Investors plan to boost UK single-family housing sector

Knight Frank surveys 20 leading investors for its latest Single Family Housing Report, highlighting that 65% of investors plan to significantly increase SFH exposure by 2029.

Placefirst's Welsh Streets Build to Rent development in Liverpool, where the developer has been praised for its ESG commitments | BTR News
Placefirst's Welsh Streets Build to Rent development in Liverpool, where the developer has been praised for its ESG commitments.

Property consultancy Knight Frank has released insights from its recently launched 2024 Single Family Housing Report.

Propelled by robust investor appetite, the single-family housing (SFH) rental market in the UK is experiencing unprecedented levels of growth, according to the report. Investment into SFH soared to a record £1.9bn last year as investors acquired or funded the development of over 6,200 rental houses.

This represents a fivefold increase compared to the £388m committed in 2022. In total, SFH investment accounted for over 40% of all Build to Rent investment in the UK during 2023, with the remainder targeting multifamily apartment schemes and the co-living sector.

Knight Frank spoke to the leading investors currently active in the SFH space about their future investment plans. From this, the consultancy learned that they plan to commit £17bn of capital to the single-family rental sector over the next five years.

“The SFH sector is experiencing a period of significant growth, as evidenced by a fivefold surge in investment volumes in 2023, reaching £1.9bn, compared to the previous year. Despite an improving sales market forecasted, we fully expect this trend in increased investment volumes to continue into 2024 and beyond, thanks to a growing weight of capital attract to the sector by its strong fundamentals. In addition, developers and housebuilders are becoming more comfortable with the concept of incorporating SFH into their wider sales and marketing strategies, which is helping to accelerate delivery of much needed housing.”

Jack Hutchinson, Partner – Residential Investment team, Knight Frank

According to Knight Frank, this could translate to the delivery of over 60,000 new SFH Build to Rent homes at current valuations. Should these ambitious investment plans be realised, the consultancy calculates the total number of SFH rental units in the UK – including existing communities as well as those under construction or with full planning – will nearly triple from the current level of 26,575 homes.

By 2029, 65% of the institutional investors Knight Frank surveyed stated they plan to significantly increase their investment exposure to the UK’s SFH market. While the sector is still somewhat premature, the analysis highlights the immense potential for the SFH market to play a pivotal role in bolstering housing supply across the UK.

“Our research provides clear evidence of the opportunities for SFH to play a key role in addressing the UK’s housing shortage, particularly for families. The geographic distribution of the sector is broadening as institutional investors increasingly eye suburban markets across regions like the East of England and West Midlands to deploy capital at scale.”

Oliver Knight, Head of Residential Development Research, Knight Frank

2.65 million households – nearly 50% of all privately renting households – reside in suburban areas, yet existing SFH rental communities cater to just 0.4% of this cohort’s housing needs.

The report highlights the SFH market’s geographic expansion across the UK, as investors pursue opportunities in high-growth suburban markets. While 44% of existing completed SFH rental stock is concentrated in the Northwest, 87% of the UK’s SFH development pipeline is located outside this region.

“More of these innovative joint venture partnerships between SFH investors and the nation’s leading homebuilders have the potential to significantly increase SFH supply across the UK. The five largest homebuilders alone control a land pipeline of over 350,000 plots. If just 30% of those plots were designated for single-family rental communities, it could immediately add over 100,000 much-needed new homes to the burgeoning sector.”

Jack Hutchinson, Partner – Residential Investment team, Knight Frank

Analysing future investment targets, Knight Frank stated that 75% of investors surveyed indicated they are focused on the Southeast and the East Midlands for new SFH communities, with 70% targeting the Southwest and 65% eyeing the West Midlands.

More partnerships between housebuilders and institutions developing Build to Rent projects has supported the sharp uptick in SFH investment activity. In fact, 100,000 plots for SFH development could be unlocked through partnerships with major housebuilders, according to the report.

Knight Frank’s analysis found that 71% of SFH acquisitions in 2023 were facilitated through direct transactions with housebuilders, either by investors forward purchasing bulk units under construction or via new joint venture development partnerships on future housing projects.

“Higher interest rates and the removal of government support for first-time buyers mean the aspiration of homeownership has become increasingly distant for many. The result is a sharp increase in demand for good quality rental housing from long-term renters. The growth of the suburban and SFH market is fundamentally aligned with these changes. There is a clear opportunity for SFH to play a key role in increasing housing supply at a time when the demand for high quality and sustainable rental housing, particularly for families, is acute. That said, delivery will need to pick up significantly if it is to move the dial in a meaningful way.”

Oliver Knight, Head of Residential Development Research, Knight Frank

Furthermore, 90% of investors surveyed agree that ESG is an important consideration for their investment in SFH, bolstering its popularity among investors as a stable, progressing, and secure choice for now and future investment activity.