Rent crisis won’t be solved by this epic fail

A highly touted ‘solution’ to Australia’s housing crisis has hit the wall, despite a big push from the government.

The build-to-rent (BTR) industry, virtually non-existent in Australia seven years ago, is becoming a small part of the solution to solving housing supply issues.

But BTR will never replace mum and dad investors.

BTR’s 2017 arrival was certainly timely since demand for rental accommodation is being driven by the systemic change in living preferences, with a growing proportion of the population renting, and renting for longer.

BTR makes up just 0.2 per cent of Australia’s housing market with the most recent report by Ernst & Young calculating just 11 developments are up-and-running, with a further 72 in the works.

The majority of the pipeline is coming to Melbourne, followed by Brisbane, with Sydney a distant third.

BTR makes up just 0.2 per cent of Australia’s housing market.

BTR apartment projects are purpose-built projects for long-term rent that do not rely on the typical off the plan pre-sales. BTR housing is held in single ownership with tenants getting the security of longer-term leases from institutional landlords, who are getting tax incentives from state and federal governments.

The last federal budget offered a tax break from July this year for BTR foreign investors. But the industry reckons far more needs to be done to incentivise investment, saying further changes to the GST and to land tax are essential as BTR projects are at least 10 per cent more expensive to build and operate than typical build-to-sell (BTS) projects.

To date two thirds of BTR investment has come from overseas where the product is well established. The 2023 MIPIM (Marche International des Professionnels d’Immobilier) international conference in Cannes, France, heard the rental model has been embraced in Europe and North America, but with some stigma against it in the UK.

Attendees were told BTR must be seen as complimenting the traditional housing delivery model, rather than being in opposition. With more than 20 million housing units, the US BTR sector comprises 12 per cent of the total value of the residential sector, but 5.4 per cent in the UK.

The Australian property consultancy Charter Keck Cramer (CKC) noted 2024 will be a “defining year” for BTR in testing the resolve and investment thesis of many BTR developers and their financiers.

It warns capital has been harder to raise given higher risk adjusted returns after rapid rate rises and construction cost increases.

“The role that the build-to-sell (BTS) and build-to-rent apartment markets respectively need to play in addressing the housing and rental crises cannot be overstated,” says CKC’s Richard Tremlett.

“In comparison to the established housing, or the greenfield house and land markets, the BTS apartment market is not well understood by many policy makers. The BTR apartment market is even less understood given it is still emerging as a residential asset class.”

Originally published as Rent crisis won’t be solved by this epic fail