Home truths

16 October 2012

Standard Life Investments, the global investment manager, examines why housing serves as a proxy for the broader economy, encapsulating many short- and long-term trends. With governments hoping that long-term investors will replace banks as a major source of capital for the housing market, this is an important area for investors to understand.

In the latest edition of Global Outlook, the leading investment house uses its Focus on Change approach to consider the role of housing within the wider economy, its drivers and the information it imparts. Finally, the report looks at the investment potential of housing and how it compares with other types of real estate investing.

A healthy housing sector confirms that financial markets are functioning, as well as feeding into ancillary activities, such as infrastructure and consumption. Conversely, failures in housing finance, such as mortgage securitisation, were central to the global financial crisis, particularly in the Western economies. Since housing was so closely associated with the onset of the recession and was seen as exacerbating the downturn, many observers have paid close attention to the timing of a sustained upturn in housing as a pre-condition for economic recovery.

Anne Breen, Head of Real Estate Research and Strategy, Standard Life Investments said:

"Acceptance of the long term benefits of holding residential investment within a real estate portfolio are traditionally more widespread in the US and Europe than in the UK. The lack of build-to-let funding in the UK plays a major part in allocations. The other key stumbling block for UK investors hinges around management and the costs and skills associated with managing rental properties. Residential is significantly more management intensive than commercial real estate, hence the reason why large scale schemes run by specialist managers are essential to maximise the net yield for investors. It will take time, but the government proposals on the planning revisions should help to support growth of this type of stock which, in turn, should encourage institutions into the sector as they are more able to achieve the essential scale."