Could institutional investors solve the UK’s housing shortage and deliver higher-quality homes than the traditional private rented sector (PRS)?
One person who thinks they can is Cedric Bucher, CEO of institutional PRS investment firm Hearthstone Investments, which already owns around 1,400 UK homes. Institutional funds devote, on average, 16% of their investments to real estate, and Bucher argues that even a fraction of that could have a massive impact if redirected to the private rented sector (while offering a reliable source of income for investors).
There’s a growing gap in the market for institutionally-owned rented housing. According to estate agency Hamptons, individual buy-to-let investors are retiring faster than they’re being replaced. Meanwhile, the Centre for Cities think tank estimated earlier this year that the UK has a shortage of 4.3 million homes. Several household names have already diversified into Build to Rent (BTR), including John Lewis and Lloyds Bank.
But it hasn’t all been smooth sailing for Britain’s BTR pioneers. John Lewis’s first development in Ealing has faced resistance from local councillors and activists, and is believed to be well behind schedule.
Even so, more institutional investors are moving into the space – like Tesco, which has teamed up with developer Astir to deliver new homes in Lewisham.
Build-to-rent investors are also diversifying out of the traditional urban high-rise niche. High-profile BTR company Legal & General’s Cala Homes brand is building a 100-home suburban BTR estate near Wokingham. The company says it sees this form of BTR as a priority. Meanwhile, The PRS REIT, a listed real estate investment trust, recently celebrated completing its 5,000th single-family BTR home.
But the BTR sector has some way to go to save the housing market. In February, stats from Savills showed that there are now 78,700 completed BTR homes in the UK, with another 50,500 under construction. According to the National Housing Federation, the UK needs 340,000 new homes every year until 2031, but construction – including BTR – peaked at 242,700 in 2019-20. The report also found that investment is falling. BTR starts fell by around a quarter from a year earlier.
Other housebuilding news
Rishi Sunak reveals why government scrapped housebuilding target – Property Industry Eye
What does the CMA’s market study mean for UK housebuilding? – Housing Today