Could housing crisis solution be sitting on the sidelines?
Build-to-rent, which offers much to investors and renters, could help alleviate the supply crunch central to the housing crisis but developers face significant hurdles bringing such projects to fruition.
A potential game changer for the housing crisis is flying under the radar.
As Australia continues to grapple with a growing demand for housing, the Federal Government has set ambitious targets to put 1.2 million more homes in circulation by 2029.
To achieve this, bureaucratic obstacles are being challenged, and approvals for developments are expected to flow more smoothly in the coming years. However, amid this backdrop of housing reforms, another potential solution is waiting in the wings.
With the largest segment of the housing shortfall being in the lower end of the market and rents continuing to rise in the face of this shortfall, build-to–rent developments could prove a solution in the need for an increased supply of social or affordable rental properties.
Build-to-rent developers or investor groups like real estate investment trusts (REITs) or private equity firms invest in these housing or unit complexes with the goal of retaining ownership and leasing them long term, rather than selling the properties.
Unlike traditional property developments where units are sold to individual buyers, build-to-rent focuses on creating purpose-built rental accommodation managed by a single entity.
Developer challenges, investor advantages
This approach offers numerous advantages for both investors and tenants, with new opportunities for property ownership and rental experiences.
The scale of build-to-rent projects make them an attractive prospect for institutional investors seeking to diversify their portfolios and tap into a resilient asset class.
Unlike traditional buy-to-sell models, build-to-rent offers more steady, long-term income potential with less market fluctuations and lower vacancy risks.
Despite the potential benefits of build-to-rent, developers face several challenges in bringing these projects to fruition.
Securing suitable sites in prime locations, while navigating complex planning regulations, and securing financing are just some of the hurdles developers must overcome.
Additionally, convincing stakeholders of the viability and profitability of build-to-rent models requires a paradigm shift in thinking, emphasising long-term benefits over short-term gains.
For tenants, build-to-rent represents a welcome departure from the uncertainties of the traditional rental market. More flexible lease terms, responsive, centralised property management, and a range of communal facilities foster the potential for mutually beneficial rental agreements.
Balancing the interests of investors, developers, and tenants requires supportive measures such as streamlined planning processes and tax incentives that encourage investment in build-to-rent projects, while also ensuring adequate tenant protection and affordability safeguards that prioritise the long-term sustainability of the rental market.
With a growing demand for rental housing driven by demographic shifts and lifestyle preferences, build-to-rent developments are well-positioned to capitalise on the need for high-quality, purpose-built, affordable, long-term rental housing solutions.
As the government continues to prioritise housing affordability and supply, build-to-rent is expected to play a pivotal role in meeting the evolving needs of tenants and investors alike.
Realising the full potential of build-to-rent will require collaboration between government, industry stakeholders, and the community to overcome barriers and unlock opportunities for sustainable growth.
As income-producing properties, all build-to-rent investment properties hold significant depreciation potential for the investors. Investors should, however, seek advice on the ongoing changes in laws and regulations surrounding the build-to-rent investment space affecting property developers and institutional investors.
