Private Investment in Rented Housing and the Role of REITS

Abstract Real Estate Investment Trusts are being introduced throughout the world. This paper examines whether their introduction will promote private investment in rented housing. It draws on the evidence from the USA and Australia where residential REITs have been established successfully and unsuccessfully, respectively. From these experiences, it draws together the necessary conditions in the housing market for residential REITs to prosper. Using these criteria the paper then focuses on the demand and supply conditions in the private rented sector of the UK and assesses the implications. The introduction of residential REITs into the UK and in other countries is shown to face a range of challenges with success not guaranteed. The establishment of residential REITs per se will not necessarily generate a substantive expansion of the private rented sector at least in the short term. Enabling the conversion of the large housing associations to REITs in the UK arguably provides the most likely route for the long-term growth of the private rented sector by this means. The blurring of the distinction between private and social landlords in turn raises some fundamental policy questions about the goals of such institutions.