Delivery of UK build-to-rent slowing down as costs go up

The build-to-rent sector has continued to expand in the UK despite economic headwinds but delivery is now slowing down, according to research published yesterday by the British Property Federation (BPF) and Savills.

The number of completed BTR homes has increased by 13% in the past year to 88,100 in difficult market conditions, but the increase in construction costs has led to a 55% fall in new schemes being started this year. In London construction starts were down 80%.

“The BTR sector is not immune to the current economic uncertainty and cost inflation,” said BPF policy director Ian Fletcher. “At the current time it is very challenging to deliver large-scale capital intensive schemes, particularly in London, but there are fewer obstacles to the delivery of smaller developments in regional cities and single-family housing, both which continue to grow as a proportion of housing supply in UK cities.” 

The research shows that the total number of build-to-rent homes completed, under construction or in the planning pipeline stands at 253,402, up 12% in the past twelve months. Single family housing continues to expand strongly with 28,000 units completed or in the pipeline, making up 12% of the BTR sector. 

The number of homes under construction increased by 9%, buoyed by major housebuilders agreeing forward funding transactions with investors comprising over 2,000 homes for rent. Meanwhile, the number of new BTR homes in the design and planning phase increased 13% to 111,815.

However, build cost inflation and wider economic uncertainty looks set to slow down delivery with construction starts totalling 5,549 units in the first half of the year, down 55% on the same period in 2022. In London, where high land values mean schemes are typically larger and more capital intensive, construction starts totalled just 836 units, down 80% year-on-year (from 4,415 in H1 2022). 

“With interest rates now expected to stay higher for longer demand for new homes for sale is likely to be weaker, which will constrain housing delivery,” said Jacqui Daly, director, residential research and consultancy, Savills. “BTR will have a key role to play in maintaining overall housing supply, and in the last quarter we have seen examples of major housebuilders agreeing to deliver a pipeline of rented homes, which has boosted the pipeline. The continued diversification of the profile of BTR deliverers is critical to its continued growth.”