Industry Magazine
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Australia explores how the Build to Rent sector could ease its shortage of affordable housing after property prices rocket

Australia is looking to the UK for pointers on kick-starting a Build to Rent sector (BTR) to help plug the gap in a housing market where the Great Australian Dream of home ownership is increasingly beyond the reach of many of its younger citizens, said Ken Morrison, Chief Executive Officer of the Property Council of Australia.

Ken Morrison

Ken Morrison has been CEO of the Property Council of Australia since 2014 and returned to the industry body after leading the Tourism & Transport Forum (TTF), the CEO forum for the tourism, aviation and transport sectors. His earlier executive positions at the Property Council of Australia were as its Chief Operating Officer and NSW Executive Director.

Addressing housing affordability is a top priority for the industry body, whose members generate about 13% of the country’s GDP and support the wages of one in four Australians, directly or indirectly. Average home prices have climbed by more than 250% since 1995 following 26 uninterrupted years of economic expansion. The mean price of Australia’s 10 million dwellings at the end of last year was AUD 686,700 (EUR 431,853), according to the country’s statistics bureau.
The Property Council of Australia sees BTR – large purpose-built residential blocks in the biggest cities owned by long-term institutional landlords – as part of the solution. The country’s 2016 Census showed that 30.9% of households were renters and their number is rising as a result of urbanisation, immigration and the growing appeal of inner-city living. Australia’s four biggest cities are home to 60% of the population, and this will rise to 75% by 2050, meaning Sydney’s population will double to eight million, Morrison said.
“We’ve had phenomenal house price growth that has locked out the younger generation, so affordability is a big problem,” Morrison said about Australia. “We’ve never had a Build to Rent sector in Australia, so we have been looking at what has been taking place in the UK, where they have also been focusing on building the sector from scratch.”
The number of completed BTR homes in the UK rose 45% in the first quarter of 2018 from a year earlier to 20,863, a number that will soar to 117,893 once stock under construction or pending planning approval is built according to the British Property Federation. BTR is, nevertheless, far less developed than in the US, where multi-family housing is a long established USD 3.3 trillion industry, or Germany, where rental accommodation is the majority housing tenure and residential landlords head the country’s listed real estate sector.
In Australia and the UK, individual landlords and investors dominate the private rented sector. BTR is increasingly appealing to institutional investors in both countries; however, due to the shortage of quality rental housing stock, prospects for a long-term structural need, rental growth prospects, attractive yields and the inflation-indexed rental income. In Australia, these qualities have come sharply into focus as the yield differential between residential and commercial real estate has narrowed so much that domestic REITs and institutional investors are giving the sector some serious consideration, Morrison said.
“The compression of commercial cap rates has certainly brought the BTR sector into focus, and for the residential construction cycle it’s a question of how to keep the pipeline going to create the assets for investment,” Morrison said. “The listed sector is certainly an additional source of housing supply. The US multi-family sector gathered pace after the global financial crisis, so BTR can keep the supply going through the cycle.”
Tax-exempt REITs entering the BTR market could exist alongside individual investors, who themselves benefit from tax breaks for their investments. BTR would offer a different type of product – large-scale residential blocks, with 100 or more units – that would be beyond the budget of most individual investors. The sector may also offer an attractive way for foreign investors to invest with scale in new developments since they are prohibited from buying existing residential properties, Morrison said.
Housing affordability links directly to the challenges that form the Property Council of Australia’s other top priorities, which include improving infrastructure and city strategic plans, overhauling taxes so that they are fairer and improving the planning system.
A recent example of what the Property Council of Australia is advocating is the agreement between the state of Western Australia and the federal government on an AUD 3.2 billion boost in infrastructure and the Perth City Deal, the first city plan for a metropolitan area in Australia. Until recently, Perth’s population had been growing at an annual rate of 3%. The longer-term city plan creates a framework to prepare for the delivery of the necessary roads, rail links and public amenities of the future, to link the inner and middle-distance suburbs to the city centre and to prepare the necessary housing.
Meanwhile, the Property Council of Australia is working hard to persuade the federal government to settle on a clear policy framework that will deliver more affordable homes, the subject of a review that is currently underway.
Dramatic demographic changes in Australia mean “how cities make the transition is very important since they need the infrastructure and investment to support the economy and population growth,” Morrison said, adding that “first, we need to fix the supply of affordable housing.”