Defined as ‘apartment blocks built specifically to be rented, usually at market rates, and held in single ownership as long-term income-generating assets’, ownership of build-to-rent apartments usually falls to large entities such as insurance companies, super funds, private equity firms and property developers. This particular model, though well-established in other regions such as North America and the UK, is still relatively new to Australia.
Currently in Australia, the private rental market is populated by individual buyers/investors. The build-to-rent model, which conversely relies on larger-scale investors and owners, represents a significant departure from the status quo. This, a Landcom report finds, creates room for potential benefits within the Australian residential market should build-to-rent be able to find firm ground upon which to establish itself.
The long-term ownership of build-to-rent properties creates incentive for higher, more enduring quality in construction. Australia’s population is also projected to rise by a full 10 million in the coming decades, which will only see rental demands growing to ever higher levels which the current rate of new housing construction cannot keep up with. Build-to-rent may be part of the answer to Australia’s housing shortage and affordability issues.
Furthermore, build-to-rent is immune to fickle, short-term changes in the real estate market; the Australian property market’s current high concentration of individual owners indicates a tendency toward more speculative/instinctual decisions which create a market highly sensitive toward fluctuations within the economy. As long-term commercial investors increase participation within the rental market, however, this could offer an injection of stability that the Australian property market needs.
Overall, the report finds that build-to-rent has the potential to ‘increase housing diversity, enhance build standards and create a better-managed, more secure form of private rental housing’. This, in conjunction with slumping demand for apartment building in Australia, indicates that build-to-rent as a model could have a great amount of benefit to offer Australia’s property market.
Yet build-to-rent has been unable to firmly establish itself within Australia, despite having robust sectors in other parts of the world that prove the its viability. This is largely due to the existence of government taxation policies that favour traditional rental models over build-to-rent.
For example, one policy imposes a withholding tax that ‘treats overseas-based institutional investment in rental property less favourably than investment in commercial property’.
The same Landcom report concludes that if build-to-rent is to grow in Australia and carve out its own niche within the property market, it must first be allowed to do so by a change in taxation policies. (ET)