Property Australia

Build it and they will come

PROPERTY AUSTRALIA October 13, 2020

With a dozen or more large-scale build-to-rent projects in the pipeline, Allen Jack+Cottier principal Brian Mariotti looks at the key drivers and sustainable design potential of this growth market.

“Around 30 per cent of Australians are now in long-term home rental accommodation, increasingly as a lifestyle choice, not a compromise. This reflects a broader shift in attitudes towards asset ownership generally,” Mariotti says.

Pointing to the “tech-enabled GoGet car-sharing platform” as just one example of the new paradigm, Mariotti says many younger Australians prioritise convenience, service and freedom, not ownership.

“Business disruptors like GoGet, Uber and WeWork have quickly dominated their respective markets, not by inventing completely new offerings: an Uber is just a taxi, WeWork is just a shared office.

“They’ve done it by transforming the rules of engagement with radical new levels of tech-enabled service, putting the consumer – not the service provider – in the driver’s seat.”

Build-to-rent, or BTR, is relatively new in Australia compared to other developed countries.

“But with governments removing regulatory and tax roadblocks, and the finance industry getting creative with funding, developers like Mirvac and Grocon are catching the wave.”

Mariotti says it’s “welcome news”, not just as a post-COVID stimulus for property and construction, “but also as a new model of urban living that could, if done well, offer significant social benefits”.  

 

The BTR model

BTR housing is large-scale, purpose-built rental housing that is held in single ownership and professionally managed. It is high-density development, generally funded by institutional investors.

 

Big picture and policy benefits

  • Attracting institutional investment, for a more stable housing supply through the property cycle
  • Better security of tenure for tenants with long-term leases (and therefore cash flow) is a strong incentive to owners
  • More housing choices for tenants in desirable, well serviced locations.

 

Benefits to renters

In the more mature BTR markets of the US and UK, research shows key incentives to renters include:

  • Proximity to work – a maximum 30-minute commute
  • Amenities – ideally in a mixed-use project with shopping, entertainment, services at the doorstep
  • Instant gratification – services, home automation and maintenance provided
  • Flexibility of tenure – older residents typically want longer terms, younger prefer shorter.

 

The emphasis is on service, mobility and personal autonomy for renters.

 

Different DNA

Mariotti says successful BTR “is not simply a matter of flipping unsold apartments into rentals, only to sell when the market picks up”. Instead, BTRs offer:

  • Reduced capex. Because BTR projects are a long-term asset, the build quality must be high to minimise maintenance costs and disruptions to rental income, as well attracting good tenants.
  • Help at hand. Some BTR projects have an app-based interface for easy booking and maintenance requests, and a resident ecosystem for networking and social events. Mariotti says the NSW Housing Diversity SEPP will likely recommend one full-time on-site staff member for every 50-75 BTR apartments.
  • A real home. Security of tenure, and freedom to hang pictures, paint and have pets, for ex-ample, (unlike many strata schemes).
  • Add-in services. Partnerships with local restaurants food delivery, childcare, pet care and dry cleaners that activate buildings and enhance lifestyle.
  • Building signatures. Successful BTR projects overseas have an “x-factor” that attracts residents. Liv’in London’s North Acton complex has fully equipped, acoustically shielded rehearsal rooms, while Ollie in Pittsburgh offers a package of tableware, crockery and linen to complement the interior design.
  • Sustainability. BTR could lead sustainable design, because returns on the infrastructure investment are higher over the longer term. In 2018 Mirvac launched its Build to Rent Club, in partnership with the Clean Energy Finance Corporation. The seed project, Indigo at Sydney Olympic Park, recently opened in August 2020. Ian Learmonth, the Clean Energy Finance Corporation’s chief executive officer, has said the CEFC’s investment “is about giving tenants the same access to clean energy technologies as home owners”.

 

Mariotti expects market leaders to “wrap up all these ideas into a nationwide portfolio of BTR properties – all built to the same high standards but focusing on different amenities and demographics”.

The promise of a “portable lifestyle” would appeal to a large cohort of mobile Millennials. Tenants could transfer their lease from one property to another, moving cities without moving landlords.

“It’s not just about bricks and mortar; every really successful business model meets an unmet need. When thinking about a BTR development, you have to ask yourself: what are the most annoying things about renting? If you successfully address those, you’re on to a winner.”

Read more of Brian Mariotti’s insights into the potential of build-to-rent on Allen Jack +Cottier’s website.