Build-to-rent (BTR) development is slowly gaining momentum in Australia, notably in key locations such as Sydney and Melbourne, due to higher housing costs and ever-increasing rental populations in these locations. The number of renter households in Australia has increased by 500,000 over the past decade, up to 31 per cent from 27 per cent (CBRE). In the US, BtR is the largest property asset class, even larger than office, industrial, or retail. So BTR could offer Australian investors a stable asset set and fill a substantial gap in the country’s housing availability.
Initially the highest demand for BTR will be in areas of high desirability. Given the current high cost of land in these areas, government subsidies are needed to kick start the BtR industry here in Australia.
In an innovative step, the Queensland state government has responded to their state’s housing affordability crisis by launching a $70 million build-to-rent pilot project in partnership with the private sector to deliver long-term rental properties and affordable housing close to Brisbane’s CBD. The build-to-rent pilot aims to increase the number of long-term affordable rental properties for low-to-moderate income earners.
Key factors in making build-to-rent developments sufficiently profitable to investors include consistently high occupancy rates coupled with operational efficiencies. So a key driver of build-to-rent take-up in Australia will be the availability of high level professional management services to ensure high customer (renter) retention rates by offering improved choice, quality and security of tenure. Recently Mirvac announced it will transform a key site next to the Queen Victoria Market in Melbourne into Melbourne’s first build-to-rent complex. In Sydney Mirvac is pushing ahead with a $145 million BTR project at Sydney Olympic Park with 315 apartments.
While BTR is a new and potentially profitable answer to the housing crisis, for it to become a strong growth sector in Australia one or more things need to happen. Either government tax incentives are needed or rental returns need to improve, or both. However, results from other countries have proved that if developers can provide the right product and amenity, and renters can be placed top of mind as customers, BtR looks like it may be the next big thing in the Australian property industry.