Private equity firms and pension funds are pouring unprecedented amounts of money into the UK rental housing market, driven by soaring demand and a persistent housing affordability crisis, according to a report by the Financial Times.
By the end of September, deals to buy or build single-family rental homes reached £1.5bn – more than triple the investment in the entirety of 2021 or 2022, according to estate agency Savills. This follows a record £1.9bn in deals in 2023.
Unlike traditional multi-family apartment blocks, single-family homes are increasingly favoured by investors as these properties attract stable, long-term tenants and are easier to develop within the UK’s stringent 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 £600m in the sector since 2020.
The proportion of rental housing investment directed at single-family homes rose to 54% in the year ending September, compared to 32% in the prior year and just 5% in 2019. Nearly 5,000 homes were acquired in the first three quarters of 2024, marking a 20% increase over the same period in 2023.
UK institutions like Aviva, L&G, and Lloyds are joined by international investors, including Blackstone, the world’s largest real estate investor.
Since late 2023, Blackstone has acquired around 4,500 rental homes from Vistry in deals worth £1.4bn. In addition to its affordable housing portfolio of 17,000 homes, Blackstone is expanding its focus to open-market rentals.
The Canada Pension Plan Investment Board (CPPIB) also launched a £1bn joint venture with real estate manager Kennedy Wilson, starting with an initial £500m investment. Another major collaboration between Greykite and Gatehouse is set to deploy £750m into the sector. Sigma Capital Group, an early entrant, has grown its portfolio to over 8500 homes.
The influx of institutional capital highlights a broader issue: a housing shortage that has forced many families to remain renters amid rising property prices. Critics argue that this trend exacerbates housing inequality, leaving renters vulnerable to higher costs.
Despite the growing investment, institutional ownership of UK rental homes remains low compared to other countries – just 3% of rental properties are institutionally owned, compared to 37% in Germany and 41% in the US. Proponents argue that large-scale investors provide higher-quality homes and greater stability than private landlords, while also boosting overall housing supply.
“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.
Investors capitalised on significant discounts – ranging from 15% to 20% – on unsold homes in 2022, as housebuilders struggled with reduced demand following the economic turbulence of Liz Truss’s “mini” Budget. These discounts have since diminished, with developers scaling back production.
To mitigate these challenges, some investors are securing land and contracting construction firms to build new homes directly.
Others are building large portfolios of rental properties, with plans to sell them to pension funds seeking reliable income streams. Blackstone recently executed such a transaction, selling 3000 shared ownership homes worth £405m to the Universities Superannuation Scheme, the UK’s largest private pension fund.
