BLOGS

London's private rented sector has long operated under acute supply pressure. But 2025 marked a more serious rupture: industry data, including research from the British Property Federation and Savills, pointed to an approximate 80% collapse in build-to-rent (BTR) construction starts across the capital — a figure that, if sustained, threatens to reshape the affordability landscape for hundreds of thousands of renters for years to come.

REalyse planning and rental data provides critical context for what is driving this slump, who is bearing the cost, and whether there are any genuine signs of recovery emerging in 2026.

The construction collapse in context

It is important to distinguish between two different metrics that are frequently conflated in coverage of this story: planning applications and actual construction starts.

Planning applications — the submission of proposed schemes to local authorities — remained relatively active through 2024 and 2025. REalyse planning data shows that BTR-flagged applications in London held broadly steady at around 20 to 21 new schemes submitted per year in 2024 and 2025, up from just 12 in 2022.

But the volume of units proposed within those schemes tells a more troubling story. The average BTR scheme submitted in 2024 proposed around 855 units — schemes of genuine scale that could meaningfully move the needle on supply. By 2025, that average had fallen to approximately 418 units per scheme, a drop of more than 50% in ambition within a single year. Developers are still lodging applications, but they are betting smaller.

More critically, the journey from planning permission to breaking ground has become increasingly treacherous. The 80% collapse in construction starts reflects a growing disconnect: schemes are getting consented on paper but are unable to proceed to site because the underlying economics no longer stack up.

Why the economics stopped working

Multiple structural forces converged to make BTR construction financially unviable for most London schemes through 2024 and 2025.

Construction cost inflation has eased from its post-pandemic peak but remains materially elevated. Build costs for flatted schemes in Inner London have been running at £3,000 to £4,000 per square metre or above for quality BTR product, with labour shortages in specific trades pushing programme costs higher.

Financing costs compounded the squeeze. Although the Bank of England began cutting base rate through 2024, development finance rates for BTR remained well above the levels at which many schemes underwrote their initial business plans in 2021 and 2022. Schemes that pencilled at a 4% cost of debt faced a fundamentally different equation at 7%.

Viability and affordable housing obligations created additional friction. REalyse approval data shows that London's residential planning approval rate fell from 62% in 2022 to 50% by 2025 — meaning one in two applications is now failing to achieve consent. Meanwhile, the number of applications sitting in a pending or undecided state has almost trebled: from 150 stuck applications in 2022 to 428 by 2025. Planning uncertainty of this magnitude makes it nearly impossible for developers to underwrite the full funding stack.

Regulatory headwinds added further caution. The passage of the Renters' Rights Act — abolishing fixed-term tenancies and no-fault evictions — introduced a layer of operational uncertainty for institutional BTR landlords navigating the transition, particularly around portfolio management and lease structuring. While the Act's long-term impact on institutional appetite remains genuinely debated, its immediate effect on 2025 deal flow was to slow decisions and increase due diligence timelines at the acquisition and funding stages.

The boroughs feeling it most

REalyse planning data for the 2023–2025 period identifies the boroughs where BTR activity has been concentrated — and where the supply gap will bite hardest if construction continues to stall.

Ealing led on total BTR units proposed, with five applications covering around 930 units, followed by Tower Hamlets (three applications, approximately 875 units) and Greenwich (three applications, approximately 565 units). Barnet, Lambeth, Newham and Southwark each recorded BTR pipeline activity, with individual schemes in the 100–350 unit range.

These are not marginal markets. Ealing, Tower Hamlets and Greenwich represent high-demand corridors with strong renter demographics and well-established commuter links. If the consented schemes in these boroughs do not proceed to construction, the affordability pressure will be felt acutely and quickly.

What it means for renters: rising rents and shrinking choice

The human cost of the construction slump is already visible in the rental data.

REalyse listings data shows average asking rents for London flats running at approximately £2,548 per month in 2025, rising towards £2,636 per month in the first half of 2026 — a market that continues to move upward despite, or arguably because of, the collapse in new supply coming through.

London flat rental listing volumes have remained high — over 177,000 flat listings recorded across 2025 — indicating that demand-side activity is sustained. The supply constraint is not manifest as a lack of listings per se; it is the absence of net-new stock. When existing properties churn at elevated rents rather than new institutional supply absorbing pent-up demand at scale, renters face a worsening affordability trap with no structural exit.

For context, a Londoner paying £2,600 per month on the national median full-time salary would be allocating well over 50% of gross income to rent — a ratio that places London among the least affordable rental markets in Europe by standard international benchmarks, and one that the BTR construction pipeline was, in theory, designed to help address over time.

Does the 2026 pipeline signal recovery?

The honest answer, based on current data, is: not yet.

REalyse planning data for 2026 — capturing applications submitted through mid-year — records zero new BTR-flagged applications for London. This compares to 20 and 21 new BTR applications in 2024 and 2025 respectively. Even accounting for the partial-year nature of the 2026 data, the freeze in new scheme submissions represents a significant deceleration.

The overall residential pipeline in 2026 is similarly compressed at this stage, with total unit volumes in the planning system running well below the pace recorded in 2024 and 2025.

The more nuanced signal lies in the backlog of undecided applications from 2025. A substantial number of schemes — many of them large-scale BTR proposals — remain in a pending state awaiting determination by local authorities. If planning decisions accelerate and consent rates improve in the second half of 2026, it is plausible that some of these schemes could secure permission and enter the pre-construction funding process before year-end. That would feed potential construction starts in 2027.

But "plausible" is not "likely." The structural cost challenges that prevented consented schemes from starting in 2025 have not been resolved by planning policy reform alone. Development finance remains cautious. Affordable housing viability negotiations continue to create delays. And there is no mechanism currently in place to fast-track consented BTR schemes to site.

Conclusion: the gap that keeps widening

London's BTR construction collapse is not a temporary blip driven by a single shock. It reflects a convergence of structural challenges — cost inflation, financing pressure, planning delays, regulatory change, and a viability gap that has proven stubbornly persistent — that have broken the chain between consented schemes and actual shovels in the ground.

The planning pipeline shows a sector that was ambitious on paper through 2024, but is now pausing even at the application stage. Meanwhile, London renters face asking rents approaching £2,650 per month for a flat, with no material new institutional supply expected to arrive at scale before 2027 at the earliest.

The Government's planning reform agenda and the gradual stabilisation of financing costs offer a path to recovery — but only if the underlying viability of BTR schemes is restored in parallel. Without that, the pipeline remains a list of buildings that will never get built.