Australia’s Leading Commercial Property Magazine EDITION 14
Build-to-rent: The next Australian residential investment wave

Following the success and growth of purpose built student accommodation as an institutional real estate investment class in Australia, evidenced by an increasing supply pipeline, is interest and activity in the Australian residential private rented sector (PRS) or the Buildto-Rent (BTR) concept, as known in the UK, or the established Multifamily Housing sector, as termed in the US.

Until recently, only State Government and/or social housing landlords in Australia built rental homes for people on low incomes. For those ineligible for affordable housing or for those unable or unwilling to enter the owner occupier market there has been a reliance on small-scale, largely unregulated “amateur mum and dad landlords” who either rent out their own former homes or accumulated portfolios of properties. The professional, large scale institutions now focussing on this new investment asset class are looking to build and construct, keeping these dwellings for the long term, and harvesting the income from rents, in the same way as the new wave of PBSA institutions are operating.

Renting in Australia is not a new concept, or a model of investment which needs convincing. Since 1994/95 the proportion of all residential households in NSW, Victoria and Queensland that are rented privately from a landlord increased by 6%, 8% and 9% respectively to 2013/14. Across these three Eastern states, between 25% and 30% of all households are renting privately from a landlord. This figure excludes those who rent from a social landlord or housing association.

An increase in residential apartment construction, a favourable investor lending and tax environment, historically low interest rates, the rise of the overseas buyer, and the rapid increase in dwelling price are a collection of reasons, which combined, are increasing the proportion of rented housing across Australia. The current economic climate and housing market environment suggests that the proportion of privately rented households will only increase. Knight Frank Research projects that NSW, Vic and Qld will have approximately 31%, 30% and 33% of all households privately rented from a landlord by 2019/20.

Flexibility of tenure, whereby for example, a young professional can live close to the amenity of the CBD, or within walking, a short run, or a cycle of their place of work, has, and will continue to increase the demand for rented accommodation. As will the need to house families in more suburban locations close to schools, child care facilities and medical centres, who struggle to raise a deposit to purchase a dwelling in their desired neighbourhood, thus providing the ability to live in a convenient location, with the security of a long secure lease.

Institutions, often backed by pension/super funds, which use the rental income to pay pensions, are actively looking at the BTR sector, although barriers exist just like in the student accommodation market. Availability of suitable sites, viability against other uses, low rental yields, and high build costs are all factors weighing on the growth of the sector. However, strong population growth across the Eastern Seaboard will keep groups interested, as they look to tap into a sector which harbours constant occupier demand and provides predictable profits.

Projected population growth of 1.22 million over the five years from 2016 to 2020, at an annual rate of 1.6%, and rising housing purchase costs across the three aforementioned states, will feed the demand for additional rental accommodation going forward, and will give rise to an institutional residential investment class here in Australia. However, as professionally delivered and managed product increases, differentiation of brand, design and price point will become important, coupled with an understanding of treating a tenant as a customer or consumer, comparable to the hotel or PBSA market.


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