With build-to-rent on the back foot, can major regeneration schemes still stack up?

Last month retailer John Lewis shocked the residential development sector by abandoning its high-profile plans – announced in 2021 – to build 10,000 build-to-rent homes on sites across the country.

Now, while the purveyor of the nation’s curtains is engaged in an ongoing return to its core business under new chair Jason Tarry, it nevertheless blamed the resi sector itself for the U-turn, aiming a hefty broadside at the fundamentals of the market it was leaving.

In a statement John Lewis – which has since 2021 achieved three major planning consents – said there had since been a “fundamental shift” in the economic conditions underpinning the venture. “Our rental property ambition was based on a very different financial environment: one with more stable investment returns, lower borrowing costs, and more affordable costs to build homes,” the statement said.

Certainly, there is no doubt that the build-to-rent sector is facing a significant challenge. Development volumes have been on a downward trajectory ever since the 2022 Truss-Kwarteng mini-Budget, with a variety of factors compounding to make it harder to get schemes away.

New build-to-rent schemes in London are pretty much unviable right now 

David Lunts, non-executive director and development committee chair, Clarion Housing Group

Starts in the sector are now running at less than a third of the level that they were at the end of 2022, and the pipeline of schemes is dwindling.

This is not just a problem for the affected projects, their developers, and housing numbers overall. It also has big implications where build-to-rent (BTR), as is usually the case, forms part of broader regeneration plans, often as an important initial market-making investment.

As part of Building’s Regen Connect series, here we look at the wider ramifications of the travails facing this part of the market in recent years. John Lewis’ decision has cast a light on the issues facing the sector, and raises significant questions about how big regeneration schemes can find solutions where BTR is no longer a viable option.

How bad is it?

Of course, the build-to-rent sector has not been alone in facing challenges. Housebuilding rates have fallen across the board since Truss-Kwarteng in the face of the high interest rate environment and the rising construction costs, high inflation and cost of living challenges coming out of the covid crisis and the war in Ukraine.

But the available data suggests that BTR has been uniquely hit. Government data on quarterly housing starts shows that, in the last quarter for which information is available (July to September 2025), starts for the UK are 33% down on the same quarter in 2022, at 37,500.

The John Lewis announcement is reflective of what the market is experiencing. It has become a bit of a perfect storm

Leigh Thomas, group managing director, Kier Property

However, the British Property Federation (BPF) and Savills have together collected data for the BTR sector for the past 13 years. It found that starts peaked in 2022, when, in the July to September quarter, they accounted for 28,900 homes, around half of recorded UK starts.

Since then, starts have plummeted by 70% to less than 9,000 per quarter. Since summer 2024, completions too have begun to fall, with completions now down 28% from peak.

The situation is particularly acute in London. The capital, which has previously boasted as many as 10,000 BTR starts in a single quarter, started just 613 homes in the last three months of 2025. That is down 93% from the Truss-Kwarteng peak quarter. Meanwhile, quarterly completions are on a steady downward trajectory and have now more than halved from peak.

David Lunts, non-executive director and chair of the development committee at registered provider Clarion Housing Group, and a member of Building’s Regen Connect advisory panel, says the interest rate rises from 2022 “killed build-to-rent” in London. “I remember talking to Quintain when the Truss Budget happened, walking around their Wembley development and them saying: ‘That’s it now. We won’t be doing any more for a long while’.

“New build-to-rent schemes in London are pretty much unviable right now.”

Leigh Thomas, group managing director at Kier Property, and another member of the Regen Connect panel, says several factors have conspired against BTR. “The John Lewis announcement is reflective of what the market is experiencing,” he says. “It has become a bit of a perfect storm.”

What has gone wrong?

Clearly, while sentiment changed with the interest rate spike caused by the Truss-Kwarteng mini-Budget, there has been much more going on. Thomas explains: “We’ve had hyperinflation post coming out of covid, and then you have the Liz Truss issues with the gilt markets that have pushed long-term financing for these products to very difficult levels.

“You’ve then got an affordability crisis. And then you’ve got issues like the Building Safety Regulator and the time and cost and delay that imports into the process.”

While Dav Bansal, Regen Connect advisory panel member and partner at Birmingham-based architect Howells, points out that “the challenge is in every sector, it’s across the market”, the reality is that certain problems have particularly affected BTR, given the focus on flatted development.

One example is the Building Safety Regulator (BSR) delays, which have hit only high-rise housing and therefore have particularly impacted BTR. In general, BTR’s historic focus on high-rise and on the capital have left it vulnerable, as capital-intensive schemes in high-value locations have been where the viability pressures have been greatest, given high funding and construction costs.

Indeed, Kier’s Thomas says that many of those schemes still going ahead are the low-rise, single-family housing schemes, often in second tier markets, which require far less up-front capital. Mary Parsons, regeneration director at partnerships housebuilder Lovell and also a Regen Connect advisory panel member, says the majority of the BTR her firm does is now single-family rented housing, but even on these schemes viability can remain challenging.

In addition to these market pressures, Kate Butler, assistant director of policy at the BPF, highlights a range of tax changes which have negatively affected viability, from increases to corporation tax and the new building safety levy.

These include a unique viability to BTR hit through the 2024 removal of the previous multiple dwellings relief in stamp duty. Butler says the BPF estimates that move on its own directly stalled or hampered delivery of up to 25,000 homes.

To prove its point, the BPF has re-run a development appraisal on a 300-home BTR scheme that was approved for construction in 2020 and subsequently built out. At the time, the appraisal put the scheme £8.2m in the black. Since then, despite factoring in significant rent rises, a theoretical re-run of the development appraisal conducted last year, put the scheme £6.2m in the red.

The biggest changes negatively impacting returns in the appraisal were construction cost inflation, yield shift (the requirement that the asset provides a greater rental return), and the direct costs of meeting Building Safety Act requirements (see chart below).

What is the wider impact?

The problems affecting BTR can have a big impact on any wider regeneration schemes of which they form part. Clarion’s Lunts says that because rental investors have often been comfortable investing in regeneration areas where sale values are comparatively weak, BTR has over the past decade taken a catalytic role as a first scheme in long-term projects such as Old Oak Common – where Lunts until last year ran the development corporation.

Build-to-rent schemes also, according to Ministry of Housing, Communities and Local Government figures published in May last year, give projects momentum, offering build rates between 30-60% higher than traditional development. This is because they are not reliant on the slow absorption of sales into a local market to go ahead.

“On larger sites it can play a fundamental role in driving early absorption rates and supporting cashflows,” says Lovell’s Parsons. “It also helps to create that mixed and balanced community.”

Lunts says: “For big, challenging regen schemes like Old Oak Common, you are probably not going to create much of a market in early years for sale product. Because people are not necessarily going to invest in a 30-year mortgage. It looks like a high risk.

“BTR is a really valuable front-end pioneer investment, because it doesn’t face the same challenges.”

Given this, BTR’s absence leaves a gap. “For big regeneration projects like Wembley and others, it’s a real problem,” Lunts adds. “Because, if you need to create scale and pace of development, institutional build-to-rent is a great place to go.” 

How are clients solving these problems?

Where projects are unviable, developers are often faced with an unpalatable choice to write down the land value on their balance sheet or explore different development options. Commonly, promoters are considering changing schemes to student housing (purpose-built student accommodation, or PBSA), co-living (smaller rented housing with shared communal space) or even hotels to improve the calculations.

Kate Butler observes that PBSA and co-living schemes generally improve the viability of sites, because they require smaller rooms, and are therefore able to deliver a greater density of occupation, and consequently higher returns. She argues that the requirement for such housing is, also, higher than is generally understood, with three million potential co-living occupiers in the UK that give that sector scope to grow “a lot larger”.

However, many planning authorities are not enthusiastic about unlimited student housing and co-living space, and Butler admits that it will not be possible to replace BTR with these options “wholesale”.

David Lunts says: “There is still viability in the rental market, but it’s very much PBSA and, to some extent, co-living. So, what we’re seeing, is schemes coming forward in the rental space which arguably do not really play into mainstream housing requirements.”

Simon Marks, city executive at consultant Arcadis and Regen Connect advisory panel member, thinks the problems can be solved with a relentless focus on partnership and cost. “Unlocking this opportunity needs all parties, public sector and private sector to play their part. How do we leverage the latest design tools to optimise site usage and internal layouts?

“How do we form true joint ventures to share risk and reward? How do we secure devolved funding to pump prime schemes but look to recycle that funding into the next phase? We need to leave no stone unturned in the pursuit of development viability.”

There was an appetite for risk and optimism that, if we did the right thing and delivered the right quality, then we can transform a place

Dav Bansal, partner, Glen Howells architects

Howells’ Bansal says much of the problem is that there are far fewer property entrepreneurs operating in the market with the funding that can enable them to make visionary decisions to push ahead with schemes. He says: “Frankly, I’ve never worked on a scheme in the last 20 years that has been viable.

“We’ve always had this problem. But I believe there was an appetite for risk and optimism that, if we did the right thing and delivered the right quality, then we can transform a place. Not relying on today’s rents or today’s viability – relying on viability in three, four, five years’ time.”

“Fifteen years ago, you had brave people with an instinct for property. Whereas now you have got funding committees being informed by whether data meets the thresholds of their hurdle rates.”

An improving picture?

There are some rays of hope. Firstly, conditions are not uniformly bad in all parts of the country.

Lunts points out that Clarion is managing to go ahead with its £112m 481-home  scheme in Digbeth, Birmingham, this October, demonstrating somewhat better viability outside the capital.

In addition, notwithstanding current events in the Middle East, the broad trajectory of lowering interest rates and improving activity from the Building Safety Regulator – which recently said it had nearly worked through its entire backlog of projects – is giving some cause for optimism.

Leigh Thomas says Kier’s latest scheme, a 179-unit BTR block at Guildford station developed in partnership with Grainger and Network Rail, progressed through gateway 2 approval at the regulator in 22 weeks, “substantially down” on what Kier had previously been experiencing.

Thomas says the cost of debt is coming down. “If that continues, I think that will help multi-family build-to-rent going forward. And I think we’ve certainly experienced a bit more benign [construction] tenders coming in at the moment. So, again, you can see that that is all starting to help.”

In other areas, developers are exploring partnerships with public sector landowners or seeking subsidy or public sector funding from Homes England or combined authorities to bridge the viability gap. Leigh Thomas says: “I don’t think it’s for the government to bail out companies or subsidise poor investment decisions.

“However, if you want to focus on brownfield development sites, there probably needs to be an acceptance that delivering regeneration in city centres is more expensive. So, there does need to be a reflection of ‘how do local authorities help us do that’?”

Paul Woodhams, managing director for regeneration at McLaren Construction and another Regen Connect advisory board member, says this is happening. “What’s particularly encouraging is the strong pipeline of large-scale regeneration schemes being driven forward by local authorities,” he says.

“With access to government funding and grants, these public sector partners are getting major projects off the ground. This is proving crucial in maintaining development activity.”

We haven’t quite landed built-for-rent with the political class, the policymaking class

David Lunts, non-executive director and development committee chair, Clarion Housing Group

However, the BPF’s Butler cautions against getting too optimistic about all this: “Lots of things are being explored. But, as you see from the stats, it hasn’t buoyed the sector in a way that everyone would have liked to have seen.”

There also seem to be few signs of imminent assistance on policy. The BPF is campaigning for the Treasury to reverse its stance on multiple dwellings relief and remove council tax for new BTR homes for a year after completion. But, despite the potential for BTR to deliver quick completions and a route for additional institutional investment into new-build, the government has given little indication that it sees it as a priority.

Lord Best, former Hanover housing association chair and another Regen Connect advisory panel member, says politicians do not see it as a priority. “Those on the left see it as a lost opportunity for more social housing and those on the right see it as a distraction from getting people onto the home-ownership ladder,” he says.

While the counter arguments are “sensible”, because they are “not as compelling as the negatives, I fear the politicians are not much interested.”

David Lunts agrees. “We haven’t quite landed built-for-rent with the political class, the policymaking class,” he says.

“It’s much better than it used to be. But, in the minds of senior politicians, it often boils down to, ‘we want traditional, affordable housing, and we want housing for people to buy’. That mindset is still quite binary.”

Clearly, issues with the build-to-rent sector persist, damaging the ability to bring forward major mixed-use regeneration schemes. While in some places developers and their partners are working together to get schemes off the ground, the chances of wider government support appear slim.