In a move that highlights the growing momentum of UK tenanted homes becoming an asset class, insurance giant Legal & General has launched a £600m fund to build large-scale rented accommodation.

The Financial Times reported the initiative, noting that L&G will share the venture with Dutch pension fund PGGM. Each will contribute £300m and the fund ‘may borrow up to another 50%’. It also seems likely that the fund will expand once the initial developments are built.

L&G Capital’s managing director, Paul Stanworth, said that the fund would seek to capitalise on the continuing demand for rented homes after forthcoming tax changes limit the amount of private sector ‘buy-to-let’ properties offered to the rental market by landlords.

Stanworth forecasts that individual investment in buy-to-let fall will away over time as will the involvement of local authorities in the rented sector. “That will exacerbate the supply-demand imbalance,” he says.

The institutional investor sector for rented property is already well developed in countries such as Germany and United States. The steady yields derived from rental property are far less volatile than house prices fluctuations and provide long term assurance to investors.

L&G’s move follows news that similar investments are being made by other institutions. Invesco Real Estate has launched a £250m fund, LaSalle Investment Management (a U.S. fund) plans to put £500m into the sector, and Gatehouse (a Kuwaiti-owned investment bank) is set to commit a further £100m.

The L&G fund will start with developments of a total of 650 homes in Bristol, Salford and Walthamstow. Anticipated yields on the rental of the completed properties are between 3% and 5%.

If private landlords depart the market and the scale of the investment in the rented sector grows as rapidly as anticipated, there are interesting questions for letting and estate agents.

How will these institutional investor developments source their rental management? Will it be done ‘in-house’ or contracted out to agents? Will it be sufficient to compensate letting agents for the loss of their private individual landlords?

For estate agency the big question must be the effect of the rise in private renting on annual sales volumes. If massive institutional investment drives the rental sector ever upwards and causes the sales market to settle into a sustained period of contraction, it seems highly likely that in the foreseeable future there may not be enough sales to sustain the existence of the current quantity of agents – whether online or on the high street.