IT’S no secret that renting in Australia can be tough. Short leases, long waits for repairs, and sub-standard living conditions are common complaints by the roughly one-third of Australians who rent.
But there is a light on the horizon — one that could potentially help level the playing field for millions of renters — and it comes in the form of a build-to-rent (BTR) model that has a foothold in Britain and the US, but is yet to take off here.
Put simply, BTR means instead of developers selling units off to mum and dad investors, the unit developments are retained by institutional investors, such as super funds, or the developers themselves, to be rented out long term.
In August, developer Mirvac Group announced its entry into the build-to-rent apartment segment in Australia, confirming its intentions to open its books to investors for a handful of Australian projects.
Fellow developers Lendlease, Grocon and Stockland have also expressed public support for developing BTR in Australia. Stockland Chief Executive of Residential, Andrew Whitson, has previously said BTR could be a “real game changer”.
WHAT IT MEANS FOR RENTERS
As there is just one owner building a large number of apartments, the build-to-rent development can be scaled so it’s more cost-effective. This means less costs passed onto tenants.
EY Managing Partner Real Estate and Construction, Selina Short, sees enormous potential in BTR.
“We need diversity in the rental sector and this will create a completely different user experience of renting,” Ms Short said.
“When you build to rent there is more of a focus on services and amenities around the apartments.”
Postdoctoral Research Fellow with Transforming Housing at The University of Melbourne, Matthew Palm, wholeheartedly agrees. And he should know, having lived in a build-to-rent development for three years in Oregon.
There are many benefits for renters living in a build-to-rent complex, but developers may only be able to afford making these for high end buildings unless the Government changes housing policy. Picture: John GraingerSource:News Corp Australia
“It was great. In most build-to-rent developments there is an onsite manager so if you needed the water heater fixed you just went to the manager’s office downstairs,” Mr Palm said.
“You are not waiting on a mum-and-dad investor to check their email about repairs.”
There are also less tangible benefits, too.
“I also know from my research that build-to-rent developments tend to have more of a community feel to them as everyone is renting and planning to be there for a while,” Mr Palm said.
“And because you all have the one landlord it gives you more potential to self-organise.”
Senior Policy Officer at the Tenants’ Union of NSW, Ned Cutcher, can also see the potential.
“These (BTR) players are more likely to trade on reputation than a million small-scale mum and dad landlords, so they will have greater incentive to provide high-quality tenancy management services for the benefit of renters,” he noted.
THE SHORTCOMINGS
But Mr Cutcher cautioned against seeing BTR as a panacea for all of renters’ problems.
“We don’t expect an emerging build-to-rent sector to significantly change our current housing culture on its own as that would be like the tail wagging the dog,” he said.
“Targets for affordable rental housing must be included in new residential developments, and there will also need to be law reform to encourage greater security of tenure and predictability of rents.”
Mr Palm was also realistic about the model’s level of impact.
“If you ask me whether a developer can currently build a build-to-rent development and then charge an affordable rent rate to pay off that unit, I would say no,” he said.
“What is needed is some kind of government subsidy, but I don’t think the government will lead on this so I think what will happen is that build-to-rent will start off in Australia as a high-end development by one or two developers.
“Once people see an example of it, there will be a paradigm shift and hopefully government will kick in some subsidies.”
Chief Executive of The Property Funds Association, Paul Healy, is enthusiastic, but similarly cautious
“We don’t know how it will work in Australia, it’s untested,” Mr Healy said.
“It’s definitely front and centre in people’s minds, but we have to be mindful of the economics and remember that, ultimately, institutions are going to be looking for a return on their investment.”
DEVELOPER CONCERNS
BTR also faces some regulatory hurdles as well.
Most recently, the Treasurer Scott Morrison unveiled a new regime that would mean Managed Investment Trusts would no longer be able to invest in residential property schemes unless it was low-cost community housing. These trusts are the main avenue for international groups investing in local real estate.
Lendlease Chief Executive of Property, Kylie Rampa, said Australia needed to be more innovative.
“In the US and the UK there was, and continues to be, a partnership between government, business and the broader international investment community,” Ms Rampa said in a statement.
The lack of a BTR tax break, such as negative gearing, is also hampering investment, according to Ms Rampa.
“Australia’s tax treatment of build-to-rent and build-to-sell is unequal,” Ms Rampa said.
“The lack of a level playing field, particularly at a time when BTR is in its infancy, is probably the main barrier to the sector’s establishment and development.”
