‘Rich kids’ playground’: What’s holding back build-to-rent in Sydney

The burgeoning build-to-rent housing sector is being held back in Sydney by the high price of land and lack of viable sites, experts say, despite a growing pipeline of projects suggesting the city could be on the cusp of a build-to-rent revolution.

BTR, where a developer builds an apartment block, retains ownership and leases it to tenants, is being touted by the property industry as a key part of the solution to the nation’s housing crisis.

Heat maps of operational and planned BTR projects in Sydney, Brisbane and Melbourne as at July 2023, tracked by KPMG. Credit: KPMG

KPMG data presented to a Property Council event recently showed Melbourne dominates build-to-rent activity in Australia. Most of the Victorian capital’s projects are clustered close to the CBD, whereas in Sydney, the few sites are spread out over secondary centres such as Parramatta and Macquarie Park.

“While this may be great for Sydney’s evolution as a polycentric city, it highlights the challenges in actually finding suitable, viable build-to-rent sites,” KPMG partner Kylee Anastasi told the audience.

She said BTR had the potential to be a “massive disruption to our rental market in a good way”, though it remained less attractive than other assets for foreign investors due to rates of return.

BTR may also suffer an image problem, with tenants usually paying above market rent and the industry sometimes positioning it as a “premium” product - something Angela Buckley, head of build-to-rent at Mirvac, says must change.

Realm Caulfield, a build-to-rent development in Melbourne.

“We have to lose this idea that this is a rich kids’ playground,” she said. “These are everyday people ... we’re playing right in the middle of the continuum.”

Mirvac owns build-to-rent buildings in Sydney’s Olympic Park and the Melbourne CBD, and has three other projects in train in Melbourne and Brisbane.

A recent analysis by EY for the Property Council found in 2022, there were just 315 build-to-rent units operating in NSW and 430 under construction, compared to 1711 operating in Victoria and 4938 under construction. Another 3000 were in planning in NSW, and a further 8000 in Victoria.

Last year the BTR sector accounted for just 0.2 per cent of Australia’s residential property market, compared to 12 per cent in the US. According to an August 2023 report by Urbis and Allens, more capital has been invested in BTR in Brisbane ($3.2 billion) than Sydney ($2.1 billion) to date.

Residents Thomas Pospieszny and Nancy Chen outside their building, a Mirvac build-to-rent property at Sydney Olympic Park.Credit: James Brickwood

But Colliers’ national director of build-to-rent Robert Papaleo said Sydney overtook Melbourne in sales activity during 2022 and 2023. Private developers and institutional investors were acquiring larger sites with a view to developing a portion as BTR – a more viable model in Sydney given the high price of land.

The state government’s online portal shows there are 25 active build-to-rent proposals in NSW, most in early pre-lodgment stages. The more advanced projects are a 204-unit development in Parramatta, a 316-apartment project in the same suburb, a 483-dwelling development in nearby Harris Park, and a plan for 543 units – half of which would be managed by a community housing provider – in Regents Park.

Build-to-rent projects in Sydney that are complete, under construction or are likely to be delivered by 2026.Credit: Colliers

All four projects are opposed by their local councils. Under relatively new rules for large build-to-rent developments, the proposals have been lodged as “state significant developments” and will be assessed by the minister, department or Independent Planning Commission.

NSW Property Council deputy executive director Helen Machalias said the high cost of land in Sydney was still prohibitive for many potential build-to-rent developers. The viability of projects was also at risk from the federal government’s planned changes to thin capitalisation that would reduce companies’ access to third-party debt deductions, she said.

“There is currently too much uncertainty to give investors and developers the confidence they need to commit to BTR projects at the scale they would like to,” she said.

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