Rising costs, labour shortages and economic uncertainty have slowed the growth of the build-to-rent market after a period of rapid expansion.

The total number of BTR homes in planning, under construction or completed increased by 14% last year, according to analysis published today by the British Property Federation – half of the 28% year-on-year growth the sector has posted since 2017.

The analysis, conducted in collaboration with Savills, found that the number of BTR homes rose from 212,916 in 2021 to 242,548 homes in 2022.

The final quarter of the year saw a notable slowdown in BTR construction, with 15,600 homes starting compared with 20,400 homes in the same period in 2021. The BPF said that build cost inflation, labour shortages and wider economic uncertainty led to that 24% fall in construction starts.

However, the federation said the long-term prospects for BTR are robust, with the number of homes in planning rising by 14% year-on-year to 113,379. Outside of London, that growth rose to 17%.

Some 180 local authorities now have completed BTR homes or units in the pipeline, up by 29%.

Ian Fletcher, director of policy at BPF, said: “The build-to-rent market had continued to grow over the past 12 months, but we are seeing a slowdown in activity as inflation and an uncertain economic backdrop makes it more difficult to deliver.

“In the long-term, we expect the sector to continue to expand as a vital component of overall housing delivery, but government must be careful not to stymie its progress. The watering down of national housebuilding targets may mean there is less urgency around allocating land for residential development, and there is already evidence that the rent cap introduced in Scotland, and being debated in Bristol, is deterring investment.

“The BTR sector has a major role to play in urban regeneration and levelling up, and we cannot take its success for granted.”

Guy Whittaker, an associate at Savills, added: “Investment appetite for build-to-rent was resilient in 2022 and resulted in £4.3bn of investment, a fourth consecutive record-breaking year. That said, it is clear that the sector is not immune to headwinds facing the construction industry, as shown by a Q4 slowdown in starts and completions.

“With weaker homebuyer demand, residential development activity is likely to be subdued in 2023. Build-to-rent can offer an alternative exit strategy for developers looking to maintain sales rates and de-risk their pipelines. The BTR sector can therefore play a key role in maintaining construction output and support housing delivery nationwide.”