The shortage of housing to both buy and rent in the Netherlands has attracted a lot of media attention since the property market began its recovery in 2014. A lack of housebuilding allied to populations moving to the larger cities has spurred housing shortages.
This is being seen as a major issue for the Dutch economy. The IMF highlighted it after its country visit at the end of February, criticising how the housing market was operating in the largest cities, particularly the rental sector. The lack of supply is, however, not confined to the bigger Dutch cities: it is a growing problem across the major urban areas of Europe and further afield in Asia and North America. Continuing urbanisation and increasingly unaffordable home ownership have helped lift demand for rented housing, particularly from younger households, which supply has been unable to meet.
Rented housing: a considerable investment opportunity?
This has caught the eye of many institutional investors. They have set up housing companies and funds to help meet demand. Private investors have also stepped in. However, buying a property – outright or for rent – involves considerable initial capital outlay and market knowledge. In addition, there is the cost of and time involved in managing and maintaining a property, either directly or through a management company.
Given those drawbacks, it could make sense to invest in a company that owns residential properties. This is cheaper and involves lower initial capital outlay. Such an investment is also typically more liquid than owning property outright. While you do not enjoy the same level of control as you would when you own the rented property directly, such an investment usually does have the benefit of owning a share in a diversified portfolio of sometimes thousands of properties across a range of markets.
Buying into the residential sector via public equities
Although there are no residential companies that are included in the AEX index in the Netherlands, there are significant opportunities for investors to buy into the residential sector via public equities. The companies in the table below provide mainly rental housing in the private sector, with the largest companies found in the US and Germany. Companies such as Unite in the UK and American Campus Communities in the US provide student housing.Residential companies in the FTSE EPRA NAREIT Global (Developed) index Note: N/A = not available market capitalisation in million EUR. Source: Bloomberg, as of 02/03/2018
As a glance at the stock market performance over the last five years illustrates, residential real estate companies have performed in line with and better than the broader FTSE EPRA NAREIT Global Developed real estate index.
Price returns listed residential and global real estate companies in the FTSE EPRA NAREIT Global (Developed) indexNote: price return index (euro), indexed 01/03/2013. Source: Bloomberg, as of 02/03/2018
We expect to see the trend of the growth in the number of households and population shifts to urban areas to continue. We believe the rented housing sector in Europe, with renters constituting more than 25% of households in the EU28 and up to 50% in countries such as Germany, presents an enormous investment opportunity. In our view, the imbalance between supply and demand for housing is a structural problem that is not going to disappear overnight. This should support the growth in residential real estate.
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