The build-to-rent (BTR) model could be part of the eventual solution to the long-term structural rental shortages in Australia, but it could be a case of “too little, too late” already given how deep in the crisis the market currently is.
JLL senior director for research Leigh Warner said BTR could “undoubtedly” help improve a number of issues in Australia’s rental market and boost the experience of many renters.
“These benefits and the ability to incorporate affordable and social housing within BTR models has slowly attracted the attention of the Federal and State Governments over recent years and more has been done to encourage the nascent sector’s emergence,” he said.
There are three main benefits to BTR model:
- It gives long-term renters security of tenure, preventing “no-cause” eviction.
- It improves the responsiveness to maintenance requests.
- It helps boost the level of amenity and services offered to renters and creates a more customer-oriented rental product.
However, Mr Warner said BTR could be too late to have any real impact on the rental crisis facing Australia over the next few years.
In fact, there were only 2,833 BTR apartments operational in Australia and approximately 3,200 under construction for completion over the remainder of 2022 and 2023.
While there is a pipeline of just under 19,000 BTR apartments that could potentially be complete by 2025, a huge bulk of this is still not committed and timeframes on many projects will likely push out.
“As such, we believe that we will be lucky to see 3,000 p.a. BTR apartments nationally between now and 2026,” Mr Warner said.
“This is still relatively low compared to the overall supply pipeline of apartment nationally – there has been an average of 50,600 apartments completed per annum over the decade to 2021.”
Given that the BTR pipeline is weighted to the latter part of the timeframe, it is unlikely to have a material impact on the overall rental market balance.
What can be done to solve the rental crisis?
Mr Warner said the unfortunate reality for the rental market is that solutions would not come quickly and would take a long time to stimulate the supply levels needed to address the crisis.
“That is not to say we should do nothing in the short-term to alleviate the pressures — we can certainly incentivise more existing stock to be transferred into the long-term rental stock,” he said.
“The most significant portion of this is short-stay holiday accommodation, but there is also other vacant housing stock that could be utilised.”
This could be done by a combination of disincentivising short-term rental stock or vacant stock through mechanisms such as higher rates or vacancy taxes and providing one-off tax concessions if it is put into the long-term rental supply.
There is also a need for the governments to address inefficiencies in the current public housing systems in the short term.
However, Mr Warner said longer-term solutions are needed to alleviate the structural problems.
“Reducing barriers to BTR is a big part of this, private ‘mum and dad’ investors simply are not going to be able to adequately fund Australia’s rental stock moving forward,” he said.
There is also a need to look at supply-side policies to boost rental stock in the long term, which include streamlining planning process and reducing the very long apartment project timeframes.
Furthermore, innovation in project funding also need consideration — Mr Warner said bank funding conditions for large apartment developments are onerous relative to other countries.
“While risk needs to be considered and not under-priced, perhaps there are ways of de-risking projects and allowing them to proceed earlier,” he said.
“This may include public sector guarantees over a portion of pre-sales, which could become affordable or social housing in a worst-case scenario.”
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Photo by kanchanachitkhamma on Canva.
