Demand for the build-to-rent asset class in the United States remains strong, despite being 10 years post recession and increased rental costs at an average of 3.3 per cent annually.
The country has also seen high levels of new supply, yet the vacancy rate has remained under 5 per cent for the past five years.
CBRE senior director of Capital Markets Colleen Pentland-Lally says there are three primary conditions which has enabled build-to-rent to thrive in the USA and the UK.
“Large populations of city-dwelling millennials and Gen Zs are getting married, buying homes and having children much later in life than all prior generation,” Pentland-Lally said.
“If they can’t afford to buy in the area they want to live, they would prefer to rent in those areas. i.e. in the city, live-work-play environments, not the 'burbs.”
With high costs of housing and major affordability issues prevalent in almost every major city in the world, Pentland-Lally says high-quality rental accommodation has provided an alternative for more affluent young renters who are not quite yet ready to be homeowners.
“Also consider, Australia has a very similar homeownership rate to the United States—around 65 per cent—the 35 per cent of the population in rental housing are simply renting from mom-and-pop, rather than professional managers and operators.
“There is a large proportion of American renters also in mom-and-pop or single-family rental accommodation.”
Australia’s build to rent market is still in its infancy, with the tax regime being flagged as one of the biggest barriers preventing the full potential of build-to-rent from being realised.
“As happened in the UK over the last several years, there could be some relief to these issues as the sector is better understood and pressure mounts from institutional investors, including the superannuation funds,” Pentland-Lally said.
“Another headwind globally are impacts from rent control and affordability requirements. If governments, municipalities and other stakeholders hope to increase quality housing stock through private sector developers, there is a fine balance that must exist in order for that to work.”
Despite the barriers, Australia has made significant progress over the past two years, quickly evolving from an overseas case study to a billion-dollar industry.
Given rising housing costs and dropping availability, the build-to-rent industry seems to have a sure future.
“The expansion of the multifamily sector means more housing is being built, and major Australian cities are in great need of new housing.
“Adding any units to the housing stock is a benefit to those communities, and it expands the choice of housing for all levels of society.”
Hear from Colleen directly at the 3rd Driving Growth & Investment in Build to Rent conference, in Sydney on 19-20 February.
Established as a platform for providing a holistic insight into the opportunities, barriers and potential growth of build-to-rent, the event shares best practices on planning, design, delivery, operations and financing models.
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