Build to Rent is one (very viable) option for affordability
Thursday, December 14, 2017
Samantha Reece, Director of PropertyESP recently attended the Property Council Build to Rent (BTR) breakfast and found the session so interesting, she thought she would share.
BTR is a new term which has only recently crept into WA’s vocabulary, but in the USA and UK this is a housing model that has begun to gain real traction.
In the USA the BTR sector is the second largest asset class. The listed USA BTR REIT sector alone has a combined market capitalisation of $144 billion, over $50 billion larger than the entire ASX REIT sector.
In the UK, (perhaps the market most similar to Australia in terms of cultural views on renting versus buying) BTR has only existed for about 6 years, however with the support of government investment funds, incentives and concessions, has grown rapidly from a standing start to over 80,000 purpose BTR apartments.
And here is the key – Government investment.
These models have been successful because it is a JV between private and public sector with investment from institutions. In turn tenants can move into these apartments/homes and secure a ten year lease at CPI giving them security of tenure.
What is also interesting to note, is that the BTR model can be applied just as well to greenfields as built form.
With this model holding $2.1 trillion in real estate value world-wide it has become a preferred investment model because of its liquidity, relatively low capital expenditures (each apartment has its own building manager) and the risk adjusted returns.
But in order for this to get off the ground in WA we firstly need a favourable regulatory environment as well as tax ratings with banks and government then contributing 80% of the funds.
Sound impossible? Well obviously it is not because Australians are investing a billion dollars in BTR in the USA and UK as we speak.
For too long we have been talking about affordability and now we are seeing the ramifications for not taking more urgent action.
Housing Choice Australia just recently released results that showed 806,100 households in Australia were seeking reoccurring rent assistance. A further 1.3 million people can’t afford to purchase a property and this is expected to grow to 1.7 million.
In contrast there has been an increase in just 4.5% of social housing stock.
The BTR model defines social housing as in fact economic infrastructure.
You build houses to accommodate people who need to work in these areas such as nurses, police, teachers and the like. The fact that they are housed in close proximity to their workplaces reduces the need for other infrastructure such as public transport and roads.
In this instance social housing is seen as long term investment for the benefit of many generations. And that is essential. Based on current trends it is likely that my own children will struggle to own their own homes in years to come.
National Developer Mirvac to their credit are already trialling this model in the East Coast and it is the bold, that in fact will create a new housing choice in Australia and in return - reap the gains.
There are certainly a number of disruptors currently in the property arena and the next five years are going to be interesting times.