Unpacking the Build-to-Rent Wave in Australia

The concept of Build-to-Rent (BTR) is rapidly gaining traction among developers and renters in Australia. The escalating cost of living is increasingly restricting individuals from purchasing homes, and BTR is emerging as a potential solution. In this article, we discuss the evolving BTR landscape in Australia, compare it against global markets, and examine the benefits for both developers and renters. As governmental support for BTR investments gains momentum, we explore the potential for this sector to reshape the rental housing market, going against the grain to the traditional Build-to-Sell (BTS) developments.

The Build-to-Rent (BTR) Market in Australia

BTR is a transformative approach where developers build multi-unit buildings, retaining them for rental purposes instead of selling individual units. The Australian Housing and Urban Research Institute found that the BTR market in Australia is currently valued at $16.87 billion, which accounts for only 0.2% of the residential housing sector. In comparison, the United States has already embraced BTR and it is estimated to be around 12% of residential housing, while the United Kingdom is also on board with an estimated 5% of residential housing (Development Ready, 2023). In Australia, BTR has evolved over the past five years, and it’s gaining traction due to factors like housing shortages, cost-of-living, rental growth, and limitations faced by traditional BTS offerings. The question of when BTR will become widely adopted in Australia is a dynamic one, with indications pointing toward its growth across cities until 2030, much like the trajectory seen in mature housing markets overseas.

Percentage of BTR housing

USA %
0
UK %
0
AUS %
0

Will BTR help the Australian rental crisis?

The growth of BTR offerings in Australia is already making a significant impact on both developers and renters. With a positive initial surge driven by housing shortages, robust rental growth, and challenges in traditional BTS offerings, BTR provides tangible value to Australian renters. The appeal lies not just in premium rentals but also in added amenities and services, creating momentum and initial success. As BTR evolves, developers are shifting towards mid-market offerings, signalling a commitment to diversity. The sector, though initially perceived as a premium option, is adapting to address affordability concerns, showcasing potential benefits for a broader demographic and allowing developers for further investment diversification.

BTR vs BTS

BTR is proving to be a game-changer for developers and investors. Its value lies in the ability to source and manage capital for large-scale projects, with revenue generation-spanning various stages, including capital management, project and development management fees, and operational management. BTR’s flexible and diverse model contrasts sharply with BTS, offering developers the opportunity to explore innovative rent-to-buy models. The revelation here is the pivotal role of capital, with over $20 billion already invested in the sector, predominantly from overseas funds. The sector’s growth and survival hinge on providing acceptable returns to these international capital partners, potentially shaping the sector’s future.

Is BTR here to stay?

The BTR sector in Australia looks to be a promising avenue as it begins to redefine the rental housing landscape. As it addresses current challenges and offers tenant-friendly housing, the BTR market is poised to grow, catering to both high-end and affordable housing needs. The revenue generation model underscores the significance of capital sourcing and management, with international funds dominating the sector. Supported by government initiatives and evolving regulations, the BTR sector emerges as a crucial player in Australia’s housing arena, providing a compelling alternative to traditional build-to-sell developments. As the BTR market continues to evolve, its impact on housing choices, economic recovery, and the rental landscape shows some promising relief.

To find out more, contact our team at Division.

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