The impact of tax and regulation on investor appetite
Tax rules and regulations are major factors in capital allocation decisions, shaping both the scale and the direction of investment flows. When they are principles-based and written with clarity, consistency, and proportionality in mind, they support market stability, investor confidence, and sustainable long-term growth. Conversely, when fragmented, complex, or volatile, tax and regulations generate uncertainty, elevate transaction costs, and materially diminish the ability to attract private capital essential for addressing Europe's most pressing economic and social challenges.
The distinction between these choices directly impacts investment decisions, capital flows and, ultimately, Europe's competitive position in global markets. The quality of Europe's tax and regulatory architecture critically determines whether it can effectively mobilise institutional capital to important sectors, including housing and energy transition.
Alignment of public policy on housing with institutional investment needs
One of the most pressing challenges facing Europe is housing affordability. In both the EU and the UK, investors’ appetite for real estate, particularly the living sector, is strong. Housing allocations now represent roughly a quarter of all non-listed real estate portfolios, up from around 10% a decade or more ago. This shift reflects institutional investors’ recognition that housing combines stable income flows with measurable social and environmental impact, qualities that have become essential amid demographic change, affordability pressures, and the drive to sustainability.
However, institutional appetite alone won’t solve Europe's affordable housing crisis. The fundamental challenge lies in channelling available capital into tangible supply increases, a process that requires effective alignment with public policy. Institutional investors, with long-term horizons and substantial capital pools, are well-suited to large-scale investment in housing, but deployment depends critically on regulatory certainty, financial viability, and policy stability. Without coherent public-private collaboration that addresses both social objectives and commercial requirements, this capital will remain underutilised while affordable housing shortages persist. The question is therefore how policy can be structured to mobilise it effectively.
Governments increasingly view institutional investors as partners in delivering public objectives, and a coherent policy framework that will mobilise capital for housing and sustainability projects is being actively explored. With regulatory clarity and long-term planning, better public policy can enable private investment at scale. Fragmented or short-term policymaking, such as rent controls, abrupt tax changes, or overly prescriptive regulation, in contrast, deters investors and slows progress on urgent priorities such as affordable housing and energy transition.
Current market dynamics reveal substantial growth potential in European real estate investment. European institutional investors’ average 26% allocation to housing remains significantly below allocation levels in the US, which currently average 40%, suggesting considerable capacity for expansion given Europe's persistent housing challenges.
Sustainability regulation: balancing ambition with the feasibility of implementation
European sustainability regulation represents both a necessary and commendable policy initiative. Our approach to environmental transition remains notably ambitious by global standards, positioning both the EU and UK at the forefront of decarbonisation efforts, and establishing a simpler, coherent regulatory framework could enhance our attractiveness to environmentally conscious institutional capital. However, the current regulatory framework, especially in the EU, presents challenges that risk undermining this objective. Sustainability regulations have evolved into a complex structure that must be simplified, while fragmented, duplicative disclosure requirements and unpredictable interpretations are eliminated.
Europe's sustainability regulations can serve as a competitive differentiator to attract global capital seeking transparent, transition-ready investment opportunities. Yet the current complexity and associated costs can act as a deterrent rather than an enabler. Significant simplification, particularly in the EU, could substantially enhance regulatory certainty while preserving strategic objectives that transform sustainability regulation into a competitive advantage for European real estate markets.
The relationship between regulation and capital allocation is frequently mischaracterised. Investment decisions are not inhibited by the presence of regulation itself, but rather by the uncertainty that accompanies inconsistent, opaque, or frequently changing regulatory environments. This uncertainty must be addressed.
The challenge
The current market environment presents a timely opportunity to channel capital towards European real estate. Europe has the potential to emerge as a global leader in predictable, coherent policy, attracting increasing levels of cross-regional investment.
Favourable structural shifts are also shaping the European real estate landscape. The shortage of affordable housing and the need for investment in sustainability offer opportunities for institutional investors. Moreover, the EU and UK’s advanced ESG regulatory frameworks, if simplified and streamlined, could lock in Europe’s position at the forefront of the global real estate transition.
Tax rules and regulations have the power to accelerate capital flows when designed with purpose and coherence. Experiences in the past decade show that well-calibrated frameworks can unlock investment at scale, while fragmented or inconsistent approaches can hold it back. However, there is reason for optimism. The path forward is simple in principle, though demanding in practice: simplify, clarify, harmonise.