The residential sector continues to be high on investors’ wish list but increasing costs are becoming a problem, delegates heard at an INREV presentation organised by Real Asset Media at EXPO Real in Munich last week.
“Allocations to residential funds have grown threefold since 2015 and are now €600 billion,” said Iryna Pylypchuk, director of research and market information, INREV. “The growth in resi non-listed real estate funds has been particularly notable. Strong demand has led to strong growth.”
The tilt to residential fund allocations has been especially visible in Germany and in the Netherlands, a strong market dominated by local investors. The UK is playing catch-up now and France is still under-represented.
“The expense of having a home is becoming more of a factor, as the percentage of households where total housing costs represent more than 40% of disposable income, net of housing allowances, is fast increasing,” said Pylypchuk.
Energy costs have played a role but there are many factors at play. In the Netherlands the percentage of people struggling has risen to over 20% of all households, with Denmark next on the list at around 14%. Germany is in a better position because it has stringent rent controls in place.
“The data show the burden falls heaviest on single households, both under and over 65s,” she said. “Two-thirds of single households of any age are really struggling with costs, which means that young people cannot achieve their independence and older people can no longer afford to live where they want to.”
Dealing with this problem requires the intervention and goodwill of many players: developers to address the supply/demand imbalance, local authorities helping with permits and zoning issues, the private sector entering into constructive partnerships with the public sector.
Attempts to deliver affordable homes have not been helped by high construction costs, while delivering the ESG agenda is necessary but it requires a certain level of capex.
Despite the combination of all these issues, which makes delivering residential a challenge, investor sentiment towards the sector continues to be positive.
“When it comes to increasing their allocations, the living sector absolutely dominates investors’ intentions,” said Pylypchuk.