Investment opportunities in UK residential property are expanding as fewer people can afford to buy their own homes and the number of renters increases.

Standard & Poor’s (S&P), a credit ratings agency, says that growing demand for rented housing together with new government incentive schemes are main drivers behind higher institutional investor appetite for the sector, which potentially needs about £30 billion (€38 billion) of investment.

S&P – which has noted that homeownership in the UK declined from 70% in 2005 to about 64% today – says that investment managers such as Venn, M3 Capital Partners, Prudential Financial, M&G, and Legal & General have allocated large sums to the build-to-let market over the past two years.

A recent Internos Global Investors survey of 62 investment organisations found the British private rented sector is “by far the top investing preference” among various real estate options, S&P said.

In its ‘Generation Rent’ report, S&P said investors may use project finance as a vehicle to enter the sector on a long-term basis, that construction risk is no longer a major deterrent, and investors are actively looking to be involved from the procurement stage.

S&P economists forecast nominal house prices will rise 5% year on year in 2016 and 3% in 2017. This follows sharp rises of 10% in 2014 and 7% in 2015 on the back of the UK economic recovery.

Residential housing is not historically a major investment area for UK pension funds