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To house our growing population, Australia needs the largest home building cycle since the 1950s – but with a few crucial policy changes, build-to-rent (BTR) and build-to-sell (BTS) could be the key.
The housing crisis is in full swing, fuelled by interest rate hikes, spiralling cost of living, and rock-bottom supply. To help Australians keep a roof over their heads, the federal government has committed to building 1.2 million new dwellings by 2029.
As noted by real estate analyst Charter Keck Cramer, this is an ambitious policy commitment.
“To achieve these targets, Australian policymakers will need to create the conditions for one of the largest home building cycles since the 1950s and 1960s,” said the consultancy firm.
“To facilitate rapid change, governments at all levels will collectively need to employ various tools to establish preconditions that facilitate feasible delivery of these dwellings.”
One burgeoning – but as of yet, underexplored – tool in the housing supply arsenal is build-to-rent (BTR) and build-to-sell (BTS) developments.
So far, development in the BTR and BTS markets has been hampered by misguided preconceptions, but Charter Keck Cramer believes that a few strategic shifts could unlock 78,000 BTR and BTS dwellings per year.
In a typical BTR/S project, a developer purchases a site, seeks planning approval, then launches sales off-the-plan (OTP) to fund construction. In the case of BTR, owners may sell the property once it has become cemented as an income-producing asset.
Charter Keck Cramer explained: “There are key points along the respective BTS and BTR development journey where risks are highest and where government and policymakers can assist.”
First, however, both policymakers and investors alike need to beat some key myths about BTR/S developments, if they want to realise success.
Myth 1: It has never been done before
BTR and BTS projects are is often perceived as uncharted waters, with few precedents to reassure investors and policymakers that the risks will pay off. However, Charter Keck Cramer emphasised that these initiatives have been successful in the past.
From FY2017 to FY2020, peak levels of BTS apartments were built in Australia, with an average of around 60,000 new dwellings per annum. This isn’t too far off the 72,000–78,000 BTS and BTR apartments that are needed to hit current government targets.
Why was BTS so prolific in the late 2010s? According to Charter Keck Cramer, critical policy settings were indispensable to the sector’s success.
These successful policy settings included: “OTP incentives to investors, lower and fewer taxes and charges on buyers and investors, first home buyer grants, greater amounts of investor lending by financiers and lower APRA servicing buffers.”
Myth 2: The denser the better
Many people assume that BTS apartments are located in large apartment blocks 10 storeys high or more, but Charter Keck Cramer warned that this is a common misconception.
At peak construction, mid-rise developments dominated the BTR market. In fact, 40 per cent of BTR builds were two- to six-storey flats.
Currently, 34 per cent of the 156,000 BTR and BTS apartments with planning approval are mid-rise projects. Apartments of over seven storeys have so far been primarily concentrated in CBD locations, with density reducing once outside the city centre.
Myth 3: BTR/S means greenfield
BTR and BTS greenfield developments are not unheard of – just two months ago, a Melbourne developer announced a detached BTR estate.
But it is far more common for BTR and BTS to be built as infill developments in existing population hubs.
In FY2017 to FY2020, much of the BTR and BTS housing supply were located in inner and middle regions of major cities, close to “existing public transport nodes, employment hubs, retail facilities and lifestyle amnesties”.
Middle regions far outnumbered city fringe developments, with BTR and BTS apartments a key way to supply Australia’s “missing middle”.
Charter Keck Cramer also noted that apartments built around existing infrastructure are “less cost to government to build when compared against the significantly higher infrastructure requirements in greenfield estates”.
Myth 4: Investors hurt the market
Private investors are often held responsible for inflating housing prices, but Charter Keck Cramer warns that policymakers and the public “should no longer fear investors”.
They asserted that foreign, local and interstate investors “must be brought back into the market via OTP stamp duty incentives, the removal of various taxes and charges, as well as the expansion of lending to investors”.
They also advised that changes to stamp duty, land tax, GST and MIT could help entice foreign capital to the Australian BTS and BTR market.
“The BTS market still primarily relies on presales of apartments that are purchased OTP by either investors or owner-occupiers,” the consultancy firm explained, noting that in some BTS sub-markets, investors comprise 50 to 75 per cent of buyers.
If investors are not present, they warned that “no owner-occupiers get new dwellings, and no renters get rental accommodation, nor does the government get any tax revenue”.
“It’s a lose-lose scenario with devastating consequences for Australian cities,” Charter Keck Cramer concluded.
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