UK – Domestic institutional investors want to invest in UK housing, but a lack of government intervention could mean they miss out to foreign investors, according to Berwin Leighton Paisner.
A report by the law firm urges the government to use this week's Autumn Statement to show "clearer support" to UK institutions interested in the housing sector through tax and other policy reforms.
The 'Bringing home residential investment' publication concludes that UK pension funds and insurers will remain cautious about committing capital to projects unless they have more evidence that appropriate returns can be generated, greater confidence in the willingness and ability of registered providers to develop and manage private-rented properties, and clearer government support.
The report also said domestic investors' unwillingness to be first movers would work to the advantage of non-UK investors with experience of residential investments in their home markets.
"Foreign investors have already identified significant opportunities, and some commentators indicated there is a risk UK investors could be left behind if they fail to act quickly," the report said.
"Most [interviewees] suggested that once one investor takes the plunge, this could open the floodgates to rapid development and transformation of funding structures within residential real estate."
The report urged the government to invest in private rental schemes to prove their commercial viability and increase confidence among institutional investors of the potential returns available.
Andrew Yates, commercial real estate partner at Berwin Leighton Paisner, said: "This is an area where we expect further government-led announcements shortly through the Homes and Communities Agency.
"Individuals are finding it harder than ever to buy a home. At the same time, registered providers are expected to reduce housing waiting lists in a new world where capital grant, and cheap, long-term bank debt can no longer be relied upon.
"The government is right in the middle of this and has a window of opportunity to use the forthcoming Autumn Statement to build on its current initiatives with targeted tax reforms. These will encourage more pilot schemes and ensure the opportunity to kick start the private rented sector is not delayed any further."
Alex Jeffrey, chief executive at Prupim, endorsed the report, saying: "The shortage of good quality, private-rented housing in the UK is clear, with demand only set to increase as home ownership remains out of reach for many.
"Long-term investors such as pension funds and insurance companies can play a significant part in meeting this demand. In doing so, they can gain access to an asset class providing a stable income that responds to real earnings growth, has strong diversification benefits for multi-asset portfolios and has typically outperformed commercial property in the long term.
"If the government wants to see an increase in institutional investment, then some changes to public policy may be required. Ensuring a viable, stable regulatory and tax regime to give investors the confidence to support the sector for the long term is vital in the success of this asset class."