Exploring the Build to Rent Model in Australia

Since its beginnings with the Australian Dream of the quarter-acre block, the Australian housing market has been in a state of constant evolution.

But while slow change is constant, core change is rare. The block size might have shrunk, but the system of developers building and individuals buying to either occupy or rent out is more or less the same as it’s always been. So, is Australia ready for a change?

Build to Rent (BtR) is a brand new asset class that’s shaking up the housing model in markets like the UK and US, and Australia could be next.

Traditionally, residential buildings are constructed and then sold on an individual basis. If they are rented, they are rented from the subsequent owner. In the BtR model, however, a developer holds stock in their project long term, generating returns through rental.

Who would benefit from the BtR housing model in Australia?

The benefits of BtR housing are far-reaching and can be seen by the owner, the renter and the wider community. This is because BtR is an asset class designed to meet affordable housing demand in both the short and long term.

Perhaps most significantly, the BtR model grants the opportunity to live in more desirable, central areas to younger Australians, service workers and households that don’t have the income to support buying a house.

With this in mind, increasing the delivery of this asset class in Australia represents the potential to see a more diverse community in residential areas, instead of the current norm of high-end, residential, single-family ownership.

Addressing the challenges of BtR on local shores

Australia is behind on the BtR lifecycle when compared to places like the US and UK, and there are a few reasons for this. We have a strong residential market, good finance availability for individual buyers, and our tax structures are geared more towards residential purchase rather than Build to Rent. This last point is perhaps the most pressing, as tax implications currently make it difficult for the financing to work on a BtR project.

But we can work to create an environment that is conducive to BtR by:

  • Making modifications to the land tax system and stamp duty.
  • Adjusting the local government rate for rental properties as opposed to ownership.
  • Making GST modifications to make these projects more feasible.
  • Making modification to income tax for companies who end up operating more like community housing providers.

Australia can look to both the US and the UK for examples on how to implement this model. The US was the earliest adopter of BtR, and the UK has been moving quickly in this space over the last three to four years. Arcadis is heavily involved in BtR projects in the UK and US, and we are looking to leverage some of our technology and intel in the Australian market.

The future of BtR in Australia

COVID-19 has granted the perfect opportunity for local councils and governments to look at ways to facilitate the delivery of BtR housing to keep the building industry stimulated and economically viable. There is an opportunity to look at mixed tenure projects, with affordable housing and Build to Rent in the one building. This can help meet government objectives around affordable housing, while also increasing the socio-economic diversity.

The benefits of BtR make it a promising prospect. But the model simply won’t be economically viable unless some core changes are made.

But if we have the will, we can make the BtR model, and all its advantages, part of the new Australian Dream.

Kevin Brake

Technical Director of Urban Regeneration at Arcadis Ask me a question
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