BLOGS

A market in freefall

The numbers are stark. According to joint analysis from the British Property Federation and Savills, just 613 build-to-rent homes started construction in London during 2025—an 80% collapse compared with 2024. Outside the capital, regional BTR starts fell 37%, from 12,781 to 8,063 units.

This is not a statistical blip. Consultants Molior report that only 5,547 private-sector residential homes of any tenure began construction across London in 2025, compared with 33,782 a decade earlier. The capital's development pipeline now risks falling to just a quarter of pre-pandemic levels by early 2027.

REalyse planning data shows a mixed picture: while some large schemes secured approval in 2024—including two BTR projects totalling over 450 units—2025 saw only a handful of approvals come through, with the majority of consented units stuck in limbo. The bottleneck between planning consent and site start has become the sector's defining challenge.

Why construction has stalled

Building Safety Regulator delays

The single largest obstacle is the Building Safety Regulator (BSR), established following the Grenfell tragedy to oversee higher-risk buildings. Developers report 6–9 month delays at the BSR for schemes above 18 metres—which in London means virtually every significant apartment development.

"The new building safety regulator has made it essentially impossible to build buildings above 18 metres, which in London is pretty much every building," noted one industry commentator. The government acknowledged the problem, announcing reforms in June 2025 to add capacity and speed up decision-making, but the damage to 2025 starts is already done.

Viability under pressure

Even when approvals are secured, making schemes stack up financially has become increasingly difficult. Construction costs have risen above inflation, driven by energy price volatility, materials shortages and labour cost pressures. The Construction Industry Training Board estimates the sector will need nearly 48,000 additional workers annually between 2025 and 2029 just to meet demand.

Meanwhile, development finance costs remain elevated. With the Bank of England base rate sitting at 3.75% at the end of 2025, the spread between BTR yields and the risk-free rate has narrowed to the point where many projects no longer make sense for investors.

John Lewis's withdrawal from its £500 million build-to-rent venture in February 2026 illustrated the shifting economics. The retailer cited "a fundamental shift in the economic conditions"—higher borrowing costs and construction inflation that rendered the original business plan unviable.

Policy uncertainty compounds the problem

Investors also face a regulatory environment in flux. The Renters' Rights Act 2025 received Royal Assent but most provisions remain uncommenced, creating uncertainty about operational requirements. Stamp duty changes, the abolition of Multiple Dwellings Relief, and increased tax on rental income have further dampened appetite.

Planning wait times have nearly doubled in London over the past six years, from an average of 8 months to 15 months for BTR applications. Detailed planning applications nationally fell 16% in the year to Q1 2025, while overall planning applications hit their lowest level in more than a decade at 689,000.

"Without a stable policy environment, the country is going to continue to see declining construction activity," warned Melanie Leech, Chief Executive of the British Property Federation.

The rental market squeeze intensifies

While construction slumps, rental demand shows no sign of abating. REalyse data indicates London rental listings increased from around 150,000 in 2024 to over 173,000 in 2025, with average asking rents holding steady at approximately £2,950 per month. Average asking rents per square foot edged up from £42.45 to £43.16 year-on-year.

ONS data confirms rents nationally rose 5% in the year to October 2025, with London typically running above the national average. The mismatch between supply contraction and sustained demand points to continued rental pressure ahead.

Private landlord departures are accelerating the squeeze. Research from Hamptons shows the share of homes purchased by landlords in Britain fell from 15.8% in 2015 to 10.8% in 2025. The Renters' Rights Act and tighter safety and environmental regulations are driving further exits, removing stock faster than new supply can replace it.

Signs of resilience—but not enough

Not all indicators are negative. BTR completions remained robust, with over 17,000 homes delivered between Q1 2024 and Q1 2025, bringing total completed BTR stock to 127,150 nationwide. Investment volumes hit a record £5.2 billion in 2025, with single-family housing accounting for nearly half of deals.

The number of BTR units with detailed planning consent rose 17% on the year to 67,307. But consents alone do not house anyone. Converting permissions into construction starts is now the critical challenge.

"While the fall in starts is stark, particularly in London, there are signs of resilience in the regional picture and in the growing pipeline of consented schemes," noted Guy Whittaker, Head of UK Build to Rent Research at Savills. "The priority now is to convert planning permissions into delivery."

What happens next

The outlook depends heavily on whether 2025's regulatory logjam can be cleared. Changes at the Building Safety Regulator implemented in late 2025 are showing early signs of improving decision speeds. Planning reform through the Planning and Infrastructure Bill may provide further certainty if it translates into faster, more predictable outcomes.

For investors and developers, the calculation is changing. Those who can mobilise now—while competition is subdued and development finance more available—may secure "first restarter" advantage in a shrinking new-homes market. But that requires confidence that the policy environment will not shift again.

London's development model, built on rising land values and strong overseas investor demand, appears broken. Construction costs, weaker demand, and regulatory friction have created what one analysis termed a "perfect storm" for housebuilding.

The government's 1.5 million homes target looks increasingly distant. In London, just 8,436 new homes were sold in 2025—a figure that directly feeds into fewer construction starts. Without urgent action to unlock stalled sites, streamline approvals and restore investor confidence, the 80% collapse in BTR starts may be just the beginning of a deeper housing crisis.