The next few years will bring a radical change in the way residential property investment is handled in Europe, the ULI Europe conference heard this week. The post-WWII trend to home ownership is reversing and rentals are rising in traditional owner-occupier markets.
Adam Challis, National Director and Head of Residential Research for adviser JLL, told a panel session at the ULI conference in Paris that the idea of Europe-widen residential is anyway misleading. High home ownership in the South and lack of institutional stock in the East means housing property investment is really confined to the northern continent and Scandinavia.
In those markets where the rental housing sector is comparatively large such as Germany, Sweden and Denmark – with the UK now growing – regulations are very diverse, making each market different. “You can go long on resi in Europe and still be very diversified,” he said. However residential is one of several alternative property classes attracting growing institutional capital, and allocations rose 26% in volume last year. He said residential poses a significant opportunity for institutions since demand for new homes continues to outstrip supply. And multi-family in the US has been the biggest real estate investment type for years, and often the best performing. “Over the next few years we will see a real shift in the way residential is handled in Europe,” he said.
Marcus Cieleback, Head of Research at Germany’s listed Patrizia, said it is surprising that residential is considered an alternative type since it was long preferred by pension and insurance groups. In the 1960s, most of housing stock in Europe was rented, but owner occupation climbed in the post-war to as high as 80% in countries such as Spain. But the trend is now reversing due to changes in banking and government policies. Working populations also require flexibility of movement as labour markets shift due to technological change and economic cycles. “If you own your apartment it is not easy to move from one city to another,” Cieleback said.
“We are in a current situation where we see the resi market emerging again – Spain and Ireland, for example, had traditionally high ownership rates but now are going back toward a rental market – emerging gradually in particular areas.” Because residential has a much higher tenant base than commercial, regulations for dealing with tenants are key in all markets. They range from fairly free – in Finland and UK – to highly regulated, in Sweden. “In Germany, changes are also going in the direction of regulation, and we have to ask what difference that will make longer term,” he said.
Dominique Alba, Managing Director, of Paris Urban Planning Agency Apur, said the French capital has a profound lack of affordable housing and residential building land in central areas. The new socialst-led city administration has identified vacant office conversions as one of the ways to produce as many as 60,000 additional units. pie
Ben Rogers, from the Centre for London, said the agency made a study last year of the UK capital’s modest earners, known as the ‘squeezed middle’ – those above income levels qualifying for benefits but at or below median earnings. “For this squeezed middle, London has got much, much tougher in the last three years,” he said. “They have seen their income flatlined, and that goes for many other places in UK as well.” London’s highly competitive labour market, with 40% of the workforce having arrived from overseas during the last 10 years, keeps wages low. But the housing market is dysfunctional since it does not cater to this group. “These people are the backbone of the economy but they have nothing to show for it,” Rogers said.
Source : Property Investor Europe