Housing Affordability: Is Build-to-Rent part of the solution?

Many say Build to Rent is in its infancy in Australia, a pipe dream not ready to be taken seriously by this generation of residential property professionals.

Yet recent reports show the new residential asset class expanding much faster in Australia than other housing sectors, including retirement, aged care, student housing, co-living and specialist disability accommodation (Australian Financial Review, 8 March 2022).

In fact, JLL released a report earlier this year showing the national Build to Rent (BTR) pipeline basically doubling every year from its baseline of about 2,200 operational BTR units in Australia today. The Australian Living Sectors 2022 Outlook report shows more than 4,000 BTR projects are now under construction and an estimated 10,500 more announced, mostly in Victoria.

At the same time Australia is facing a housing affordability crisis.

At the MRI Ascend 2023 Asia Pacific User Conference, MRI Industry Principal Josh Symons sought insight from a gathered panel of industry experts as to whether an accelerated surge in BTR property development in Australia may be a critical piece to solving the housing puzzle – creating new stock at a premium level that relieves pressure across the ecosystem.

Nicholas Proud from PowerHousing Australia set a strong baseline for the conversation by declaring, “Affordability is in a perilous position. Two years ago we thought house prices would go back 15 percent. Instead we’ve seen house prices in parts of Australia rise by 56 percent. That’s simply an unsustainable level forcing a surge of people now trying to find affordable rentals.”

As CFO for a large property management company, Chris Wiese from Rental Management Australia (RMA) agreed, “Vacancy rates in private property management tracking below one percent puts a lot of pressure on landlords and tenants. We’ve had to turn away people when even the waitlist is overflowing. BTR is part of the equation to solve the supply dynamic. The need for more affordable space solutions is at critical levels.”

“Build to Rent is taking the best of the private rental market and improving it.”

– NSW Property Commissioner John Minns, NSW Department of Customer Service

Economic and social advantages in BTR

The BTR “equation” in economic terms is compelling: an Ernst and Young 2021 report pegs the contribution of institutional Build to Rent projects in Australia at A$7.3 billion in total economic output. The report indicates Australia’s GDP could be boosted by $2.9 billion plus support for 17,000-plus jobs by 2025.

To take full advantage of the potential economic and social impact of BTR, New South Wales (NSW) Property Commissioner John Minns from the NSW Department of Customer Service emphasised the power of the private sector and community housing providers working together with the government.

“It’s going to cost the Government far more to house people than it will the private sector. We need an equitable market with governments prepared to support investors of all types, be it BTR, capital chasing return investors, or mums and dads.

“BTR is great – not because rents are high and vacancy low – but because it’s getting back to the days where the private market provides a vast array of accommodations for its people.

“The Government is not able to do so alone, the headwinds against it are too strong. Elements like the tax and non-incentivised international investment are areas the government absolutely needs to step in and help solve. But more can be done working as a collective to get these assets out of the ground at scale in time to meet critical human needs,” said Commissioner Minns.

Powerhousing Australia’s Nicholas Proud said anything is better than the current affordable housing market options.

“Australian housing is a dog’s breakfast. Affordable housing stock today is one or two stars, expensive to heat and cool, often on big blocks and 40+ years old on average. About 20% of our national carbon footprint is from a lot of those old houses. So, one thing in favour of BTR is it doesn’t involve just patching up old stock and putting it back out there. New stuff is better for the environment, better for the dignity of people, better for urban communities, and just better than the hodge podge we have now,” he said.

The NSW Property Commissioner agreed that building an asset rather than restoring an old one has benefits, “There’s an immediate increase in attention to quality for a new build, and increased regulation and improved standards means much less risk of poorly installed insulation or fire retardation, for example,” said Commissioner Minns.

To hear more on the panel discussion at MRI Ascend APAC, you can watch the on-demand recording available.