis that has locked many families out of home ownership, and left them to rent for longer at the mercy of large rent increases.
Institutional investment in rental homes in the UK remains at a low level compared with other countries, with just 3 per cent of rental homes owned by big investors — compared with 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 overall number of homes being built at a time when housebuilders’ sales have fallen.
“Institutional investment can play an important role in adding to the 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 large developers, who faced a slump in demand after Liz Truss’s “mini” Budget in 2022 increased mortgage rates.
“A large part of [deals in 2023 was] housebuilders probably struggling to sell their for-sale product. A large part of what has happened this year is housebuilders thinking far more strategically,” said Piers de Winton, head of national residential investment at Savills.
Those discounts have narrowed as developers reduced their output, posing a challenge to investors. Some are also acquiring land and contracting housebuilding firms to deliver new properties.
Some of the private equity managers are hoping to build up large portfolios that they can sell to pension funds, which like the steady income thrown off by rental homes. Blackstone pulled off one of the first such deals, selling 3,000 shared ownership homes worth £405mn to the UK’s largest private pension fund, the Universities Superannuation Scheme.
