Outlook 2025: Housing will be a key asset class for investors

The fundamental solution to addressing housing affordability is to radically increase housing supply, and this remains the case looking ahead to 2025 and beyond. Yet the ability to get on and build is hampered by a variety of complex issues.

Wes Fuller, CIO at Greystar, says housebuilders face significant challenges from high interest rates, rising construction costs and regulatory barriers like zoning laws and lengthy approval processes.

Fuller believes that a raft of changes is needed to address the situation. He says: “Policy reforms to streamline regulations, reduce red tape and incentivise developers are imperative to addressing these issues and ensuring a balanced housing market that meets the needs of renters and prospective homeowners alike.”

Marius Schöner, head of EMEA residential operator division at CBRE Investment Management, says the affordability crisis is unlikely to be fixed within the next couple of years. He says: “Recent data shows that across Europe the rate at which building permits are being issued is down almost 30% from its recent peak which was already insufficient to meet demand.

“Governments are addressing the affordability problem by way of increased rental regulation. However, this approach only tackles the symptoms – rental levels – rather than the root cause – insufficient new supply. While the tools to address the housing crisis exist, government measures are often fragmented and lack a long term strategic and coordinated plan.”

A recent report by JLL revealed that €5.3trn of investment is needed to tackle the affordability crisis across Europe. There are an estimated 23m households in the UK and EU countries living with costs exceeding 40% of disposable income, meeting the EU definition for housing overburden, according to analysis of local data and Eurostat figures. This represents a significant unmet demand for affordable housing, which is highest in Germany (5.6m), the UK (3.9m) and France (2.6m).

Nick Whitten, head of living research, EMEA at JLL, says the situation is being exacerbated by a lack of skilled workers. He says: “We have a shortfall of construction workers across Europe to the tune of around about three million. And it doesn’t innovate quickly, so it takes a long time to bring in new practices, new ways of building, so we are still heavily reliant on labour to get the job done.

“So with three million too few builders across all of Europe, you’ve got a big problem for the whole continent meeting its housing needs, even if we were to consider bringing in migrant labour.

“It’s a complex situation and I think, unfortunately, the way things look, it’s not going to be solved in 2025 nor 2026, and probably not even this  decade, unless we fundamentally change how we deliver housing.” 

Some global markets faring better than others

Several US cities and European countries have managed to increase housing supply through the introduction of innovative policies and zoning reforms.

Fuller points to Minneapolis, which eliminated single-family zoning in 2018, allowing duplexes and triplexes citywide, contributing to just a 1% rent increase compared with a 14% rise in the rest of Minnesota.

He adds: “Similarly, Austin, Texas, approved the HOME initiative in 2024, reducing minimum lot sizes and permitting denser development along planned light-rail lines to boost affordability.”

In Europe, cities like Vienna stand out for their public housing policies, with nearly 60% of people living in government-subsidised or regulated housing, keeping affordability in check, Fuller says.

Meanwhile, the Netherlands has prioritised rapid construction of mixed-income housing in urban areas through public-private partnerships. Fuller says: “These examples show how strategic zoning, public investment, and streamlined development incentives can address housing shortages and improve affordability.”

Challenges remain for those looking to build new homes

Global macro headwinds, including rising input costs, inflation and increased rates, are constraining housing supply, exacerbating the existing shortage.

Local challenges further hinder development. Housing planning and zoning timelines are often prolonged and unpredictable due to regulatory complexity, public opposition, and environmental reviews.

Fuller points to a proposed mixed-use development in Los Angeles that faced years of delays after neighbourhood groups filed lawsuits over density concerns, despite prior approvals.

“These delays increase costs, discourage development, and exacerbate housing shortages in high-demand areas,” he says.

Institutional investors starting to work with housebuilders

In 2021 Citra Living, part of Lloyds Banking Group, teamed up with Barratt Developments to gradually develop incremental housing stock for the rental market. More recently, in October 2024, Citra acquired over 800 homes in Greater Manchester from a Gatehouse Living and Sigma Capital private-rented sector (PRS) fund. The fund was launched in 2015 with investment from a “leading sovereign wealth fund” and Gatehouse Bank. In June 2024, UK affordable homes provider Vistry Group, sold 1,750 new homes to Blackstone’s real estate arm and Regis Group.

James Seppala, head of European Real Estate at Blackstone, said at the time: “Institutional private capital can play an important role in providing high-quality housing stock across the UK, particularly in PRS, which is significantly undersupplied today. Partnerships such as these can meaningfully accelerate the delivery of new homes and help alleviate structural undersupply across the sector.”

The portfolio would be managed by Leaf Living, a provider of PRS housing which is backed by funds managed by Blackstone and Regis.

Aviva Investors and Packaged Living’s UK single-family rental (SFR) investment venture has also teamed up with housebuilder Barratt Homes. The project is part of the Franklin Gardens community in Cambridge within the wider 1,500-homes Darwin Green masterplan.

The deal marks Aviva Investors and Packaged Living’s ninth investment in the UK single-family housing market through their build-to-rent platform, launched in 2021. It brings the total number of new homes funded by the partnership to over 1,200 across the country.

James Stevens, head of real estate investment at Aviva Investors, says the company has a “clear strategy to increase our investment into rental housing across the UK, including an ambition to deploy more than £1bn in the coming years”.

Jonathon Ivory, CIO at Packaged Living, said at the time of the investment: “It’s great that Packaged Living and Aviva Investors are simply going about the job of facilitating much-needed new housing.”

Which categories of residential will perform best in 2025?

Fuller says that in Europe, student housing will likely perform well, “as immigration policy toward foreign students has remained stable while other regions of the world have become more restrictive”.

Across the US, while substantial multifamily housing developments have gone some way to alleviate shortages, they have not fully addressed the issue.

Fuller says: “Notably, sectors like build-to-rent (BTR) and student housing have seen fewer new projects, resulting in stronger performance due to limited supply. Even traditional multifamily units are now experiencing demand surpassing supply as new deliveries are absorbed.”

Greystar sees “substantial tailwinds supporting growth” in Asia-Pacific as well.

According to Fuller: “Japan’s rental housing market continues to benefit from urbanisation and declining homeownership rates among younger generations. Australia’s student housing market benefits from strong international student demand, a severe lack of supply, and government initiatives supporting educational programmes.”

Overall, though, Fuller expects European markets broadly to outperform “given a continued lack of housing supply and healthy demand fundamentals which are lifting performance across all housing types”.

In the US, demand fundamentals remain the strongest in the Sunbelt, he adds.

Institutional investor interest

Investor interest in the living sector remains strong and resilient globally, driven by sound supply-demand fundamentals. This, along with ongoing uncertainty in office and other alternative commercial real estate sectors, means rental housing continues to attract attention due to its dependable cash flows and strong liquidity metrics.

Fuller adds: “Additionally, there is growing enthusiasm for residential alternatives such as student housing and BTR, as investors aim to expand their rental housing exposure while diversifying their portfolios. These trends suggest significant growth potential in these subcategories, reflecting the sector’s adaptability and enduring appeal.”

Fuller goers as far to say that rental housing has become a “safe haven for global capital”, standing out within real estate allocations despite broader macroeconomic turbulence, and he believes this will continue into 2025.

He says: “Investors are drawn to its strong demand fundamentals and resilient cash flows, even in the face of challenges from recent years. While global market volatility has created a more uncertain environment, the underlying thesis around the stability and reliability of rental housing continues to hold true. Its ability to weather economic headwinds has not gone unnoticed, reinforcing its appeal as a stable and dependable asset class in a world of uncertainty.”

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