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The Planning Crisis Threatening BTR's Future: When the Pipeline Runs Dry

20.5.25

02_Living Street_S1

The Build to Rent sector faces an existential threat that could undermine years of growth and investment.

A catastrophic collapse in planning applications that threatens to starve the market of new supply for years to come. The data reveals a crisis that demands immediate action from government, developers, and investors alike.  

Contributors:

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Iain Murray

Head of Operational Living

See full profile

The Stark Reality: Planning Applications in Freefall

 

The numbers are genuinely alarming. Multi-family BTR planning submissions have plummeted from peaks of over 20,000 homes per year to projected levels of barely 10,000 homes in 2025. For multi-family developments specifically, we're looking at a drop from roughly 20,000 applications annually to potentially under 5,000 this year—a decline of over 75%.

Even co-living, previously a strong growth sector, has seen planning submissions collapse from highs of over 8,000 homes to projected levels below 3,000. This isn't a temporary blip—it's a sustained decline that began in 2022 and shows no signs of recovery.

To put this in perspective: if planning applications represent the "sausage meat going into the sausage machine," as one industry expert colourfully described it, then we're facing a severe shortage of raw materials for future housing delivery.

The Building Safety Act: A Regulatory Earthquake

 

The Building Safety Act of 2022 sits at the heart of this crisis. While well-intentioned in its safety objectives, the Act has fundamentally altered the economics of multi-family development:

  • Gateway Process Delays: The Stage 4 design requirements and gateway approvals process now adds a 12-month lag between receiving planning consent and starting construction work.
  • Compliance Costs: The cost of building safety compliance has made many previously viable schemes uneconomical.
  • Regulatory Uncertainty: Even where compliance is achievable, the ongoing uncertainty about requirements and interpretation has deterred investment.
  • Insurance and Liability: New liability structures and insurance requirements have created additional financial burdens that weren't factored into original project economics.

One developer, who participated in a recent Bidwells roundtable, explained: "Even if all these planning applications were approved and built, they're not going to start for 12 months due to the gateway process. So, we've got a gap."

Beyond Building Safety: A Perfect Storm

 

While the Building Safety Act provides the primary explanation for the planning collapse, several other factors have compounded the crisis:

  • Cost of Capital: Higher interest rates have made development financing more expensive, reducing the number of viable projects.
  • Construction Inflation: Rising material and labour costs have squeezed development margins.
  • Land Value Expectations: Land prices haven't adjusted sufficiently to reflect new development economics.
  • Policy Uncertainty: Frequent changes to planning policy and taxation have created an unstable investment environment.
  • Section 106 and CIL Burdens: Increasing demands from local authorities for contributions and affordable housing have further eroded viability.

The Infrastructure Funding Crisis

 

A particularly concerning aspect of the crisis relates to how development is expected to fund public infrastructure. As one roundtable participant observed:

"There's a fundamental presumption in government that land value is an endless well that can be pulled from to pay for public infrastructure, building safety levies, and previous commitments. But we now have so many taxes and costs that the equation between surplus and deficit has swung considerably the other way."

This "death by a thousand cuts" approach to development taxation has created a situation where even well-located, well-designed schemes struggle to achieve viability.

International Investment Perspective

 

The crisis is particularly frustrating for international investors who have capital available but can't deploy it effectively in the UK market. As one major investor explained:

"We have £1.8 billion sitting there that we have to invest, but the UK is currently just so difficult to make things work. Europe becomes a much better option for us, even though those environments are more regulated—but it's much more secure and understood regulation."

This capital flight represents a significant opportunity cost for the UK housing market and highlights how regulatory uncertainty can be more damaging than regulation itself.

The Government's Dilemma

 

From a policy perspective, the planning crisis presents a fundamental challenge to housing delivery targets. With Labour's commitment to build 1.5 million new homes within this parliament, the collapse in BTR planning applications represents a significant threat to delivery capacity.

The government representative at our roundtable acknowledged the scale of the challenge: "This is really stark data. The building safety regulator is clearly a massive issue for multi-family development. We're very conscious of this as we think ahead to housing strategy publication—how could we use that as a moment to reset and provide regulatory certainty?"

The Viability Death Spiral

 

Perhaps most concerning is how the various challenges interact to create a viability death spiral:

  1. Increased costs from regulation and compliance requirements

  2. Longer timescales increasing finance costs and risk

  3. Reduced investor confidence leading to higher return requirements

  4. Land value stickiness preventing necessary price adjustments

  5. Planning system stress creating further delays and uncertainty

 

Each factor compounds the others, making viable development increasingly difficult to achieve.

The Time-Critical Housing Supply Crisis


The developments not being planned today won't be available until 2027-2028, with London projected to see just 7,000 private rental completions in those years—staggeringly low for a city of its size. Every month of delay extends this housing shortage, as one developer noted: "Making decisions now for three and a half years' time when we've got product ready for market is incredibly difficult, especially with Building Safety Regulations."

This supply shortage will inevitably drive rental price increases that could "really scare people." The irony is that reduced supply will eventually create the rental growth needed to make development viable again, but at the cost of affordability for renters.

Potential Solutions: A Path Forward

 

While the crisis is severe, several potential solutions emerged from our discussions:

  • Regulatory Certainty: Government could provide clear, stable regulatory frameworks that allow developers to price risks accurately rather than avoiding them entirely.

  • Viability-Based Planning: Local authorities could adopt more flexible approaches to Section 106 and affordable housing requirements based on genuine scheme viability.

  • Infrastructure Funding Reform: Moving away from developer contributions toward broader-based infrastructure funding could improve development economics.

  • Build-Fast Incentives: Creating incentives for rapid construction could help offset some of the cost impacts of regulatory delays.

  • Streamlined Approval Processes: Simplifying and accelerating the gateway approval process for Building Safety Act compliance.

Industry Adaptation Strategies

 

While waiting for policy solutions, the industry is already adapting:

  • Single Family Focus: The shift toward single family housing partly reflects developers seeking less regulated development routes.

  • Acquisition Strategies: Some investors are focusing on acquiring distressed or discounted consented schemes from housebuilders rather than developing new projects.

  • Operational Light Models: Reducing operational complexity and amenity provision to improve project economics.

  • Geographic Concentration: Focusing on markets where planning and development processes are more predictable.

The International Comparison


The crisis is particularly frustrating when compared to other markets where BTR investment is flowing freely. Many European markets have more regulated environments than the UK but offer greater certainty and stability, making them more attractive for international capital.

This comparison suggests that the issue isn't regulation per se, but regulatory uncertainty and the unpredictable layering of new requirements onto existing frameworks.


A Call for Urgent Action


The BTR planning crisis represents more than just a temporary market downturn—it threatens the long-term viability of professional rental housing delivery in the UK. Without immediate action to address regulatory uncertainty, improve development viability, and restore investor confidence, the sector risks a prolonged period of underinvestment that will ultimately harm renters, communities, and the broader economy.

The government's housing strategy provides an opportunity to reset relationships with the development industry and create the stable, predictable environment needed for long-term housing delivery. The question is whether policymakers will act quickly enough to prevent a lost decade of rental housing development.
As we face this crisis, the industry must continue making the case for regulatory reform while adapting to current realities. The future of professional rental housing depends on getting this balance right—and time is running out to act before the planning pipeline runs completely dry.

Get in touch with our team

Image of Iain Murray

Iain Murray

Head of Operational Living

Iain spearheads our Operational Living department across PBSA, Co-living, Build to Rent, Later Living and Retirement.

Read more
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Mike Jones

Partner, Planning

Mike is a Chartered Town Planner with 19+ years’ experience and knowledge across an array of sectors.

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How we can help

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Navigating the current planning and regulatory environment requires specialist expertise and strategic thinking. Our team works with developers, investors, and landowners to find viable pathways through the complex regulatory landscape.

Whether you're trying to progress existing schemes, evaluate new opportunities, or understand the implications of regulatory changes, our experts can provide the guidance you need to succeed in this challenging environment.

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Contributors:

Image of Iain Murray

Iain Murray

Head of Operational Living

See full profile
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