Build-to-Rent sector in the UK shows resilience despite economic uncertainty

A new analysis by the British Property Federation (BPF) reveals that the number of completed Build-to-Rent homes in the UK has risen by 13 per cent over the past year, reaching a total of 88,100 units.

The research, conducted in collaboration with Savills, further indicates that the total number of Build-to-Rent homes completed, under construction, or in the planning phase stands at 253,402, reflecting a 12 per cent increase in the last twelve months. Notably, Single Family Housing is experiencing strong expansion, with 28,000 units completed or in the pipeline, accounting for 12 per cent of the Build-to-Rent sector.

Despite these positive trends, the analysis highlights challenges in the sector. Build cost inflation and economic uncertainty are expected to impact delivery, resulting in a slowdown to the start of construction. In the first half of this year, construction starts totalled 5,549 units, marking a significant 55 per cent decline compared to the same period in 2022.

The situation is particularly pronounced in London, where high land values lead to larger, more capital-intensive schemes. Construction starts in the capital plummeted by 80 per cent year-on-year, with only 836 units initiated in H1 2023, down from 4,415 in H1 2022.

Ian Fletcher, Policy Director at the British Property Federation, acknowledged the expansion of the Build-to-Rent sector while cautioning about the challenges posed by economic uncertainty and cost inflation. Large-scale, capital-intensive schemes, especially in London, face significant hurdles. However, smaller developments in regional cities and the growth of single-family housing continue to contribute to the housing supply in UK cities.

He said, "Build-to-Rent is continuing to expand but the sector is not immune to the current economic uncertainty and cost inflation. At the current time, it is very challenging to deliver large-scale capital-intensive schemes, particularly in London, but there are fewer obstacles to the delivery of smaller developments in regional cities and single-family housing both which continue to grow as a proportion of housing supply in UK cities."

Jacqui Daly, Director of Residential Research and Consultancy at Savills, emphasised the vital role that Build-to-Rent will play in maintaining overall housing supply, particularly with weaker demand for homes for sale due to higher expected interest rates. The diversification of the Build-to-Rent deliverers' profile is deemed crucial for sustained growth in the sector.

He stated: "With interest rates now expected to stay higher for longer demand for new homes for sale is likely to be weaker which will constrain housing delivery. Build-to-Rent will have a key role to play in maintaining overall housing supply, and in the last quarter, we have seen examples of major housebuilders agreeing to deliver a pipeline of rented homes, which has boosted the pipeline. The continued diversification of the profile of BtR deliverers is critical to its continued growth."

Build-to-Rent homes are gaining traction in the UK property market despite challenges posed by market conditions. According to a new analysis by the British Property Federation (BPF), completed Build-to-Rent homes have increased by 13 per cent in the past year, reaching a total of 88,100 units. The research, conducted in partnership with Savills, provides valuable insights into the state of the sector and its potential for future growth.

The analysis reveals that the overall number of Build-to-Rent homes completed, under construction, or in the planning pipeline has risen to 253,402, reflecting a 12 per cent increase in the past twelve months. Within this figure, Single Family Housing stands out as a particularly strong segment, with 28,000 units completed or in the pipeline, making up 12 per cent of the Build-to-Rent sector.

One significant factor contributing to the growth of the sector is the increase in homes under construction, which has risen by nine per cent. This growth has been buoyed by major housebuilders entering into forward funding transactions with investors, resulting in over 2,000 homes being built specifically for rental purposes. Additionally, the number of new Build-to-Rent homes in the design and planning phase has increased by 13 per cent to reach a total of 111,815.

Despite the positive developments, challenges such as build cost inflation and wider economic uncertainty loom over the sector. These factors are expected to slow down delivery, as evidenced by a decline in construction starts.

In the first half of the year, construction starts amounted to 5,549 units, a significant 55 per cent decrease compared to the same period in 2022. The situation is particularly pronounced in London, where high land values and capital-intensive projects have led to a drastic decline of 80 per cent in construction starts, with only 836 units initiated in H1 2023, down from 4,415 in H1 2022.