Build-to-rent housing is still an emerging market in Australia when compared to some other countries.
So, what is build-to-rent, and could it be part of the solution to regional Australia's housing affordability issues?
In the third instalment of our Regional Housing Solutions series, the Australian Community Media property team explores the potential role of this housing type in improving affordability.
What is build-to-rent?
Build-to-rent (BTR) housing is large-scale, purpose-built rental housing that is held in single ownership and professionally managed.
Essentially, this means an apartment building, owned by a single owner, (not strata subdivided) who develops the building with the intention of owning it and renting out the units in the apartment building on the long-term basis.
BTR housing is generally situated close to transport and services, and funded by large-scale institutional investors.
The NSW government says BTR housing has the potential to provide more rental housing choice, support construction jobs and drive economic recovery.
This is a development type commonly found overseas, particularly in the UK and America.
However, according to the Property Council of Australia, the build-to-rent development market is estimated to be worth more than $10 billion across Australia, with an additional $3 billion to $5 billion in projects at various stages of development.
There is a 50-dwelling minimum for BTR housing, as it relies on economies of scale to provide residents with a different experience, such as more shared facilities and services, than build-to-sell housing.
The Property Council says BTR in Victoria and Queensland is generally supported by greater availability of suitable development sites and lower barriers to entry, in comparison to Sydney where site values remain high.
In response, in February the NSW Government introduced a 'fit-for-purpose planning and tax regime', including a 50 per cent cut to land tax and an exemption from foreign investor surcharges for eligible development until 2040.
Amendments were also made to allow build-to-rent projects to occur anywhere residential flat buildings (apartment buildings) are permitted, as well as several business zones.
Why is the government backing it?
The NSW government says potential benefits of BTR housing include:
*Creating better security of tenure for tenants, as owners seek to maintain cashflows with long leases.
*Giving tenants more housing choices in desirable locations, with access to employment and education opportunities.
*Attracting institutional investment, which may provide a more stable housing supply throughout the property cycle.
*BTR housing increases the options available in the housing market. People who are thinking of downsizing may be attracted by the security of longer-term leases that can be offered under BTR. The government says this can effectively free up under-utilised housing stock.
A sustainable model?
Luke Achterstraat, NSW executive director of Property Council of Australia said build-to-rent delivers much-needed housing supply, is good for renters, creates jobs in construction and is great for the economy.
"Build-to-rent can increase supply of rental accommodation and improve rental experience and tenure," he said.
"Providing an ongoing, high-quality, long-term sustainable supply of rental accommodation is critical for areas experiencing prolonged housing affordability concerns.
"Build-to-rent can offer longer-term rental tenure, while also providing professional lease and facility management, all of which improve the rental experience as evidenced overseas."
Ideal locations for build-to-rent include booming regional centres, such as Wollongong, Gosford, Newcastle, Byron Bay and Orange...Luke Achterstraat
Mr Achterstraat also said build-to-rent development would be a useful way to help address housing shortages in regional areas, which were becoming more of a concern with the sea/tree change occurring due to the COVID-19 pandemic.
"The current build-to-rent policy settings could be adjusted so they can be useful for development in regional settings in addition to metropolitan areas," he said.
"Ideal locations for build-to-rent include booming regional centres, such as Wollongong, Gosford, Newcastle, Byron Bay and Orange, as well as up-and- coming smaller towns and areas which are experiencing rapid population growth but do not have a housing supply pipeline to keep pace with this."
The build-to-rent sector is going through considerable growth in Australia with a number of projects being planned or set to start construction.
Mirvac, a property group with operations across investment, development and operations, has set its sights on creating 5000 build-to-rent apartments nationally within five years.
Mirvac's first build-to-rent project, LIV Indigo at Sydney Olympic Park, consisting of 315 apartments, officially opened in September 2020 and is now 80 per cent leased.
Mirvac let it for a rental premium and with facilities such as on-site managers, gyms, working spaces, a dining room, theatre and children's playroom.
Angela Buckley, Mirvac's general manager of build-to-rent said the majority of leases signed so far by tenants were for 12 months, and it was the residents' choice to renew for as long as they wanted.
She said this provided longer-term security and flexibility for tenants, which they preferred.
Mirvac has more build-to-rent projects under way or in planning.
These include two in Melbourne due for completion in 2022 and 2024, along with a 395 apartment building in Brisbane expected to be completed in early 2024.
Ms Buckley said as BTR establishes itself in the bigger cities first, she expected there would later be opportunities for more bespoke or localised versions of the model that could be adapted to regions.
While it wasn't the company's immediate focus, she recognised the growth in the regions brought out about by the pandemic would mean some regional locations could be well-suited to the model.
She said good examples were Geelong, Wollongong and Newcastle, where many residents commuted to bigger cities for work.
"Whether it's Mirvac or some of the other market participants, I do expect the industry will really establish itself in the bigger cities first, but then there will be a more medium term opportunity for some regional cities," she said.
"It could help improve affordability in those regions. What the model does is really increase rental supply, and when we have a more consistent supply for owner-occupied dwellings or rental dwellings, that is the best solution for maintaining affordability."
Finding the right locations
Steve Mann, CEO of Urban Development Institute of Australia NSW said there were currently BTR projects in the pipeline in the Wollongong area.
"One example is 27 Flinders Street(currently under construction), however it is one of the higher-priced options and therefore does not necessarily fit into the affordability category," he said.
Within the Illawarra, Mr Mann said BTR housing could work at possible locations north of Wollongong, such as Bellambi, Corrimal and Fairy Meadow.
He believed it could be a good fit for the region and form an important part of the housing affordability equation, provided it is placed in the right locations with good access to transport.
"At a high level, low density areas containing a high proportion of old government owned housing stock could be recycled to provide greater housing mix and possible BTR options with low rise flat type BTR accommodation," he said.
"The product should contain a simple design with low maintenance costs, lower car parking requirements helped by accessible transport options, less common areas that require cleaning and an exterior that doesn't require painting every few years.
"We saw a similar housing product in the suburbs of Dallas, which included some community spaces in the grounds around the buildings like a swimming pool, barbecue and gardens.
"The rental price could be kept at an affordable rate and below current high-end rents that are the focus of the built-for-profit developer units with a high return on investment."
More long-term renters on the way
Mark Degotardi, CEO of CHIA (Community Housing Industry Association) NSW said build-to-rent was a good idea that had a proper place on the housing spectrum.
"There's no question that there is going to be more Australians, including in regional areas, who are going to be renting for longer," he said.
"Some of them for their entire lives; that's going to be more of a feature of people's lives than it probably has been in past generations, where home ownership was seen to be the norm.
"So having housing models that are specifically built for long-term rental is a really good thing."
There's no question that there is going to be more Australians, including in regional areas, who are going to be renting for longer.Mark Degotardi
Mr Degotardi said BTR housing being generally associated with long-term tenancy was a real positive as it provided more stable housing options.
Therefore, he said another key step was looking at the Residential Tenancies Act, which was geared towards short-term rental agreements rather than long-term tenancies.
"Given there are going to be a large number of households renting in the long-term, it's appropriate that we have a legislative framework that gives them proper rights over those long-term tenancies," he said.
"I do think it's important we don't confuse build-to-rent as automatically meaning affordable rental housing. You could build quite high-end, build-to-rent properties, and that may be a model that a particular developer wants to pursue.
"It's important that policy frameworks encourage affordable housing within that type of housing."
Mr Degotardi said there were regional areas that could be well-suited to BTR housing, such as the Illawarra, where rental vacancies in the private market are at one per cent or less.
"Lots of people have left Sydney to go live in regional areas, and in probably a more acute way than ever before, that's put real pressure on regional areas," he said.
"In the Hunter region, the Mid-North Coast, Far North Coast of NSW, all these regional areas are really struggling in terms of housing availability, and build-to-rent could help with that."