Residential build costs have seen sharp increases in recent years. While pressure remains, data from the BCIS All-in TPI shows a slowing rate of tender inflation, with prices rising by 2.3% in the year to Q1 2025. This easing is partly driven by improvements in the availability and cost of materials. However, it is tempered by capacity constraints and contractors' pricing in risk for compliance with new and increasingly complex regulations.

Looking ahead, tender price inflation is expected to regain some momentum, driven by renewed construction activity partly in response to the government's 1.5 million homes by 2030 target, and rising labour costs linked to changes in National Insurance and the National Living Wage. BCIS forecasts suggest annual increases of 2.8% in 2025 and 2.7% in 2026.

The operational residential sector has felt these pressures acutely. Schemes are typically delivered at scale, with complex communal and servicing requirements and enhanced building safety regulations. The Build to Rent (BTR) market has seen a steady rise in consented schemes, with the total number of BTR homes with detailed permission up 18% from Q1 2024. Whilst this suggests a healthy pipeline of future delivery, consents have been slow to convert into starts on site. BTR starts have declined significantly since Q3 2022, falling by 47% in the past 12 months alone.

This slowdown is closely tied to delays in the planning and pre-construction process, particularly compliance with the Building Safety Act. The Gateway 2 approval stage, which must be completed before construction can begin on buildings over 18 metres, is proving a significant barrier to development, with some approval periods reported to be exceeding 40 weeks. Anecdotally, developer clients are experiencing a worsening position, with delays and uncertainty causing friction with funders, loss of fixed price contracts and an increase to their development pipeline of c.12 months.

New and forthcoming regulations are compounding pressure on viability. Recent updates to British Standard BS9991 now mandate evacuation lifts alongside escape stairs in residential buildings, adding cost to high-rise and high-density schemes. Meanwhile, the Building Safety Levy, scheduled for implementation in autumn 2026, will apply to all new developments of ten or more homes (or 30 bed spaces for PBSA). The levy, calculated on total gross internal area, will disproportionately impact large-scale mixed-use and operational schemes with large communal amenity areas.

These costs are weighing heavily on land values, particularly in London, where brownfield development is increasingly difficult to make viable. For now, co-living and purpose-built student accommodation (PBSA) are bucking the trend, offering more viable models due to their higher density and value per square metre. Co-living, in particular, is emerging as a complementary tenure to BTR whilst student demand continues to outstrip supply in key university cities like London, Manchester, and Bristol.

Another trend gaining traction is the rise of large-scale refurbishments and high-quality permitted development conversions. As barriers to new-build delivery persist, these adaptive reuse models provide a faster route to delivery while aligning with sustainability and urban regeneration agendas.

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