By Adam Carey
Melbourne’s struggling apartment market will hit a tipping point next year, when the supply of new “build-to-rent” units overtakes the supply of new apartments built for home buyers.
Funded by foreign capital, superannuation and even the public sector, build-to-rent developments are booming in Melbourne while supply of traditional build-to-sell apartments sinks to lows not seen since the Global Financial Crisis.
Salta Properties managing director Sam Tarascio stands on the balcony of Fitzroy and Co, the company’s pilot build-to-rent project.Credit: Jason South
New data provided to The Age forecasts that 4564 build-to-rent apartments are due to enter the Melbourne market in 2024-25, compared to 4416 build-to-sell apartments.
It’s an extraordinary rise for a sector that did not exist in Australia five years ago.
Melbourne’s spate of build-to-rent projects, which cannot be sold or subdivided, are most heavily concentrated in CBD fringe suburbs such as Docklands, Southbank and South Yarra, but are spreading further afield into places such as Fitzroy North, Richmond and Coburg.
Richard Temlett, national executive director of Charter Keck Cramer, said Melbourne is the only city in Australia that is currently more reliant on build-to-rent developments for apartment supply than build-to-sell.
“Melbourne is the epicentre of build-to-rent because land values are lower than Sydney, but the rents are higher than areas like Brisbane, and so financially it can stack up,” he said.
Temlett said the ascendancy of build-to-rent was also a sign of how few Melbourne apartment projects are getting off the ground.
Apartment supply peaked in Melbourne in 2017, when 19,136 new units were added to the market. Since then, supply has declined significantly, with just 5872 units added to the market in 2023-24 and 3830 currently due to open in 2025-26.
The rise of build-to-rent is projected to continue for at least the next four years.
Data compiled by Charter Keck Cramer forecasts that between 2024-25 and 2027-28, 16,837 build-to-rent apartments will enter the market. In the same period, 14,812 build-to-sell apartments will become available – a 12 per cent gap in forecast supply.
But the surge in build-to-rent developments is not expected to ease Melbourne’s housing affordability crisis, at least in the short term. The market is dominated by expensive apartments pitched at high-earning professionals.
Fitzroy and Co, which opened in Fitzroy North last month, is a case in point.
The building has just 94 apartments for rent and about 2000 square metres of communal and outdoor space. Tenants share facilities such as a coworking space, gym and yoga room, private dining room, record lounge stocked with vinyl, rooftop dog park and pet wash. The entrance lobby even has its own signature scent.
Build-to-rent apartments come with high-end communal features, such as Fitzroy and Co’s record lounge. Credit: Jason South
One-bedroom apartments start at $650 a week.
Fitzroy and Co is the pilot build-to-rent project of Salta Properties, one of Australia’s biggest privately owned property companies.
Salta Properties’ managing director Sam Tarascio said Melbourne’s build-to-rent market is dominated by high-end developments because they are the only projects that stack up financially at a time when construction costs, land taxes and interest rates are all high and rental yields are low.
“The same cost pressures that a build-to-sell developer is experiencing, we experience as well,” he said.
Tarascio said investors had been shying away from Victoria’s apartment market.
“And the problem with that is, once people stop buying, you stop getting the volumes, you stop delivering the housing, you create a housing shortage. And that’s really the situation that we’re in at the moment.
“Build-to-rent seems to have stepped up. And whilst it’s nowhere near adequate to cover that decline in the traditional market, it’s certainly starting to make a dent.”
Salta has a pipeline of about 1500 build-to-rent apartments due to open in Richmond and a further 600 in planning in Docklands. Other entrants to the market include US build-to-rent provider Greystar, Aware Super and Melbourne operation Local Residential.
Fitzroy and Co, in Fitzroy North, is one of a surging number of build-to-rent projects launching in Melbourne. Credit: Jason South
Premier Jacinta Allan visited Fitzroy and Co project last month when she announced the state government’s plan to improve housing affordability by cutting stamp duty for off-the-plan homes.
Temlett said Melbourne’s build-to-rent boom would not do much to help with housing affordability.
“But that doesn’t mean that it should stop. We need to continue because we need to get as many dwellings on the ground as possible. We’ve got a very bad rental crisis; vacancy rates are almost under 1 per cent.”
Development Victoria is also pursuing multiple build-to-rent projects in Melbourne. Its Fitzroy Gasworks development will include about 400 build-to-rent homes, while its proposed eight-storey building on a former TAFE site in Coburg has also received fast-track planning consideration because it will include 10 per cent affordable housing.
Acting chief executive officer Development Victoria Joanne Wandel said Victoria “is the build-to-rent capital of Australia, providing more opportunities for Victorians, in particular young Victorians, to find a place to rent in areas they want to live”.
Wandel said there is particularly strong demand for long-term rentals and build-to-rent can help address this.
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