Build-to-rent is the latest craze in Australian property investment. But has it solved housing crises overseas?
If you spend any time with developers, investors or policymakers involved in the property industry, chances are they will mention “build-to-rent” (BTR).
BTR has fast become the latest trend in Australian property, with advocates saying it can help solve the housing crisis by boosting supply while improving the rental experience.
Investors are betting billions on the sector, with more than 8,000 dedicated BTR apartments under construction in Australia in 2023 and another 13,000 approved for development.
And governments are rolling out the red carpet with regulatory changes, such as Victoria’s 50 per cent land tax discount for BTR properties.
But BTR is far from a new concept, with more mature markets overseas.
So has it lived up to the hype?
What exactly is build-to-rent?
Build-to-rent projects like this one at Denman Prospect in the ACT are popping up across Australia. (Supplied: Capital Estate Developments)
While most residential apartments in Australia are built by large developers, with units sold off one-by-one, BTR are long-term investments for the owners and are designed specifically for renters.
Most projects target the middle-to-upper end of the market, with a range of amenities, such as gyms, co-working spaces and dining rooms, and a community living aspect to entice tenants.
BTR properties also often include more flexible and longer lease terms.
Developers say BTR provides a more “professional” renting experience, with whole buildings managed by companies with the relevant experience, rather than hundreds of amateur landlords.
But tenant advocates are wary of the further corporatisation of housing, and question whether renters are actually be better off if their landlords are large companies.
So has this worked in the UK?
A rendered image of a build-to-rent apartment block in Northern Quarter, Manchester, in the UK. (Colliers Research Report)
To see the potential impact of BTR, the best place to start is the UK.
The sector expanded rapidly after a 2012 government report looking at how to encourage a greater supply of homes for rent, and today there are around 115,000 BTR units across the UK.
Richard Valentine-Selsey from property services firm Savills said BTR properties tended to offer leases of up to three years as opposed to the 12-month contracts common in the private landlord market.
“It gives you consistency to plan ahead while staying in that product and with amenities and other benefits rolled in,” he said.
“But in my view, the thing to be avoided is the arms race of trying to deliver more and more amenities at all costs.
“It just pushes up the cost and not necessarily provides what the tenant really needs.”
Mr Valentine-Selsey said BTR apartments were being delivered faster than units for sale, partly because high interest rates were making it hard for developers to sell individual apartments.
He said pension funds or an insurance companies, which often own build-to-rent complexes, could see the benefits of steady, long-term revenue.
“Having a consistent, re-occurring income stream from a rental investment is more beneficial than the peaks and troughs and lumpy investment returns of a sales product.”
Richard Valentine-Selsey, head of European living research at Savills, says build-to-rent projects are being delivered faster and providing more long-term leases. (Supplied: Savills)
But BTR remains a tiny fraction of the UK market and it, nor any other intervention in the housing market, has failed to stop rising rents.
The new Labor government is trying to shake up the status quo, with new legislation to strength renters’ rights and ban no fault evictions.
Tom Darling, director of the Renters Reform Coalition, said he welcomed more BTR if it professionalised the rental sector and pushed out amateur investors who had “gone into landlordism as a quick way to turn a buck”.
But he doubted whether adding BTR to the supply of housing had made it any easier for people to buy a home, or helped keep rents low.
“You could maybe point to some studies in certain areas where a specific development has had a positive impact on [rental] prices,” he said.
“But if you asked a renter in London whether they felt that the expansion of build-to-rent housing has brought down their rent, I think everybody would say no.”
How is the US doing build-to-rent differently?
Build-to-rent developments have tended to focus on standalone dwellings in the United States. (Reuters: Rick Wilking)
Declining rates of home ownership have also sparked a BTR boom in the United States, but with a twist.
Rather than apartments, developers focus on constructing entire suburban neighbourhoods, with rows of standalone homes or townhouses for rent.
Millennials are a prime target, especially those burdened with large college loans who are unable to buy.
Renting may also be much cheaper, given the tendency of US banks to offer home loans with fixed interest rates, meaning homebuyers could be stuck with a 7 per cent interest rate for the next 30 years if they bought now.
More than $US2.5 billion ($3.7 billion) was invested in BTR communities in 2021, with an estimated 40,000 dwellings under construction in 2022.
Trade magazine The Property Chronicle predicts the sector will grow and “shift the American Dream for the better”.
“Instead of sinking one’s life savings into a single asset, future generations can embrace lifestyle flexibility, portfolio diversity, and access to really nice communities of single family homes for rent,” contributor Paul Stanton wrote.
Living in luxury in Hong Kong
Housing prices have been falling in Hong Kong since 2021. (Foreign Correspondent: Fletcher Yeung)
In one of the densest cities in the world, Hong Kong, BTR has generally focused on luxury apartments.
Kelvin Wong, a real estate professor at the University of Hong Kong, said complexes were “more like hotels or service apartments”.
“That means they’re charging a premium rent and typically they would target families or corporate executives,” he said.
But Hong Kong’s housing market has seen better days, with a huge downturn causing double digit drops in housing prices.
Professor Wong said many developers were reluctant to sell in the current climate and were transforming properties built for sale into rentals.
But despite the growing rental market, most people don’t want to rent forever.
“In my part of the world, they are more after home ownership and this is also what the government has been promoting,” he said.
So what does this all mean for Australia?
Approvals for new builds in Australia have stagnated in recent years. (
ABC News: Peter Drought
)
Like many aspects of housing policy, the full impact of BTR likely won’t be known for decades.
And the optimistic predictions of growth of the sector may fail to live up to expectations if interest rates remain high for developers and construction costs continue to soar.
Ben Burston, chief economist at real estate consultancy Knight Frank, said while BTR won’t solve the housing crisis, it could “take the pressure off” the affordable housing market by boosting supply.
“The housing supply issues are complex and there’s not one answer,” he said.
“But I do think build-to-rent could make a positive contribution.”
Mr Burston said population growth and high occupancy rates will likely see investment in BTR grow “for the foreseeable future” and “smooth out the supply” cycle.
“Investors in traditional residential developments tend to be motivated by capital growth, which tends to result in a more volatile supply cycle,” he said.
“(BTR) will be directly aimed at addressing the demand imbalance in the rental market, rather than having the rental market be a secondary consideration.
“It will be a slow grind to fix these housing supply issues.
“But I think it makes sense for policymakers to do what they can to encourage build-to-rent to be part of that going forward.”
