It’s the buzzword that has the potential to impact the supply and demand for affordable housing in Australia significantly.
Build-to-rent (BTR) is defined as purpose-built, institutionally owned, professionally managed private rental accommodation. This model has been increasingly adopted around the world, with aims to benefit both the tenant and developer, providing an affordable solution for renting.
One of the ways the BTR model reduces the cost of rent is the way utilities and services are included in a single weekly bill, lowering the cost for the tenant, providing savings for the developer and meeting the needs and desires of a changing workforce.
Before we look at this benefit, let’s first explore BTR further and why it can grow in Australia.
The 2016 census found that 30.1% of the Australian population rents. The Australian dream of owning a house with a large backyard and a hills hoist clothesline is no longer, with more and more Australians opting for apartments and townhouse rentals. This trend is mostly influenced by higher property prices nationally, and the higher costs of living.
BTR offers an affordable rental solution by increasing the rental supply in the property market quickly as it doesn’t need to be pre-sold off-the-plan, standardising rental costs and encourage developers/owners to lower costs by providing them with better yield returns.
The model is deemed to be relatively low risk, where risk can be compared to a long-term asset such as retail or commercial space. The length of ownership means the developer receives a consistent revenue stream, protected against market fluctuations as it eliminates the susceptibility in cyclical prices that individual apartment purchases have.
(BTR offers a number of incentives to developers, including protection against market fluctuations)
The benefits are therefore in the developer’s favour. An increase in market supply caused by a higher number of build-to-rent lots will subsequently address rising costs for apartments.
Another advantage to the model is that of a rent-to-buy possibility for long-term tenants. Under this structure, the resident can purchase their rental unit after an extended period, at a pre-agreed price with the owner. The seller then must comply with those terms, with the condition the tenant pays an upfront option fee and ongoing fee. The benefit for the owner/developer here is the certainty of having a long-term tenant in place, now incentivised to treat the unit well.
The Development Finance Partners whitepaper into build-to-rent, however, identifies a number of hurdles for the model to be adopted in Australia. With little examples of BTR in Australia, it is hard to estimate the value of the model, and developers also have to pay land and GST tax upon construction (whereby GST can be difficult to recover as it has to be paid upfront and is hard to recover in rent).
Regardless, there is a significant opportunity for BTR to grow in the Australian marketplace, addressing property prices in doing so. As mentioned, BTR also comes with the ability to lower costs for both the tenant and developer through the provision of utilities. Let’s explore this benefit.
One Weekly Bill
For tenants, the BTR model can come with many perks, particularly as it’s tailored to renters. This may include immediate maintenance services, long-term relationships with the owner, communal areas and the ability to add utilities and services in the weekly rental price.
(Owners combine the cost of services into one weekly bill)
For instance, an auxiliary service such as the internet can be embedded in the rental cost, making it cheaper for the tenant as the developer/owner experiences wholesale internet prices from the internet vendor. The savings are passed through to the rental price; utilities and services, such as gas and electricity, are then included in this cost.
For tenants who don’t intend to rent for long, or have to move for work, this relieves them of the concern of being locked-in to long-term contracts. They experience guaranteed internet for their unit, where the fee is charged to the property manager, paid monthly over an assigned period.
VostroNet, for instance, provides its wholesale fibre network to build-to-rent apartments, providing developers/building owners with high-speed internet plans for their tenants at wholesale prices. Our expertise in this field derives from our student accommodation deployment, which operates under a similar model to BTR.