Private equity firms and pension funds are pouring record investments into UK rental housing as demand surges and the housing affordability crisis deepens.
By the end of September 2024, deals to buy or develop single-family rental homes reached over £1.5 billion, according to Savills, tripling the sums deployed in 2021 and 2022.
This follows a record £1.9 billion in deals last year, as investors shift focus from multi-family developments to single-family homes.
The rising interest in single-family rentals is driven by their appeal to long-term tenants and the relative ease of building houses under the UK’s restrictive planning laws.
Savills data shows that 54% of new rental investments in the UK went into single-family homes in the year to September, compared to just 32% the year before and 5% in 2019.
Major Players Fueling the Single-Family Rental Boom
Domestic firms like Aviva, L&G, and Lloyds are joined by international giants such as Blackstone and the Canada Pension Plan Investment Board (CPPIB).
Blackstone, the world’s largest real estate investor, acquired about 4,500 rental homes from Vistry in deals worth £1.4 billion since late 2023. The firm now manages 17,000 affordable homes in the UK and is expanding into open-market rentals.
Meanwhile, CPPIB partnered with Kennedy Wilson in a £1 billion joint venture to invest in single-family homes, with an initial £500 million investment. Another £750 million partnership between Greykite and Gatehouse is advancing similar goals, while Sigma Capital Group has grown its portfolio to 8,500 homes.
Critics and Challenges in Institutional Investment
While private capital is increasing housing supply, critics argue that institutional ownership exacerbates the housing crisis, leaving families reliant on rentals and vulnerable to rising rents. Currently, just 3% of UK rental homes are institutionally owned, compared to 37% in Germany and 41% in the U.S., but this figure is expected to grow.
Investors defend their role, claiming that institutionally managed homes offer higher standards and stability compared to private landlords. “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, Blackstone’s head of European real estate.
Opportunities and Risks for Investors
Housebuilders have become strategic partners for investors, offering unsold homes at discounts of 15-20% in the wake of the 2022 market slump triggered by the “mini” Budget.
However, as developers reduce output, discounts have narrowed, pushing investors to acquire land or contract housebuilders for new projects.
Some investors, including private equity firms, are building large portfolios to sell to pension funds seeking reliable income streams. Blackstone recently sold 3,000 shared ownership homes worth £405 million to the Universities Superannuation Scheme, marking one of the first such large-scale transactions.
