We’re sorry, this feature is currently unavailable. We’re working to restore it. Please try again later.
Add articles to your saved list and come back to them any time.
Australia’s love affair with freestanding homes is very much on borrowed time as dwindling supply and sky-high prices put property ownership out of the reach of younger buyers.
With saving for a deposit becoming an almost insurmountable hurdle for first-home buyers, a red-hot property market has led to a big jump in the number of people left competing for limited rental stock.
Supply of inner-city apartments is failing to keep up with demand.Credit: Photo: Jessica Shapiro
As immigration and international student numbers kick back into gear, things are about to get a lot tighter before they improve.
Increasing the housing supply is clearly the key. With more than one million immigrants forecast to come to Australia over the next three years, we need 400,000 new homes, particularly in inner-city suburbs.
The proportion of renters living in high-rise apartments has been increasing for more than 15 years. In Sydney, less than 40 per cent of renters were housed in apartments in 2006 but, by 2021, it had increased to more than 50 per cent, according to Macquarie analysts.
However, the high-rise apartment supply pipeline in key inner-city growth areas is not keeping up with demand, with about 30,000 expected to be under construction across Sydney, Melbourne and Brisbane in 2024. Chances are many of these will never be sold.
Property developers are responding to the increase in rental demand by expanding into the Build-to-Rent (BTR) sector – where residential properties are specifically built to be long-term rentals.
There are an estimated 8350 dedicated BTR apartments under construction nationally as of September 2023, and a further 12,900 units are approved for development in the near term, according to the Knight Frank Breaking the Shackles – the rise of BTR report.
But despite the strong pipeline of BTR projects, Australia remains in its infancy in professionally managed rental housing stock, at 0.4 per cent, compared with overseas markets. In the UK, it is more like 5 per cent, and 12 per cent in the US.
Even with about 55,000 dedicated BTR units forecast to be completed by 2030, that would still represent only 1.5 per cent of the national rental supply.
Property developer Mirvac, which is quickly ramping up construction of its BTR apartments, is hopeful that the BTR trend will pick up pace.
At an investor day this week, the company said Australia’s BTR sector has the potential to grow into a $290 billion industry, presenting a strong growth opportunity for the company. Mirvac’s $11.9 billion investment portfolio mostly comprises office and retail assets. The BTR investments total about 2 per cent of that portfolio.
But the turbulence in the office market, as interest rates move into a higher for longer trajectory, could be a boon for BTR. As lower-grade and older office buildings fall out of favour BTR, land lease and industrial assets are looking to cash in.
“Though the development returns are relatively lower in BTR compared to commercial, income streams are more attractive, with value realised over time instead of upon completion. Additional development management and investment management fees on their platform also contribute to returns,” Macquarie analysts said this week.
Mirvac has two completed BTR assets of about 800 apartments – LIV Indigo in Sydney, and LIV Munro in Melbourne. It is building three more to add another 1300 apartments in Melbourne and Brisbane, resulting in a pipeline of about 2200 units, worth $1.8 billion. However, it has plans to double that number to more than 5000 by 2030, boosting the company’s earnings growth by 0.4 per cent annually.
The increase in BTR projects is not confined to the major cities. Family-owned developer Resimax this week unveiled plans to establish a BTR portfolio of three- and four-bedroom detached houses in greenfield estates on Melbourne’s outskirts.
The group already has more than 200 homes occupied by tenants in estates in Eynesbury, Wallan and Mernda, and expects that to grow to more than 500 by the end of 2025.
“There is enormous potential in the BTR sector as an alternative to traditional homeownership and conventional rental properties, however the detached housing market has been slow to adopt this scheme. As a business, we’ve refined our model to leverage this opportunity,” says Resimax chief executive Ozzie Kheir.
“By retaining a percentage of stock in our developments for rentals, we’re able to contribute a pool of new, family-sized homes to a broken rental market that is in desperate need of supply”.
The Business Briefing newsletter delivers major stories, exclusive coverage and expert opinion. Sign up to get it every weekday morning.
Copyright © 2023
Recent Comments