Executive Summary

• The outlook for the UK residential investment market remains resilient. After a yield-driven value correction, total returns picked up in 2024 and are set to strengthen in 2025.
• While headline rental growth on new lets has pulled back in line with slowing inflation, UK residential investment performance is set to be driven by further increases in rents linked to anticipated income growth.
• In aggregate, affordability is holding up as rents have risen in line with incomes. However, this masks some challenges:
  • The effect of past rent increases on new lettings is still feeding through.
  • There is an uneven picture around incomes and inequality that leaves parts of the market, such as younger households and working families, struggling more with affordability than others.
• Despite recent government announcements of initiatives to stimulate supply, including planning reform and incentives for housebuilders, housing completions are set to remain subdued versus a backdrop of rising rental demand.
• Institutions will have an ongoing role to play in delivering modern, energy-efficient, well-managed housing into the segment of the market serving the needs of younger working households where affordability has been stretched but demand is growing, and income growth prospects are now improving.