Development giants are poised to bring build-to-rent residential housing to Australia, and the developer-as-landlord model could help solve our housing affordability and homelessness crisis.
Common in the United Kingdom and the United States, the build-to-rent or ‘multi-family’ model sees developers or institutional investors retain control of completed housing projects, renting them out rather than selling them to investors and owner-occupiers.
Last year, Australian property group Mirvac announced its intentions to develop build-to-rent units in Australia with backing from superannuation funds. Big players including Lendlease, Grocon, and Stockland followed suit.
Social impact investment—including build-to-rent—could offer a solution to Australia’s housing affordability and homelessness problems, an inquiry by the Australian Housing and Urban Research Institute found.
“Social impact investing has the potential to shift some of the housing affordability issues we’re facing in this country, and build-to-rent has the potential to provide long term for affordable housing for people,” inquiry lead and UNSW Centre for Social Impact CEO Kristy Muir said.
There are currently 194,600 people are on social housing waiting lists in Australia, with an estimated one in 200 people are homeless on any given night.
Build-to-rent housing that provides discounted market rent and long term rental stability would allow low-income renters to turn their house into a home, but only under the right conditions, Professor Muir said.
In order for the model to work, build-to-rent projects would require government backing to subsidise discounted rents, or institutional investors happy to take submarket rental returns in the interest of creating affordable housing.
“There needs to be a social intent. You need to have the finance and the social return, it’s not just about the money,” Professor Muir said.
“We need a commitment from government and institutional investors willing to take a submarket return in exchange for great social outcomes as a country.”
Generation rent and the Australian dream
Widespread wage stagnation and high property prices mean the Australian dream of owning a home may never become a reality for younger Australians who make up ‘generation rent’.
A third of Australia’s population is in the rental market, with the figure even higher in capital cities and among young Australians, according to PwC.
In Sydney for example, 70 per cent of 25 to 34 year rent, with 40 per cent of those considered ‘long-term’ renters, in the rental market for 10 years or more.
“If prices for homes do not come down then absolutely, renting will become the norm,” University of Melbourne research fellow Matthew Palm said.
“You look at the housing crisis and incomes for young people, and entry level jobs have not kept pace with housing prices.”
In order for build-to-rent to be successful in addressing housing affordability in Australia, tenants rights will need to be prioritised, Dr Palm said.
Tenants unions across the country have been advocating for increased protections for renters, with a focus on changing laws that allow landlords to evict renters for no reason and with short notice.
“The lesson from the US is a build-to-rent system works better for people where there are stronger rights and protections for tenants,” University of Melbourne research fellow Matthew Palm said.
Dr Palm remains “optimistic” that governments will take up the cause of renters’ rights.
“It’s a basic issue of fairness. Renting is no longer a stepping stone, children are growing up in rental households,” Dr Palm said.
“I would hope to see a renewed commitment to protecting those people in a bipartisan manner, but that remains to be seen.”