Are there better times ahead for BTR?

According to an analysis carried out by the British Property Federation and Savills, construction commenced on just 613 BTR homes in London last year, an 80% drop on 2024 levels. The picture in the rest of the country was better, if far from encouraging. In the regions, BTR construction starts fell 37%, from 12,781 in 2024 to just 8,063 last year.

The reasons behind this poor performance are multi-faceted but include viability issues and delays in getting sign-off for tall buildings from the still nascent Building Safety Regulator (BSR). So, is the situation likely to improve any time soon?

Some challenges are, of course, beyond the ability of any sector or industry to control. For example, the ongoing conflicts in the Middle East and Ukraine are affecting global supply chains’ and developers’ ability to go about their business.

“There are things that are in the sector’s control; there are things that are in the government’s control; and there are things that are in the geopolitical realm,” says Brendan Geraghty, chief executive of the Association for Rental Living (ARL). “Before the Middle East crisis, I don’t think anybody really would have put America on their risk register for development, but now it’s probably right at the top.”

He adds there is now a nervousness about what leaders like US president Donald Trump and Russian president Vladimir Putin might do next. “Before, we would never have put political leaders on our risk register unless you were operating in the Wild West or in some war-torn country,” says Geraghty. “Geopolitics now represents a material risk.”

It is proving challenging to demonstrate that you can provide a return
Dan Greenslade, Get Living

Such external events have a direct impact on the viability of development. If interest rates go up to fight inflation, borrowing becomes more expensive. If supply chains are disrupted, material costs go up.

BTR specialist Get Living recently secured planning permission for 507 BTR homes in Elephant and Castle in south London (see p37). Dan Greenslade, the firm’s chief financial officer, says it is increasingly difficult to make developments stack up financially, particularly in London where much of its efforts are focused.

“We as an industry are competing for capital from companies that can invest anywhere in the world,” Greenslade says. “So, you’ve got to be able to demonstrate that you can give them a return and I think that is proving challenging in the current environment.”

Of course, global events and higher interest rates affect all sectors, but BTR developers are facing additional headwinds, including greater building safety requirements.

Developer Moda Living is currently putting the finishing touches to Makers Place, a new 722-home BTR neighbourhood in Birmingham’s Jewellery Quarter set to open this spring.

According to Anthony Lowe, director of projects at Moda Living, getting sign-off for tall buildings from the BSR has created a major headache for developers. “While the introduction of the Building Safety Act is a good thing overall, it has definitely been a factor in the slowdown of BTR development,” he says.

“It’s well reported that the deadlines and timescales haven’t been met by the BSR and that’s had a knock-on impact on getting developments under way and dented confidence in implementing new schemes.”

Improved performance

However, Lowe adds that the situation has been improving since the BSR was hived off from the Health and Safety Executive last year and new leadership was brought on board. “Improvements are being made at the regulator, the sector is becoming more familiar with what is required and timescales for approval look to be reducing,” he explains.

Greenslade says he has been encouraged by the BSR’s efforts to tackle the backlog of project sign-offs and to get waiting times down. “The frustrations that people have had have been well documented, but I think now you’re really seeing that they’ve been listened to and that action is being taken,” he says.

The Building Safety Act has definitely been a factor in the slowdown of BTR development
Anthony Lowe, Moda Living

“They are determined to reduce the case load by driving recruitment to increase their capacity. You can also see from their data that they are rapidly determining cases. That’s extremely welcome from our perspective.”

Then, of course, there is the Renters’ Rights Act (RRA), which ends Section 21 ‘no-fault’ evictions and gives tenants the right to terminate a tenancy at two months’ notice. Mary-Anne Bowring, group managing director at asset and property manager Ringley, says the end of Section 21 does not present any particular problems for BTR or, indeed, responsible private rented sector landlords. Notice period disruption, on the other hand, does make financial planning that bit harder.

“I think what it’s changed is our modelling of risk,” she says. “We had things like lease expiry graphs to look at and we used to amortise who was moving in and out in a certain month to get peak flow across the year. For example, if you came to get a tenancy in December, you had to have a 14-month tenancy, not 12 months, because that meant you would move out in February and that would drive rents better.”

These issues may cause headaches in the short term, but will doubtlessly be overcome as BTR developers and investors adjust their business models. Indeed, Merilee Karr, founder and chief executive of luxury short-term lets business UnderTheDoormat Group, believes the RRA could ultimately benefit both tenants and landlords. “If you don’t have a 12-month contract then you’ve actually got to offer [tenants] things that make them want to stay longer,” she says.

“What I’ve seen happening is that really innovative landlords are doing things like allowing their tenants to essentially sublet whenever they’re not there themselves. If you’re paying rent, you should have the ability to rent out [an apartment] to someone else as long as you’re still taking responsibility for it. Where some landlords are allowing it, they might even keep a small share of the income for having allowed it. I think it’s creating a different culture.”

What is striking is that hardly anyone disagrees with either what the BSR is trying to achieve or the principles behind the RRA. “We have a bunch of regulation that’s come through, all of which on their own are pretty justifiable,” Geraghty says. “Building safety is extremely justifiable – nobody could argue that it isn’t – and the RRA is long overdue.”

The problem is so much new regulation and change all coming in at pretty much the same time. “We’ve got new regulations coming in and more still to come,” Geraghty explains. “What that means is we have a compounded regulatory situation – a situation that is very difficult for investors to stomach. If some of this stuff had been staggered, it would have been easier to manage.”

So, the issues facing the BTR sector are many and varied, but it is still hoped that 2026 will mark a turning point and more construction will get under way.

“There is a persistent imbalance between demand for high-quality, well-managed rental homes and the available supply,” says Moda Living’s Lowe. “This, combined with the success of the model in more mature forms overseas and the appealing long-term investment opportunities for global capital, means we remain confident that the rental living market has a strong future in the UK.”