There’s a potential for significant recalibration of existing housing

European residential real estate has been a long-standing component of institutional real estate portfolios in France, Germany, the Netherlands and the Nordics. More recently extending to the UK and Ireland.

A country’s socio-political culture defines the role of housing policies in the economy and society. This context informs on market stability and the degree of public oversight, regulation and intervention, which are important considerations for institutional investors.

The variation in the maturity of the private rented sector (PRS) across countries and the diversity of housing market structures influence the risk characteristics of markets. These structural risks are somewhat dislocated from more cyclical risk characteristics, including economic prospects and other considerations driving commercial real estate strategies.

As a result, the pattern of allocations to the residential sector within the universe of the INREV Quarterly Index varies from those observed across all funds (see the figure above).

• Although Germany, the Netherlands, and the UK account for the three largest percentage allocations, Germany and the UK are underweighted relative to the universe, alongside France.
• In contrast, there is a marked overweighting of residential relative to the total INREV universe in the Netherlands.
• Allocations to Denmark, Finland and Ireland also represent an over-weighting, which is particularly pronounced given their smaller relative market size.

These differences in allocations within the INREV Universe are due to a number of factors:

• Some markets may appear to be underweight because of a long-established residential listed/REIT market such as Germany and the Nordics or because there are opportunities to invest directly or through some form of public/private partnership, for example, France.
• Similarly, other markets provide frameworks for institutional capital to debt finance public or third-sector housing, although such opportunities may not be readily accessible to non-domestic institutions.

This socio-political culture also points to the scale of the opportunity in the PRS for institutional investors and importantly, the degree of change it represents to housing market structures at a country level.

While?this includes a significant recalibration of existing housing tenures and an extended range of purposes for the PRS, the capacity for existing landlord and tenant legal frameworks to easily accommodate such change can also be of interest to investors.

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To learn more, read chapter 3.4 ‘Current allocations indicate dynamics of housing market structure underpin investment strategy’ of the INREV paper ‘Housing middle income Europe: the intermediary investment opportunity amid diverse residential market structures’.

This paper represents the first in a series of INREV research papers addressing opportunities, challenges and solutions for institutional investment in European residential. This paper sets out the position of intermediary PRS in the wider housing market landscape, exploring how housing market structures shape both the scale and scope of the PRS opportunity and their variation due to socio-political structures.