It’s no secret that confidence in the UK housing market currently finds itself at a low ebb. While housing has consistently been a policy priority for successive governments on paper over the last decade, in practice, delivery has slowed rather than sped up. To put things into perspective, the latest data from the Ministry of Housing, Communities and Local Government shows that housing delivery in London is 30% lower than pre-pandemic levels. Across England, sales of new homes are down a third year-on-year. We might well be over halfway through the 2020s, but housebuilding is still struggling to get out of the starting blocks.
While Labour has prioritised planning reform as its approach for trying to reinvigorate the market, developers and investors will not feel the benefit overnight. In the meantime, high construction costs coupled with poor affordability have left the sector wrestling with a viability crisis that doesn’t look like passing anytime soon.
Yet despite the challenges facing the wider market, the UK build-to-rent sector has proven itself to be a quiet success story, with annual investment hitting a record £5.3bn last year, according to Savills research – 67% higher than in 2020. Not only this, but the impact of new legislation set to come into effect in the near future means its attractiveness compared to other asset classes within UK residential real estate is only likely to grow.
Rental demand remains high as supply falters
The same affordability crisis causing nervousness within the traditional sales market is actually helping to drive interest and investment in UK build-to-rent. It’s not hard to see why. The number of first-time buyers getting on the housing ladder each year has continued to fall steadily over the past decade, with market conditions causing many younger people to rent for longer than previous generations. Today, almost one in five (19%) households rent, and with purchase prices showing little sign of falling considerably, this trend looks unlikely to change anytime soon.
However, while demand for rental units may be increasing, supply is being impacted by higher operating costs, mortgage rates and incoming changes to tenancy legislation. Last year alone, the private rental sector contracted by 5.1%.
In particular, concerns over the potential additional costs and risks associated with the recently passed Renters’ Rights Act 2025 have caused an exodus of smaller buy-to-let landlords from the market. Many have cited fears about the viability of their investments once the key measures come into force from 1 May.
Build-to-rent is increasingly looking like it could be the solution to this supply and demand challenge. As a more professionalised model, occupying more modern assets, BTR already mirrors the heightened standards the 2025 Act is set to enforce. Retrofitting needs are far rarer than in the wider PRS, and institutional BTR providers are far better placed to absorb the financial and administrative burdens the new system brings.
Whether intended or not, the combination of new legislative requirements and an already difficult market for small landlords is accelerating the professionalisation of the PRS, with BTR ready to fill the gap.
Commonhold causes rethink
Renters’ rights is not the only area of government policy reshaping investment in the residential property market. The draft Commonhold and Leasehold Reform Bill, published at the start of this year, fired the starting gun on the phasing out of both ground rents and the sale of new leasehold properties in England.
Existing freehold investors are now facing the reality of losing the steady income stream that ground rents have traditionally provided, while the sales market for new and existing leasehold flats has been hindered by a lack of demand caused by skyrocketing service charges and an increasingly negative public perception.
Given challenges with established models of residential property investment and uncertainty over the valuation of new commonhold developments, BTR once again emerges as a more reliable option for funds looking to put their money into UK housing.
A promising long-term bet
While BTR certainly looks set to have its moment, it is not immune to the economic and regulatory challenges impacting the wider market. Given the higher risk status of many BTR developments, the sector has been disproportionately impacted by challenges associated with post-Grenfell building safety legislation. The development of new sites has also been held up by well-documented delays with the Building Safety Regulator’s gateways regime over the last couple of years.
That being said, the demand for housing in this country remains acute – particularly in our towns and cities – while new regulations and market forces are creating an unfavourable climate for traditional housing. In this context, BTR offers both part of a solution to the housing crisis and an opportunity for steady long-term returns for those who invest. At this rate, 2026 is shaping up to be an inflection point, where BTR moves from being an “alternative tenure” to a default urban delivery model.
James Corbett is a partner, commercial real estate at Winckworth Sherwood
