What built to rent means for affordable housing

Market Insights
5 years ago
2 minutes

Whilst many major cities across the US and Europe are familiar with the Built To Rent (BTR) model, Australia is yet to embrace it fully. Let’s take a look at what this affordable-focused approach is all about.

What is it?

BTR properties are residential projects which a developer creates and retains ownership of in order to lease out properties to tenants rather than selling them to private buyers. Predominantly consisting of apartments and townhouses, they are designed and managed to meet the needs of people who rent, often long-term and have gained popularity as an affordable accommodation option.

How it has worked so far

Heavy-weight developers like Mirvac, Geocon and Lendlease are already looking at implementing the BTR model in Australia, however, there are significant differences when it comes to the way these projects are managed in Australia versus overseas.

In the UK, taxation laws surrounding BTR projects have been adjusted to incentivise developers to actually produce this type of housing. The tax changes are shaping the market and preparing it for growth and the result is that the BTR sector in the UK is providing long-term sustainable and affordable housing options.

In Australia, current market conditions mean a large-scale BTR model will only work if it caters to high demand rentals. Because it is new, the banking sector is unlikely to loosen its current lending regulations….yet.

Prior to 2017, institutional investors would only be taxed 15 per cent on BTR projects, which motivated developers to build this kind of development. However, reforms were made which changed the criteria. BTR models are no longer classified as income generated, but instead reliant on capital growth, so the tax rates jumped up to around 30 per cent.

The future

Labor recently proposed it would halve the 30 per cent withholding tax rate on managed investment trusts for BTR projects. If this eventuates, it will prove to financial investors that there is a market here, which is supported at the Federal Government level.

In Australia, we’re yet to see this type of accommodation structure thrive — and yet, we are arguably in most need of it. One-third of Australian households rely on rental accommodation to meet housing needs (according to ABS data) which means there is a high demand for rentals and low supply.

The NSW Government is setting a new benchmark by incorporating a BTR model in mixed-use precincts. Named ‘Communities Plus’, the initiative is targeted at regenerating a number of precincts across the state by creating a varied selection of apartments, affordable social housing and urban amenities.

Read more about the NSW Government’s Communities Plus here.


Hero image: Ivanhoe Estate social housing, part of Communities Plus