How can the UK housing crisis be addressed? Tim Munn, CIO at Swiss Life Asset Managers UK, is convinced that institutional investors can play a pivotal role in alleviating the funding bottleneck in UK real estate, especially in regions often neglected by investors.
Numerous UK cities and towns have suffered from years of underinvestment in real estate, leading to outdated infrastructure and stagnant growth in residential property supply. Despite the government’s increased spending outlined in October’s Budget, the UK’s housing crisis is unlikely to be resolved solely through state intervention.
By partnering with local authorities and developers, institutional investors have the potential to channel substantial capital into overlooked UK regions, where opportunities offer both attractive long-term reliable returns and significant social and economic impact.
This is why we are focusing on increasing the supply of multi-family and single-family housing in well-connected towns and cities such as Bolton, Stockport, and Stoke-on-Trent. Thousands of people in these vibrant centres can afford and are seeking quality rental homes, yet UK and international investors continue to overlook these locations, preferring to invest in major regional centres like Birmingham and Manchester, viewing living strategies through a commercial real estate lens.
Although a national shortage of residential stock is well-known – with one million more rental homes needed over the next decade, but only 300 000 homes in the pipeline – demand in larger centres is already closer to being met by supply. For instance, 62% of rental demand is currently matched by supply in Birmingham, while both Leeds and Manchester are matched to 44%. In contrast, underinvested locations show a chronic disparity in supply and demand – only 20% of demand is currently met in Sheffield and 18% in Liverpool. Consequently, rental growth in underinvested locations has outpaced larger markets, such as Bolton, which saw a 38.7% increase in rents between 2020 and 2023. Given this, we expect underinvested locations to outperform as new capital ignites opportunity, leading to yield compression.
Benefits for all stakeholders
When considering less-established residential markets, there is a misconception that investors must accept poorer liquidity, lower quality homes, reduced rental growth, and higher tenant default rates. However, this perception is often driven by a commercial real estate perspective, where investors typically view “economically active” cities as those with the highest concentrations of white-collar workers.
As a result, despite a desperate need for high-quality residential accommodation, these neglected locations are often overlooked for new investment. Where there is new housing investment across the UK’s underserved regions, most developers have opted for the most obvious projects with uninspiring design, basic specifications, and poor sustainability features, offering minimal additional urban regeneration and societal benefits. This does little to encourage individuals and families with higher disposable incomes to remain in and stimulate the local economy.
To truly benefit supply-strained communities across the UK, investors must identify developers willing to work with local and central authorities on ambitious transformational projects. However, some developers simply overlook the necessary undertakings to deliver real urban renewal and social impact, as this activity still relies on positive engagement with local government stakeholders, which are often fragmented and bureaucratic. For investors and developers, it has proved challenging to act quickly and at scale on this basis.
Nevertheless, while working with local authorities to release the land needed for new development in less-established locations usually takes longer to come to fruition, there are grants and attractive funding packages available to help stimulate development. This benefits all stakeholders – the eventual homeowners, the broader community, local authorities, developers, and investors. Additionally, with such high demand for better quality accommodation in areas where supply is highly constrained, investors are also likely to enjoy sustainable long-term rental growth and robust resale values.
Attractive long-term potential
Encouragingly, after years of inertia, we could be on the cusp of a more concerted effort from the UK government to drive local development, particularly in cities and towns that have been largely neglected for many years. We are also seeing an additional focus on delivering housing with affordable rents, which is essential for communities to retain working people who will then spend locally.
These transformational developments, where historic heritage buildings sit alongside design-led new builds, will help ensure neighbourhoods remain vibrant: attracting restaurants, cafes, workspaces, and community hubs. This “doughnut effect” will also encourage investment in further rounds of urban regeneration and placemaking with high social impact.
As evidence mounts of the attractive long-term potential of investing in underserved locations, it is only a matter of time before the public sector looks to accelerate capital flows towards these projects. Local Government Pension Schemes (LGPS) pools will be keen to provide additional support for urban renewal and regeneration within the communities and for the members they serve.
With clear government support, the time is right for investors to help address the real estate shortfall across the UK’s regional cities and towns. We believe urban regeneration and placemaking in underinvested locations offer better risk-adjusted returns to investors. In partnership with local authorities, private capital can transform overlooked regions, meet pressing housing needs, deliver real and meaningful social impact for all stakeholders, and lay the groundwork for vibrant, resilient communities.
