As the Australian dream of home ownership becomes increasingly challenged by affordability and changing attitudes, the rental market could be in store for a fundamental shift: the arrival of Build to Rent schemes in Australia.
What is Build to Rent?
The policy and market strings are gaining tension, if not yet being pulled fully to pave the way for build to rent in Australia.
Build to Rent (sometimes referred to as multi-family housing) is an alternative model of development, where developers design and build residential property specifically for long term rental with institutional investment.
This is a marked shift from the traditional model of a large development being built and units being sold off individually to owner-occupiers or to investors who buy-to-let.
It is a staple in the US and is growing rapidly in the UK. Established market players are now considering Australia as a place for BTR product. The policy and market strings are gaining tension, if not yet being pulled fully to pave the way for build to rent to ease our housing and social issues.
What are the benefits?
Questions remain on Government regulations, planning regimes, taxation, and proof of concept in Australia and various sub-markets.
Build to Rent offers many benefits for both developers and investors. For developers, it offers the ability to maintain control over future upgrades or developments. Rents provide a steady income, rather than income from initial sales.
On the supply side, Build to Rent offers the prospect of delivering homes direct to a growing rental market, sidestepping a more challenging development finance and presales market and attracting global capital with a stable income profile.
The investor benefits because investment funds such as superannuation companies see this as a low risk and stable income stream.
There are potential benefits for tenants too – who can enjoy living in a development specifically designed for renters. That may mean superior maintenance service, communal areas and a relationship with your landlord that enables longer-term tenancies.
At a market level Build to Rent brings new supply and greater choice into the mix.
What is driving demand?
In Australia, and particularly the inner-city areas of Melbourne, Sydney and Brisbane, demand for residential space is becoming ever more competitive. This is compounded by the price-point that residential property has reached.
Rising property prices coupled with other demographic changes and different lifestyle choices, means that Gen Y is renting for longer.
Affordability is one driver, while changing attitudes to home ownership is another. Global demand for assets is stable but growing markets is another driver.
When will Build to Rent land in Australia?
Statements of intent have been made and activity is on the horizon – it is now a matter of when and how, rather than if Build to Rent will enter the Australian market.
However, questions remain on Government regulations, planning regimes, taxation, and proof of concept in Australia and various sub-markets. These need to be worked through, often on a site-specific basis.