BLOGS

A sector approving more than it's building

Build-to-rent is sending two contradictory signals at once. On one hand, planning committees are waving through some of the largest schemes seen in years, with detailed consents for BTR homes up sharply on a year earlier. On the other, construction starts have fallen off a cliff: UK-wide starts dropped by roughly 79% in the year to June, with regional markets outside London down even further than the capital itself.

For institutional investors and lenders used to reading planning pipeline as a leading indicator of supply, this is an awkward divergence. Consents are meant to convert into cranes on site within 12–24 months. Instead, completions have now outpaced new starts for ten consecutive quarters, meaning the pipeline is being drawn down faster than it's being replenished. The story isn't a planning problem. It's a viability problem.

Approvals up, starts down: reading the regional split

The headline consent numbers look encouraging on paper. Detailed planning permissions for BTR homes rose by around 17% year-on-year to roughly 67,000 units nationally, and several flagship regional schemes - in the 250 to 650-unit range that institutional capital favours - secured approval in the past two quarters. REalyse planning data tracking BTR-flagged applications by submission year and decision status shows a similar pattern: a swelling cohort of "in progress" and "granted" applications, concentrated in London, the South East, North West and West Midlands, even as new pre-application activity has slowed.

The problem sits at the conversion stage. Starts outside London fell by around 84% in the year to June, compared with a still-severe but comparatively smaller decline in the capital. London's own starts collapsed by roughly 80% across 2025, but the regions - which had been the growth story of the past three years, led by Birmingham, Manchester and Leeds - are now seeing the sharpest pullback in absolute terms, with regional starts falling from around 12,800 units in 2024 to roughly 8,000 in 2025, before dropping further into 2026.

That regional weakness matters because it undercuts the "regions are the resilient story" narrative that has underpinned much BTR investment thesis over the past two years. Land values are lower outside London, but so are achieved rents, which means the yield-to-cost equation has less room to absorb higher construction and finance costs before a scheme stops stacking up.

Why viability, not planning, is the binding constraint

Three cost pressures explain the gap between consent and construction:

• Build cost inflation: materials and labour costs have risen faster than headline inflation over the past three years, eroding development margins on schemes underwritten before rates rose.

• Financing costs: with the Bank of England base rate still well above the near-zero environment BTR was underwritten against in 2020–21, the spread between development finance costs and stabilised BTR yields has narrowed materially, particularly for leveraged developers.

• Regulatory friction: Building Safety Regulator gateway checks have extended decision timelines for higher-density schemes, adding holding costs even after consent is secured. Reforms introduced in late 2025 appear to be shortening these timelines, but the effect on starts will lag by several quarters.

REalyse rent listing data for major regional cities shows achieved rents for new-build BTR flats in the North West, Yorkshire and Scotland typically supporting gross yields in the 5.5–7% range - workable for well-capitalised, lower-leverage operators, but tight for schemes reliant on higher debt or aggressive exit assumptions. Notably, new-build BTR stock continues to command a rental premium of roughly 8–15% over comparable private-landlord stock in the same postcode district, evidence that tenant demand for professionally managed rental product hasn't gone anywhere - the constraint is entirely on the supply side.

What this means for investors, developers and lenders

For deal teams, the message is that regional averages are no longer a safe basis for underwriting. A blanket "regions over London" allocation strategy misses meaningful variance at local authority level - some markets are still converting consents into starts at healthy rates, others are stalled entirely.

Practical next steps for anyone screening the current pipeline:

1. Pair planning visibility with yield comparables at scheme level. Cross-referencing which local authorities are still approving and progressing schemes of comparable scale against achieved rent and yield data for nearby new-build stock does more to de-risk underwriting than relying on national or regional averages.

2. Track conversion rate, not consent volume. The number of units with consent tells you little if the conversion rate into funded starts keeps falling. Watching that ratio by region and local authority is now the more useful leading indicator.

3. Watch called-in decisions and BSR timelines as a real-time barometer. Faster regulatory decisions and central government willingness to call in stalled strategic sites could unlock specific large schemes that have sat dormant - these tend to arrive in lumpy, large-unit increments rather than a smooth recovery.

Outlook

The BTR pipeline isn't broken, but it is running on stored momentum from approvals granted in 2020–22 that are only now completing. Unless the conversion rate from consent to start improves meaningfully through 2026, the current wave of flagship approvals risks becoming a stranded pipeline rather than the next generation of delivered stock. For investors with the balance sheet to underwrite through the viability gap, that stranded pipeline is also where the next buying opportunity for consented land is likely to emerge - provided rental fundamentals, which remain firm, are matched with realistic build-cost and exit assumptions.