Latest analysis by Savills reveals the slow-down despite numbers from the British Property Federation (BPF) showing that the total number of purpose-built rental homes has reached more than 120,000 – a 23% increase over the past 12 months.
A drop in construction has been an ongoing trend in 2024, with the number of completions consistently outpacing the number of starts.
This gap is continuing to widen, with 12,400 more homes completing in 2024 than starting. The slow down in construction is being seen more acutely in the regions, which dropped by 23% to 34,500 homes, than in London where numbers fell by 11% to 15,500 homes.
The number of BtR homes currently complete, under construction or in various stages of planning is over 273,700, with the sector growing 5% year-on-year. But while the sector pipeline remains robust with 103,000 homes in the planning system, including 54,500 homes with planning consent, the number of new applications coming forward has dropped by 12% in the last quarter.
The slow down in construction and new planning applications is a result of increased cost pressures (partly as a result of regulatory change) and points to a potentially longer-term supply challenge.
The abolition of Multiple Dwellings Relief (MDR) in June, is already impacting the ability for schemes to progress due to viability challenges, and the BPF estimates that the number of homes foregone could be between 13,000 and 25,000.
Ian Fletcher, Director of Policy, British Property Federation, said: “Build-to-Rent has made a critical contribution to housing over the last 12 years with £40bn invested to date and 120,000 new homes built. The sector provides housing across the country for a wide range of people, especially since its diversification into low-rise homes for families.
“However, increased regulatory and other costs that have faced the sector for the last few years is starting to take its toll on new schemes, as evidenced through a drop in construction starts and new planning applications.
“Investors continue to be interested in Build-to-Rent for the UK market but we need to see policy that encourages schemes to progress and attracts the £250bn of further investment that is needed to meet demand.”
Guy Whittaker, Head of UK Build to Rent Research at Savills, added: “In the past year, a tenth of all new home completions came via Build-to-Rent developments, twice the contribution it made in 2019, five years earlier.
“But starting new sites remains a challenge and the reduction in the construction pipeline is reflective of wider development challenges facing all forms of housing delivery.
“Viability remains a hurdle in the current climate, with elevated debt and construction costs, as does the planning system, particularly in London. If these obstacles can be navigated there is no shortage of investor demand to deliver new homes for rent, with more and more investors re-allocating capital from traditional investment sectors to Living sectors.”
