In the heart of Australia’s cities, a quiet transformation is taking root.
A collection of apartment complexes, part of a game-changing initiative known as build-to-rent, is taking shape, further fuelled by the recently announced Federal Government injection into the BTR sector.
This investment into BTR projects and associated tax relief for developers, is expected to accelerate a pipeline for new purpose-built BTR apartment complexes across Australia, in a sector that’s currently worth $16.8 billion, but which has the potential to expand to $290 billion.
But will this ambitious bet pay off and can BTR provide the crucial course correction Australia’s rental market desperately needs?
MRI Software’s Director of Strategy in Asia Pacific, Josh Symons said the implications for residential real estate and Australia’s affordable housing supply crisis are profound.
“Australia is facing a housing crisis. No-one debates that anymore,” he said.
“There is simply not enough supply in the rental sector, and this constant battle between supply and demand has been critically one-sided, with a dire flow-on effect to affordability.
“BTR represents one of the most significant changes this decade in the way Australian communities live, work and play.
“Not only will it raise the bar on what consumers expect from property management services, but critically, it weaves a new thread of hope into the social blanket around housing affordability in this country, too.”
At the recent MRI Ascend Asia Pacific User Conference, Rental Management Australia Chief Financial Officer Chris Wiese said BTR could form part of the solution to the nation’s housing crisis.
“I think BTR is part of the equation in improving the supply dynamic in the market,” Mr Wiese said as part of the industry panel.
A recent study from the Property Council of Australia revealed up to 150,000 new apartments across 72 BTR projects are expected to be built in desirable inner-middle city locations in Melbourne, Sydney, Brisbane and Perth over a 10-year period.
Speaking as part of the Ascend panel, before the Federal Budget announcement, New South Wales Property Commissioner John Minns said it was estimated Australia would have a dwelling shortfall of 160,000-plus properties by 2032, and alternatives such as BTR were “desperately” needed.
He said when it comes to solving the rental affordability question, measures such as rental controls and caps had been “totally counterproductive”, and a combined solution where all levels of government worked with community housing providers and the private sector was needed.
“Build-to-rent, in a number of jurisdictions, has become the flavour of the month, but the truth is, we need these models not just to be great because rents are high and vacancies are low,” he said.
“We need these (BTR) models to be great in a balanced market and attractive for people to put money into.
“We need to get back to the days where the private market can provide the vast majority of accommodation in Australia…”
At the same MRI event, PowerHousing Australia Chief Executive Officer Nicholas Proud said “affordability in Australia today is in a perilous position”.
Mr Proud described Australia’s housing stock as “a dog’s breakfast”, often comprising homes at least 40 years old, expensive to heat and cool and often on large blocks of land.
He said build-to-rent would not take old stock, patch it up, and put it back out in the market, as often happens now.
Newer housing stock would also help reduce the nation’s environmental impact, as about 20 per cent of our carbon footprint currently comes from those old houses.
Mr Minns said as more developers keep and manage build-to-rent properties, it fostered a “natural tendency” to improve the quality of the apartments.
“You’re less likely to have the NSW building commissioner knocking on the door saying ‘please evacuate’ in a property that’s owned by an asset owner who needs to maintain it, needs it to be attractive and needs it to be attractive to people who want to move in there,” he said.
Build-to-rent often offers tenants much more than just a secure building, with resort-like facilities including larger gyms, swimming and leisure pools, BBQ spaces, cinemas, co-working spaces and on-site dining options.
Pet-friendly units, help with moving, flexibility to paint and decorate as well as organised activities for residents, such as wine tasting, Pilates or art classes, can also be part of the package.
Longer leases and better service
Mr Symons said one of the biggest benefits of build-to-rent is tenure security, which also enables the building of a stronger sense of community over time.
“Because BTR properties are built specifically to be rented and not sold, tenants can stay as long as they like, simply by renewing the lease,” he said.
“With advances in PropTech that process can be automated, online and easy to do.
“A tenant can also move to another apartment within the same complex as their needs change, say from a one-bedroom to a three bedroom, without moving away from the facilities and neighbourhood they’ve come to love.”
Mr Wiese said the high standards offered in the build-to-rent model could move throughout the private rental sector.
“BTR really tries to hit that premium price point within the market… and I think the other thing BTR will do to private landlords is, it’s going to increase the focus on the tenants a little bit more,” he said.
“These customer-centric models… are really changing the dynamic within the rental market to focus more on the tenant and the experience of the tenant within a rental property.”
Mr Minns noted that the private rental market would always be needed in Australia, but there was a golden opportunity for the private sector to learn from and take the best of what BTR offered and apply it in its own setting.
“This is where the residential market goes back and looks at build-to-rent and says, ‘What can we learn from here? What can we adopt and how can we automate in a way that people get a significantly broader choice of properties that are going to be delivered under the BTR model?’” he said.
Technology and compliance
Mr Symons explained that another significant benefit of BTR could be that owners of BTR assets don’t need to operate in the same regulatory framework as the private rental sector.
They don’t need to collect bonds, they can have a one-page contract if they wish and a lot of the paperwork can be automated.
He said pioneers such as Harry Triguboff from Meriton had been working on the BTR model for years, intending to streamline the traditional rental concept of thousands of disparate properties with different landlords and uniting them under the owner-developer’s umbrella and through technology.
“Build-to-rent developments are hundreds of apartments in high-density settings that come with expectations from residents… and those expectations are that, ‘I can have convenience in the palm of my hand. I can call the lift from my phone, I can book a car park, I can book a dog walker and I can do all of these other things’,” Mr Symons said.
“This digital transformation is something in BTR that’s not optional. It’s required in the BTR setting, and it should flow across to the residential real estate agencies.”
Mr Wiese said companies such as MRI had “better platforms to focus on the tenant” as they recognised the inherent benefit in doing so, and he hoped that would also flow through to the private rental market.
“That will improve the experience for the tenants, which then improves the experience for the property manager, and, if you can have happy property managers, you can provide a better customer experience to both your tenants and your landlords,” he said.
In addition to Meriton, other major players in the Australian BTR landscape include JLL, Mirvac, and Macquarie Asset Management.
Mr Symons explained that MRI Software was already invested in BTR as a solution through its connection with many of these big players in the sector in Australia.
MRI Software uniquely offers solutions that can apply commercial principles from an asset, funds management and facility management perspective, as well as offering open and connected residential industry solutions to address the changing nature of property management and tenant relationships connected with BTR.
“About 30 per cent of the pioneers of BTR projects in the Australian pipeline rely on MRI Software property and facilities management technology already, including Meriton, JLL and others,” Mr Symons said.
“BTR is so tightly aligned with our mission, values and strengths at MRI that it’s no surprise we are front and centre on both the commercial and residential industry implications of the expected surge in BTR projects from the back end of this year and beyond.”
A positive goal
Mr Minns said one of the great things that would come out of BTR is innovation and technological learning, along with a regenerated focus on the tenant experience.
“If we can transform that tenant experience, have happier people living in properties where all stakeholders’ needs are being met, then we actually get back to having a strong private investment market,” he said.
“And build-to-rent will flourish on the back of that.”
The industry panel discussion from MRI Ascend Asia Pacific User Conference can be watched here.