What is build-to-rent?

While past generations of Aussies may have chased the dream of having a block in the suburbs, our population is becoming increasingly urbanised, with recent 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.

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, who 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  builds an apartment complex with the intention of selling the units off to individuals, who will then 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 and the USA (where it is referred to as multi-family housing). Here in Australia, the sector is still relatively small, but looks set to grow in years to come. This growth will most likely come from inner city developments taking place in Sydney, Melbourne and Brisbane.

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 and have pets without pre-approval. Some developers also offer options to renew leases as often as tenants wish, as well as agreed upfront capped price rental increases.

Swapping units within the same complex

Typically, the developer’s onsite management will also oversee tenancy arrangements. 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. While this can be done in a traditional lease arrangement, having one owner for 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. This is opposed to attracting a landlord who may never live there or an owner occupier who may not want to pay high body corporate fees. As 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, car charging stations, yoga studios, communal working spaces, community gardens and even cinemas. Cleaning and maintenance services can also be included. The apartments themselves may also include whitegoods (such as fridges and washing machines), and additional parking and storage spaces.

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 has approved three projects, which include 490 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.

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.

Affordability

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

With a competitive housing market in many Australian cities, young people often find that renting is the easier option. 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. They suggest that for the successful implementation of the ‘build to rent’ and LCL models in Australia, it will require adequate regulation.

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. The Queensland State Government recently announced a partnership with the construction industry to deliver three new apartment developments in the Brisbane suburbs of Fortitude Valley, Newstead and Brisbane City.

The aim of the pilot project is to provide residents with a high amenity rental experience, access to transport and employment nodes and premium service delivery. Also a targeted rental subsidy will be provided, to ensure affordable housing within the developments.

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.

We’re yet to see if the build-to-rent sector will deliver future developments outside of inner city areas, or for lower income communities.

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