Green shoots emerge for living investment markets 

Global housing markets continue to experience a fundamental undersupply of new homes to meet ever-increasing demand. Rising costs and limited financing have also seen new construction starts decline in several major markets, worsening the shortfall. This is supporting improvements in liquidity, with investment markets in EMEA and Asia Pacific showing encouraging signs of growth in Q2 after several consecutive quarters of falling volumes.

Heading into the summer season, the living sector in the U.S. has continued to see sustained housing demand balanced against elevated interest rates which are challenging transaction activity, with investment volumes in Q2 declining by 69% year-over-year. Dry powder levels remain at record highs, indicating a large amount of latent demand for multi-housing once financing rates begin to come down. The breadth and diversity of the European living markets continued to attract investment in Q2 despite the difficult economic backdrop, with an 18% increase in volumes on Q1. Investors in Asia Pacific are also spreading their reach and driving record levels of investment in emerging living markets such as Australia and China, although the slowdown in the region’s largest market, Japan, carried on in the second quarter.

Future trends: Increased construction costs set to worsen supply imbalance

Short-term: There are signs that construction cost increases are starting to slow, but the effects of higher input costs and financing rates have been seen in lower levels of new building permits, which have fallen by 20% in the U.S. and 45% in Europe over H1 2023. Housing shortfalls will continue to push rents higher in Europe and several Asia Pacific markets. While a record level of multifamily completions in the next two years is likely to keep rental increases in the U.S. subdued, the market remains structurally undersupplied.

Long-term: Renting will continue to increase as a share of the market in many countries with renting a cheaper option than buying in major cities on the back of high house prices and rising mortgage costs. Globally, there will be a growing emergence of new ownership models such as part-own, part-rent as a compromised option to getting a stake on the housing ladder. This kind of tenure option is now being rolled out in a number of countries.