While past generations of Aussies may have chased the dream of having a block in the suburbs with a backyard, our population is becoming increasingly urbanised, with the latest World Bank data showing that 86% of us now live in urban areas. As apartment living becomes increasingly popular in our nation’s capitals, the build-to-rent model of construction is emerging as a new player in residential real estate.
If you’re curious about this new phenomenon, this article will answer some of the questions you might have, including:
What is build-to-rent?
Build-to-rent, sometimes referred to as multi-family housing, is a relatively new model of urban housing development. Build-to-rent apartment complexes are designed and constructed by a developer who retains ownership of the building when it’s complete. The apartments are then rented out to tenants by the developer, which also manages and maintains the complex.
These developments sometimes have the backing of an institutional investor like a superannuation fund.
This represents a contrast to the traditional ‘build to own’ model, where a property developer might build an apartment complex and then sell the units off to individuals, who will either choose to live in them or rent them out as investment properties.
How big is the build-to-rent sector in Australia?
Build-to-rent is a long-established phenomenon in Europe, where it made up nearly a fifth of the entire commercial market as of early 2020. Here in Australia, the sector is still relatively small, but looks set to grow in years to come.
General manager of Build To Rent at Mirvac, Angela Buckley, told Canstar there are about 10,000 build-to-rent apartments currently in the pipeline to be completed in Australia, from various developers.
Mirvac opened its first major build-to-rent development, LIV Indigo, in Sydney’s Olympic Park last year. This development has 315 apartments, ranging from one to three bedrooms. The company plans to build 2,200 similar developments across Sydney, Melbourne and Brisbane within the next four years.
What are the potential benefits of build-to-rent properties?
Build-to-rent developments offer a number of potential benefits to tenants, including more flexible lease arrangements than other types of rentals, a variety of included amenities, and the potential for affordable housing:
Flexible lease arrangements
Build-to-rent properties typically offer leases with features that are different to a traditional rental scenario. This could include longer terms with different renewal conditions, low or no rental bonds, and the ability to decorate an apartment (painting the walls, for example) and have pets without pre-approval.
“We want our residents to live with us for as long as it suits them,” Buckley said. She told Canstar that a standard lease at Mirvac’s properties is 12 months long, which is similar to a traditional lease arrangement. However, she said tenants typically have the option to renew as often as they wish, with capped price increases agreed upfront.
“We’ve learned very quickly how challenging the rental market is to navigate for some consumers,” she said, adding that a number of Australians become wary because of difficult experiences in the rental market. “They may have been forced to move often, sometimes four times in four years, so security of tenure is important.”
Swapping units within the same complex
Typically, the developer’s onsite management will also oversee tenancy arrangements. Buckley says this means tenants have more flexibility in terms of their living space, and can choose to move around the building as their living requirements change. Some tenants, she says, have chosen to upsize to bigger apartments when starting families, while some have downsized to one-bedroom apartments, choosing to access co-working spaces in the building instead of using their second bedroom as a home office.
While this can be done in a traditional lease arrangement, having one owner of the entire complex could mean that it’s easier to find out what apartments might be available in the future. The approval process could be quicker, too, as the landlord would already be familiar with the tenant’s track record.
A variety of amenities
Build-to-rent properties are designed to attract and keep tenants, as opposed to attracting a landlord who may never live there or an owner occupier who may not want to pay high body corporate fees. Buckley said that because the focus is on the renter, the buildings typically include a number of amenities that other types of complexes might not feature. These can range from such things as pools and shared outdoor spaces and BBQ areas through to gyms, yoga studios, communal working spaces, community gardens and even cinemas. Cleaning and maintenance services can also be included.
Buckley said that at LIV Indigo, whitegoods (such as fridges and washing machines) are included as fixtures in apartments. She also said residents have the option to add on such things as car charging stations, extra parking spaces and storage to their rental package, or not, per their needs and preferences.
Affordable housing options
Some build-to-rent projects have requirements to include lower-cost housing to those people who might not otherwise afford it. For example, the Queensland Government’s Build-to-Rent Pilot Project will see two projects include 240 apartments with “discounted rent”, designed to provide homes for people who needed to live in Brisbane’s inner city but were being priced out of the rental market, according to Treasurer and Minister for Infrastructure and Planning Cameron Dick.
What are the possible downsides to build-to-rent?
There are several potential downsides to the build-to-rent model, these being the possibility that not all developments may offer affordable housing, they do little to help young Aussies get a foot on the property ladder, and may require tighter regulation in years to come.
According to Domain, build-to-rent developments overseas can cost more on average than other rental properties in their respective markets, the caveat being that they come with more amenities attached. Whether this proves to be the case in Australia or not will remain to be seen, as the sector is still in its relative infancy, and an increase in the number of developments, as well as initiatives taken by state governments, could mean more competitive prices.
Buying a home vs renting
A recent ABC survey found that, thanks to rising house prices and difficulty getting a foot on the property ladder, nearly two thirds of Australians think that home ownership is no longer an option for young people. While build-to-rent developments can offer stability to renters in terms of leases and tenure, the ownership of the homes themselves remains in the hands of developers and investors, meaning that those aspiring to own a home remain shut out.
Need for regulation
Other forms of apartment complex development typically result in a body corporate making decisions about the overall site. This could include improvements, such as painting the exterior of the building, to dealing with complaints about tenants’ or visitors’ behaviour. Usually, a body corporate is run as a committee made up of owner-occupiers and owner-investors, where various voices are taken into consideration before a decision is made.
With the buy-to-rent model, there may be no such committee, as there is only one owner. The Australian Housing and Urban Research Institute notes that overseas, there have been complaints about ‘large corporate landlords’ (LCL) who own rent-to-buy complexes, in relation to rent increases and evictions. “Such examples suggest that successful implementation in Australia of the ‘build to rent’ and LCL models will require adequate regulation to ensure the proposed benefits and a better housing experience are properly enjoyed by tenants,” the AHURI states in their 2019 brief on the topic.
Who is the typical build-to-rent tenant?
Buckley told Canstar that the core customers at Mirvac’s Olympic Park development are millennials and post millennials (gen z). “Currently 70% of our customers are under 40, with couples without children our most common household type, at close to 60% of residents,” she said.
“Despite this, we are also seeing increased demand from downsizers and the over 55s age group. Often these customers have sold their family home but are looking for something more secure than traditional rental accommodation. This age group generally are seeking longer-term leases, which we can accommodate.”
What does the future hold for build-to-rent in Australia?
State governments around Australia have begun to recognise build-to-rent developments as a potential means of providing affordable housing. In May of 2021, the Queensland State Government announced a partnership with the construction industry to deliver two new apartment developments in the Brisbane suburbs of Fortitude Valley and Newstead.
When announcing the pilot project, the Queensland Treasury said that the aim is to provide residents with “a high amenity rental experience, access to transport and employment nodes and premium service delivery”, and that a targeted rental subsidy will be provided, to ensure affordable housing within the developments.
In its 2020/2021 budget, the Victorian State Government also announced a plan to stimulate the build-to-rent sector by offering a 50% land tax discount and an exemption from the absentee owner surcharge. These two things have traditionally been seen as roadblocks to the development of the build-to-rent sector in Australia, driving costs up for developers.
The NSW State Government has likewise taken steps to support the sector, halving land tax and removing certain tax constraints on foreign investors, in hopes that it will support construction jobs and drive economic recovery.
Buckley said that in years to come, the build-to-rent sector will see continued investment from institutional investors and large global investors such as sovereign wealth funds and pension funds. She said that in time, she also sees potential interest from local superannuation funds.
Cover image source: Cameron Stephen Prins/Shutterstock.com
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