In the Spring of this year we published Rental Britain in conjunction with Rightmove. The report concluded that by 2016 another
1.1 million households will have joined the private rented sector swelling the total to around 5.9 million.

This we estimated, when combined with average annual growth in rents, means that the amount of rent paid within the private rented sector will rise from £48 billion in 2011 to £70 billion in five years.

So there is both a need and opportunity for institutional investment in the private rented sector, something endorsed by Sir Adrian Montague’s report into removing barriers to institutional investment in this sector.

Overcoming barriers

In June the Investment Property Forum (IPF) published a paper entitled Institutional Attitudes to Investment in Residential Property; surveying 42 organisations with total property assets of more than £180 billion which included £7.6 billion of residential real estate held across 26 of them.

The report identified a number of reasons why residential investment was attractive. These included; the profile of returns, the stability of income streams and capital values and the low correlation with other asset classes.

It also identified a number of barriers to entry encountered by those organisations which did not hold any residential real estate, the three main ones being the difficulty in managing a granular asset class, the low income returns (notwithstanding strong total returns) and finally the lack of liquidity and insufficient market scale in the sector. With just 1% of landlords owning more than one property according to the 2010 Private Landlords Survey, there are clear difficulties in accumulating significant portfolios from existing rental stock and managing it effectively.

Against this context Rental Britain concluded that:

“Larger institutional investment is critical to meeting the demands for private rented accommodation. This requires rental stock to be delivered into the market at a discount to owner-occupied values.

To facilitate this may require a change in the planning system, with private rental sector houses being increasingly interchangeable with affordable housing”.

In this report Rental Britain as an Asset Class we take a more detailed look at the ability of residential property to meet the needs of a much larger investment market and ways by which the perceived barriers to institutional investment might be overcome.

Given the attention currently being paid to accommodating dedicated new-build, private rented housing within the planning system, it concludes by looking at how this might work in practice in order to meet the needs of government, investors, the development market and Rental Britain.

Taken from
Spotlight: Rental Britain as an Asset Class