Property developers are facing a challenging time as the construction of Build-to-Rent (BtR) homes has plummeted by 20%, despite a surge in demand.
New figures from Savills reveal a worrying trend in the BtR sector. Despite the number of completed BtR homes surpassing 120,000 – a jump of nearly a quarter in just a year – new construction projects are drying up.
The slowdown in construction, evident throughout 2024, has resulted in more homes being completed than started. 12,400 more homes were finished than started in 2024. This concerning gap is particularly pronounced outside of London. While London saw an 11% drop in new builds, totalling 15,500 homes, the regions were hit harder with a 23% slump, equating to 34,500 fewer homes started.
Pipeline Robust but New Applications Slump
Don’t be fooled by the 273,700 BtR homes currently in the pipeline (either completed, under construction, or in planning). This represents only a 5% increase year-on-year, and alarmingly, new planning applications have nosedived by 12% in the last quarter alone.
Blame it on Costs and Red Tape
Industry experts are blaming the construction slump on a perfect storm of escalating costs, partly triggered by new regulations, and ongoing planning system issues. The axing of Multiple Dwellings Relief (MDR) back in June has been a major blow, making many schemes financially unviable. The British Property Federation (BPF) estimates this could result in a loss of between 13,000 and 25,000 new homes.
Investor Appetite Strong But Policy Needs to Play Catch Up
Ian Fletcher, Policy Director at the BPF, highlighted the critical role BtR has played in the housing market, attracting £40 billion in investment and delivering 120,000 homes. He stressed the sector’s importance in providing diverse housing options across the country, particularly as it expands into family-friendly, low-rise developments.
However, he warned, “increased regulatory and other costs… are starting to take their toll on new schemes.” He called for policy changes to incentivize new projects and attract the estimated £250 billion needed to meet future housing demands.
Navigating the Viability Hurdle
Guy Whittaker, Head of UK Build to Rent Research at Savills, pointed out that BtR now accounts for a tenth of all new homes built, double its contribution in 2019. But he acknowledged the difficulties in getting new projects off the ground, stating that “starting new sites remains a challenge.” He cited “elevated debt and construction costs” alongside planning system roadblocks, particularly in London, as major hurdles.
Despite the challenges, Whittaker remained optimistic, stating that ample investor demand exists. The key is to tackle the viability issues and navigate the planning system maze to unlock the sector’s potential.
The message is clear: while the demand for BtR homes is booming, developers and investors face an uphill battle in the current climate.