Housing crisis

The UK residential housing market faces a structurally challenging outlook shaped by a decade of macroeconomic shocks and demographic shifts. Brexit, COVID-19, and the Russia-Ukraine conflict have driven inflation and interest rate hikes, with the Bank of England’s rate peaking at 5.25% in 2023. These pressures have eroded affordability, especially in London, where indexed sale and rent prices have nearly doubled since 2010, while real wages for low earners have declined by 9% since 2008.

The mismatch between supply and demand continues to grow. Nationally, private rents rose 5.7% between September 2023 and 2024, and another 2.9% between 2024 and 2025. Londoners now spend an average of 40% of their gross income on rent, peaking at 43% in 2023, compared to a national average of 33%. This high rent burden makes it increasingly difficult to save for a deposit, reinforcing the cycle of rental dependency.

Demographic changes are intensifying housing demand. Between 2014 and 2024, single-person households in England rose by 11%, driven by an ageing population. The number of people aged 85 and older is projected to more than double between 2016 and 2041. These shifts increase the need for housing regardless of financial capacity, further widening the gap between supply and demand.

On the supply side, only 5% of private rental listings in London were affordable to low-income households using Local Housing Allowance as of October 2024. Between April 2021 and December 2023, 45,000 rental homes were sold without replacement, and new build supply has been declining since 1970. Although housing associations launched over 30,000 new projects in 2025, this remains well below the government’s target of 1.5 million homes by 2029. Regulatory changes, such as the Tenant Fees Act 2019 and Building Safety Act 2022, have made private investment less attractive. Rising compliance costs, capped deposits, and liability for remediation have created a more complex and less profitable environment for landlords and developers.

Despite these pressures, opportunities remain. New-build affordable housing may offer lower-risk prospects, supported by government initiatives like the Affordable Homes Programme and proposed NPPF reforms. Institutional investors, with scale and long-term outlooks, may be well-positioned to fill the gap left by private landlords. By investing in energy-efficient developments and aligning with public sector goals, institutional investors have the potential to play a role in increasing the availability of affordable housing and potentially raise standards across the UK.