Is build-to-rent the future of Australia’s housing market?

Demand for housing in Australia is continuing to grow; with more people moving to the country along with increasing amount of current residents looking to enter the market, demand continues to outstrip supply. This, unfortunately, means that house prices keep going up, or that we somehow need to build more than 2 million homes in the next decade.

“Our major cities risk facing an acute housing shortage. Inner-city areas along our eastern seaboard only have 1.5 years’ worth of apartment supply under construction, with a more limited pool for sale beyond that,” director of research firm Urbis, Mark Dawson, recently commented.

However, a solution may already be present, just not well known.

Built-to-rent (BTR) is considered one of the best ways to increase choice and capacity of accommodation, at scale, in a relatively cheap way, according to research firm Urbis and lawyers Allens. There are already several built-to-rent projects currently underway throughout Australia despite the fact that current legislature creates a barrier for BTR to be a truly viable option long-term.

What is build-to-rent (BTR)?

In its most basic form, build-to-rent refers to a development in which all of the apartments or townhouses are owned by the developer and rented out, rather than sold off. You may be familiar with this sort of project if you’ve ever lived in student accommodation services offered by firms such as Unilodge.

Among the Australian development community it is anticipated that build-to-rent will take the form of high-density development typically exceeding 200 dwellings in inner city and well-located middle suburb capital city locations.

BTR is a very attractive prospect to a number of people. Renters like it because it increases stock available, hopefully pushing rents down and providing a wider range of places to live. Super funds, for example, have also expressed a great deal of interest in the concept as BTR provides a far more attractive business model than traditional property development, namely a constant income stream in the form of rental income.

A thriving BTR sector will provides a range of additional economic and social benefits according to Allens partner Michael Graves.

“It’s no longer about owning a house. There’s a need for accommodation that’s close to work, offers high-quality amenities and guarantees security of tenure, and BTR delivers on all these demands,” he said.

So, can I live in a build-to-rent project?

There are currently nine ‘proper’ build-to-rent projects throughout Australia, if we don’t include student accommodations, rent-to-buy developments, etc. Three are being built by Grocon, Sentinal, Mirvac, Salta, Meriton and Gurner. All of the projects are at different stages: ‘Parklands’ on the Gold Coast (the former Commonwealth Games athletes village) is currently operational, while Salta’s Dockland’s project in Melbourne has only been proposed.

As we said above, while some built-to-rent projects are underway around the country, BTR is currently not a viable option long-term in Australia. Some policy changes in managed investment trusts, land tax and planning could help make it a far cheaper option, thereby unlocking the potential of this development approach.

Of these policy levers, the most significant impact on build-to-rent returns will emerge through re-balancing state and territory government land taxes to incentivise purpose-built professionally-managed rental facilities. The Australian government’s recent confirmation that international build-to-rent investors are subject to a higher tax rate on market rent residential investments than on investment in other asset classes could be a significant impediment to build-to-rent taking off given that global funds would likely be “first movers” in establishing a new institutional funding asset class.

All in all, build-to-rent is one of the most exciting prospects in the Australian property market. With the huge funds that Superannuation Funds now have, if they can be convinced to make significant investments into BTR it will have an almost immediate affect of the rental market, increasing availability and therefore reducing rental rates. This in turn should reduce property prices which in turn helps affordability. In this way BTR is viewed as one of the more plausible ways to affect the housing affordability issues Australia continues to have.

Written: 2 December 2019, Updated: 6 April 2020

We would love to hear your thoughts on this project.

Have you visited this project recently, or perhaps you live nearby or bought in a neighbouring building? Tell us what you love about this project, or perhaps what you don't.

guest
0 Comments
Inline Feedbacks
View all comments