At a time when inner city development volumes are diminishing, BTR could be the market mechanism that delivers many of the homes we need and fast, says Urbis Residential Economics expert Mark Dawson.
While Build to Rent isn’t necessarily the silver bullet to ‘affordable housing’, delivering more homes at scale and speed to the rental market offers some precious metal where it is needed.
Source: Urbis Apartment Essentials Q2 2017: Inner Sydney, Inner Melbourne, Perth, inner Brisbane & Gold Coast
“What we're seeing in Australia mirrors the inception conditions of Build-to-Rent in the UK
The tenure divide has been growing in recent years as the volume and length of tenancies has increased. Sydney and Melbourne have emerged as some of the least affordable purchaser markets in the world.
The private rented sector has, up until now, offered only a narrow bridge, supported by fragmented ownership, varying quality and limited security of tenure.
This mirrors the inception conditions of BTR in the UK, where the size of the private rented sector had doubled since the 1980s and insufficient home building to accommodate growing demand, had added affordability pressure.
With more people renting for longer, there is little spare capacity in the market. Minimal vacancy, growing population and increasingly constrained supply mean renters risk being faced with higher costs and less choice.
BTR can effectively widen this bridge by delivering more homes to the market and managing them in a way that offers a balance of security and flexibility to tenants.
Even if the journey to home ownership remains a long one or a distant dream, a wider bridge that can carry more people and improve their experience is a good thing.
In this respect BTR offers a silver lining for renters rather than waiting for the silver bullet.
Since 2012 UK BTR has been ramping up, delivering 17,000 units to date, with a further 24,000 under construction and 54,000 approved; over half of which are in London.
Source: BPF
“Commentators are forecasting anything from a $5 billion to a $300 billion Australian BTR industry in the future.
The BTR sector has been gaining momentum as developers and investors finetune their modelling to identify the last hurdles to unlocking its potential. This has led to commentators forecasting anything from a $5 billion to a $300 billion Australian BTR industry in the future.
Therefore, it was a surprise that Treasurer Morrison’s draft legislation restricts the Managed Investment Trust (MIT) to community housing providers and bans MITs investing in other forms of residential development.
It is not yet clear what the rationale is for this move or whether some flexibility can yet be worked in. Providing a supportive framework for affordable housing is of course an admirable policy stance, but will take time to deliver, what will likely be limited volumes.
“We shouldn't pass up the chance to foster an environment where the market can deliver a major contribution to supply
In the meantime, there is an opportunity to establish a market driven catalyst that has both direct and indirect benefit to these same affordable housing objectives:
We shouldn’t pass up the chance to foster an environment where the market can deliver a major contribution to supply. While there is the prospect that affordable contributions can be piggybacked onto or peppered through large scale BTR developments, enabling the market to prove itself and mature will enhance the prospect of increasing investment in more affordable housing projects.
We have a moment in time where the objectives of the private sector and authorities are overlapping if not fully aligning. While we work towards the silver bullet why not provide greater shelter via Build to Rent as a silver lining.