Sixty Second Summary
Investing in UK housing
29 Mar 2019 - Estimated reading time: 1 minute
UK pension schemes have little exposure to the residential sector, but interest seems set to grow as opportunities expand both in the private rented sector, and various strategies linked to affordable housing.
Population growth, together with a changing demographic structure, underpins the ongoing demand for residential property. The latest ONS projections show the number of UK households increasing from 20.5m in 2001 to 23.2m in 2018 and to 25.2m by 2030. The private sector and, to a lesser extent, Housing Associations have been responsible for housing supply since the 1980s. The provision of new homes is therefore sensitive to wider market financing conditions. Supply dropped sharply after the global financial crisis (GFC) in 2008 and has not yet climbed back to pre-crisis levels.
Housing affordability worsened after the GFC, particularly for first-time buyers, due to a tightening of mortgage lending criteria, rises in house prices and lower rises in wages. A fall in UK owner occupation has been more than offset by growth in the private rented sector (PRS). This now accounts for about 20% of all households.
In response to the changed conditions, a number of government-run initiatives have been launched to help deliver 300,000 new homes a year by 2022. Many are directed at “affordable housing”, which currently makes up less than 20% of the UK housing market, but is projected to account for around 40% of the 300,000 target.
Asset managers have used the opportunities arising from the changing structure of the UK housing market to offer an increasing variety of strategies providing exposure to the sector. These typically involve institutional investors providing capital in exchange for receiving rental income. Data from Real Capital Analytics suggest that there had been c£30bn of capital inflows into the sector in the 10 years to the end of 2017. The opportunities cover several tenures - private rented sector, social housing, affordable renting and shared ownership.
Please contact your usual Hymans Robertson consultant for more information.