BLOGS

The viability crunch that froze the pipeline

For much of 2022 and 2023, residential development in the UK entered a prolonged holding pattern. The Bank of England's rapid tightening cycle pushed the base rate from 0.1% to 5.25% — a pace not seen in a generation — and the effects on development viability were immediate and severe.

Build costs had already surged through 2021 and 2022, driven by post-pandemic supply chain disruption and labour shortages. Layered on top came the financing cost shock: the spread between development finance rates and achievable gross development values (GDVs) compressed dramatically. For many schemes — particularly those in the living sectors, where returns depend on rental income rather than outright sales — the numbers simply stopped stacking up.

The result was a wave of deferrals, scheme redesigns, and outright shelving of consented projects. REalyse planning data captures this starkly: granted residential applications fell to just 695 in 2023 — down from 917 the previous year and the lowest recorded figure in the dataset — while the total residential units approved dropped to under 19,000, a fall of more than 25% from the 2021 peak of approximately 27,500.

This wasn't simply a pipeline delay. It was a genuine viability crisis, and its effects are still working through the system.

The regulatory layer that compounded the problem

The economic headwinds hit at exactly the wrong moment for the living sectors, which were simultaneously grappling with a raft of new regulatory requirements following the Grenfell Tower tragedy and the subsequent Building Safety Act 2022.

The introduction of second staircase requirements for residential buildings above 18 metres — confirmed by the Government in late 2023 — sent shockwaves through the high-rise BTR and co-living markets. Schemes that had been designed and costed to single-staircase configurations faced fundamental redesigns. Floor plate efficiencies fell, net-to-gross ratios deteriorated, and in some cases GDVs were cut by 10–15% before a single brick had been laid.

Equally disruptive was the EWS1 cladding certification backlog. Thousands of existing buildings remained effectively un-mortgageable for years, tying up developer capital, distorting comparables, and deterring lenders from new schemes in affected price bands and geographies.

The combination of financial and regulatory pressure was uniquely corrosive. Where either factor alone might have been manageable, the two together — arriving simultaneously — meant that even well-capitalised developers chose to wait rather than build.

2024: the pipeline begins to breathe again

The data for 2024 tells a more encouraging story. REalyse planning records show that the number of granted residential applications rebounded to 1,052 — the highest annual figure in the dataset — with total approved units recovering to over 21,000. That recovery in application activity reflects a combination of factors converging through the course of last year.

The Bank of England began cutting rates in August 2024, and by mid-2026 the base rate has fallen to a range broadly consistent with a stabilised, lower-rate environment. Development finance costs have followed, and while margins remain tighter than the near-zero rate era, the arithmetic of viability has materially improved for schemes that can demonstrate robust rental demand.

The new Labour government's revised National Planning Policy Framework (NPPF), published in December 2024, also shifted the mood. Mandatory local housing targets were restored after years of dilution, the "grey belt" concept introduced a pragmatic route to release lower-quality Green Belt land, and planning authorities were placed under renewed political pressure to approve rather than delay. For developers, the direction of travel felt clearer than it had at any point since 2019.

Clarity on second staircase requirements — while adding cost — at least removed the uncertainty. Schemes can now be designed with a clear regulatory baseline, underwritten, and financed. The unknown is always more expensive than the known.

The BTR opportunity hiding in plain sight

Perhaps the most compelling signal in REalyse's development data concerns the Build-to-Rent sector specifically. Across schemes submitted or decided between 2023 and 2025, our pipeline data identifies over 160 schemes — representing more than 41,000 BTR units — that carry a granted planning consent but remain classified as in progress rather than under construction.

More striking still: 24 consented BTR schemes totalling over 7,000 units are currently classified as on hold or shelved. These are projects that cleared the planning hurdle but were deferred — almost certainly on viability grounds — as financing costs spiked and construction economics deteriorated.

These shelved schemes represent latent supply. As borrowing costs ease and rental demand in major urban markets remains structurally elevated — REalyse data consistently shows rental yields in the 5–7% range for well-located BTR stock across regional cities — the case for dusting off these consented schemes is strengthening. A 100–150 basis point improvement in financing costs can turn a marginal scheme profitable. Several of those 7,000 shelved units are likely to move forward in the next 12–18 months.

A similar dynamic is playing out in co-living, later living, and student accommodation — the broader living sector. Operators who secured sites and consents during the freer-financing era are now watching conditions improve and are actively repricing schemes ahead of starts.

What still needs to go right

Cautious optimism is appropriate here — but only cautious. Several structural headwinds remain.

Construction cost inflation, while easing from its peak, has not fully reversed. Labour shortages in trades persist, particularly in London and the South East, and the cumulative effect of years of underinvestment in apprenticeships and skills pipelines is not fixed by a policy announcement. REalyse's analysis of new-build comparables in active markets suggests that build costs per square foot for mid-rise residential schemes remain 20–30% higher in real terms than they were in 2019.

Section 106 and affordable housing obligations continue to be a point of friction. While some local authorities have shown greater flexibility in viability negotiations — acknowledging the changed cost environment — others have been slower to adapt. The risk is that schemes which could move forward remain stalled in protracted renegotiations.

And while the direction of planning reform is broadly positive, delivery depends on a planning system that is still under-resourced. Local authority planning departments have seen decade-long reductions in staffing and expertise. Faster consents require not just policy change but investment in capacity.

Outlook: turning point, not transformation

The weight of evidence suggests that 2024 marked an inflection point for UK residential development viability. The grant rate recovery, the easing of regulatory uncertainty, the first meaningful rate cuts in years, and a policy environment that is — for the first time in a long while — explicitly pro-development all point in the same direction.

For the living sectors in particular, the convergence of structural rental demand, improving financing conditions and a consented but under-exploited pipeline creates a genuine window of opportunity. REalyse data will be tracking closely whether those 7,000-plus shelved BTR units begin converting to starts through 2025 and 2026 — it will be one of the clearest real-world tests of whether the recovery is structural or simply statistical.

The pipeline is not fixed. But it is, finally, moving.