Inside Build-To-Rent

Build-To-Rent is a relatively nascent residential living market — one that is quickly moving beyond an ‘emerging’ tag as it spreads out across Australia.

To understand the platform is to comprehend that where standard development equates to the construction of residences to be sold on completion, BTR developments are held, operated and rented by the developer.

While the premise is straightforward it does present with a number of issues — among them land tax discounts and premium land transfer tax, alongside funding and consumer uptake issues that have caused it to stutter in its national rollout.

Where the BTR industry in Australia continues to find its footing as a fresh consideration, BTR has been delivered and engaged in US markets for the best part of 40 years. Elsewhere, European markets such as London — which has expanded rapidly in alignment with federal government support since 2013 — has around 28,000 BTR properties completed, 16,000 under construction and 38,000 in planning, according to Statista research.

Local experts such as Craig Godber, CBRE’s Associate Director, Head of Residential and Build-To-Rent Research Australia indicates that local trepidation may be more a case of ‘seeing is believing’ amongst prospective consumers.

“I think that Australians have always partly accepted that there’s either owning a home or private renting, and it’ll take a few successful projects before a gradual uptake by renters is made,” said Godber.

Where BTR differs from traditional renting is in its want to retain renters across extended periods and through a number of additional services such as dedicated concierge services, mail rooms, meeting rooms and mixed-use office spaces.

Further, with one central controlling body overseeing each building operation, BTR offers flexible long-term tenancies, client-centric onsite management as well as appealing allowances in rewards to personalisation (painting and decorating) and pets.

The caveat is that more lifestyle services means increased outlay.

“There is the expectation that rents in BTR developments will be higher as opposed to the private market, and that may take some time for the consumer adjust to,” added Godber.

The premium services offered by BTR have dispelled early market fears about it being rebranded social housing.

“That perception existed early on, particularly as the developments are purpose built, but as people and investors continue to learn about it that stigma fades away.”

Godber is increasingly optimistic about the future, buoyed by with a number of projects by renowned operators Mirvac and Grocon and an expansive market being further fed by various overseas developers.

Sydney and Melbourne remain key with the Victorian capital outpacing the northern city’s pipeline by almost double, according to research from Knight Frank.

The number of BTR apartments in Melbourne’s planning currently sits at 6000, well ahead of Sydney’s 3300 and Brisbane’s 1600.

11.1% of development sites purchased in 2020 in Melbourne were earmarked for high-density, BTR projects while in Sydney that figure was 0.7%.

Despite the recent interest and development proposals in the pipeline uptake is still expected to be rather gradual when compared to the recent explosions in popularity of BTR in Europe.

Godber indicates that further government assistance and incentive, aligned to increased interest at an institutional investor level will help BTR continue to grow across Australia.

“Financial models, the combination of better taxation and the structuring of funds as institutional investment vehicles for build-to-rent are all essential to seeing the sector continue to grow.”

Requiring more than 30 percent of household income to service a home loan has long been considered the benchmark for ‘housing stress’. Yet research shows it is becoming the new normal. The 2024 ANZ CoreLogic Housing Affordability Report reveals home loans on only 17 percent of homes are ‘serviceable’ if serviceability is limited to 30 percent of the median national household income.

Based on 40 percent of household income, just 37 percent of properties would be serviceable on a mortgage covering 80 percent of the purchase price. ANZ CoreLogic suggest 40 may be the new 30 when it comes to home loan serviceability. “Looking ahead, there is little prospect for the mortgage serviceability indicator to move back into the 30 percent range any time soon,” says the report.

“This is because the cash rate is not expected to be cut until late 2024, and home values have continued to rise, even amid relatively high interest rate settings.” ANZ CoreLogic estimate that home loan rates would have to fall to about 4.7 percent to bring serviceability under 40 percent.

CoreLogic has broken down the actual household income required to service a home loan on a 6.27 percent interest rate for an 80 percent loan based on current median house and unit values in each capital city. As expected, affordability is worst in the most expensive property market, Sydney.

Sydney

Sydney’s median house price is $1,414,229 and the median unit price is $839,344.

Based on 40 percent serviceability, households need a total income of $211,456 to afford a home loan for a house and $125,499 for a unit. The city’s actual median household income is $120,554.

Melbourne

Melbourne’s median house price is $935,049 and the median apartment price is $612,906.

Based on 40 percent serviceability, households need a total income of $139,809 to afford a home loan for a house and $91,642 for a unit. The city’s actual median household income is $110,324.

Brisbane

Brisbane’s median house price is $909,988 and the median unit price is $587,793.

Based on 40 percent serviceability, households need a total income of $136,062 to afford a home loan for a house and $87,887 for a unit. The city’s actual median household income is $107,243.

Adelaide

Adelaide’s median house price is $785,971 and the median apartment price is $504,799.

Based on 40 percent serviceability, households need a total income of $117,519 to afford a home loan for a house and $75,478 for a unit. The city’s actual median household income is $89,806.

Perth

Perth’s median house price is $735,276 and the median unit price is $495,360.

Based on 40 percent serviceability, households need a total income of $109,939 to afford a home loan for a house and $74,066 for a unit. The city’s actual median household income is $108,057.

Hobart

Hobart’s median house price is $692,951 and the median apartment price is $522,258.

Based on 40 percent serviceability, households need a total income of $103,610 to afford a home loan for a house and $78,088 for a unit. The city’s actual median household income is $89,515.

Darwin

Darwin’s median house price is $573,498 and the median unit price is $367,716.

Based on 40 percent serviceability, households need a total income of $85,750 to afford a home loan for a house and $54,981 for a unit. The city’s actual median household income is $126,193.

Canberra

Canberra’s median house price is $964,136 and the median apartment price is $585,057.

Based on 40 percent serviceability, households need a total income of $144,158 to afford a home loan for a house and $87,478 for a unit. The city’s actual median household income is $137,760.

Inside Build-To-Rent

The Australian uptake of the ‘new’ development platform remains dwarfed by overseas expansion — but things are moving.

New research suggests spending 40 percent of household income on loan repayments is the new normal