Build to rent is back in the spotlight as the perfect storm of housing affordability, rising inflation and interest rates and soaring rents continues unabated.
The BTR model comprises residential accommodation developments that on completion are retained by the builder instead of sold off to separate investors, and then offered as professionally managed, secure long-term rentals.
Although developed to suit all price points, the majority err on the side of high-quality builds, offering elevated standards of living, luxury facilities and hotel-style concierge services. The concept effectively delivers a similar sense of long-term security for residents as if they owned their own homes, but without the stress.
Now a report commissioned by The Property Council of Australia into BTR has recommended a range of measures to boost the sector – one of which is to halve the managed investment trust withholding tax to 15 per cent in line with other property asset classes. According to high-level financial modelling carried out by consultants Ernst & Young, this move alone would allow three times as many build-to-rent projects to proceed over the next five to 10 years.
Other recommendations in the EY report are the introduction of a 10 per cent rate for affordable housing, allowing institutions to claim GST, promoting the sector, and addressing regulatory barriers for domestic superfund investors.
Property Council of Australia Chief Executive Mike Zorbas said build-to-rent housing was the missing ingredient in Australia’s housing mix. “Adopting any or all of these recommendations would significantly help the Australian Government hit its ambitious one million homes housing target by 2029 and significantly ease pressures in the rental market,” Mr Zorbas said.
An alluring lifestyle
Critics of tax breaks for the BTR industry however argue against the model’s usefulness for tackling housing affordability crisis given that most of those developed to date are upscale in nature with rents consistently higher than suburb medians.
Even so, that has not affected the popularity of BTR projects that have launched in the past few years in Sydney and Melbourne, developers say. Figures show uptake to be strong and new occupants happy to pay a little more to rent the new high-quality apartments that come with the security of long leases and all manner of convenience and luxury amenity at their fingertips.
Current BTR residential developments feature not only gyms and pools but such facilities as co-working spaces, podcast studios, roof-top cinemas, communal gardens, outdoor kitchen areas, pet-friendly areas and often the services of a hotel-style concierge. Clients of such complexes are also given the freedom to paint walls and hang pictures.
The EY report also points out that newer projects are increasingly including a portion of total residences to be offered as affordable housing options particularly for key workers (such as nurses or emergency services personnel) with discounted rents.
Stepping in the right direction
Mr Zorbas said that should the Federal government consider adopting even some of the recommendations made in the EY report it could lead to another 150,000 rental homes coming online than currently planned.
What’s more, the size of the BTR sector in Australia made up 0.2% of the value of the total Australian residential sector - a miniscule figure when compared to international markets where the model has been long entrenched. In the US for instance, BTR comprises 12 per cent of the total value of the country’s residential market, and in the UK, 5.4 per cent.
if Australia were to increase BTR in the longer-term to just 3 per cent of the total resi market’s value – which is still below the UK and US – it would result in another 350,000 apartments and boost the sector’s value to around $290 billion from its current level closer to $16 billion, according to the EY report.
As for the current state of play, 11 build to rent projects are up and running so far in Australia and another 72 are under construction. Of this pipeline, the majority are taking shape in Melbourne where land is both more abundant and less expensive, followed by NSW, Queensland and lastly West Australia, each project averaging 320 apartments.