What is Build-to-Rent? The new housing investment model gaining traction in Australia in 2023

Build-to-Rent projects are starting to increase in popularity as Australia’s housing market continues to evolve.

It refers to large-scale residential developments, which are usually high-rise apartment blocks. These dwellings are owned and managed by a single entity and are rented out over mid to long-term periods instead of being sold.

Whilst this model is widely used in the US and UK, it is only just starting to gain momentum in Australia. The model is currently most prevalent in Melbourne, followed by Brisbane and Sydney.

Build-to-Rent has been promoted as one of the most effective ways to address Australia’s housing crisis. It can provide a significant amount of housing at a relatively fast pace and at a more affordable level to occupants who may not have the means to purchase a dwelling.

It may also be an attractive option for developers and investors as it provides a steady income stream and the ability to minimise costs through economies of scale in construction.

The model is in its infancy and potentially has its own problems. It is currently not an established industry in Australia and is not specifically regulated. Detractors argue it may result in higher rents and longer leases as developers seek to lock in long-term benefits for their investment. Investors may also be discouraged by the inability to increase rents to market levels where the properties are subject to long-term leases. It is also yet to be shown whether long-term leases will prove attractive to tenants. If the model fails to attract tenants, high vacancy rates will challenge the viability of the model.

There are also planning implications to consider in this model. The build-to-rent housing provisions are now encompassed predominately in Part 4 of the State Environmental Planning Policy (Housing) 2021 (“Housing SEPP”). Some planning considerations include:

1. that build to rent developments can take place at properties that are zoned as residential flat buildings, shop top housing, B3 Commercial Core, B4 Mixed Use and B8 Metropolitan Centre zones;
2. that the provisions apply council height and floor ratio standards; and
3. that the provisions prevent residential subdivision for 15 years in all zones except for properties zoned B3.

Australian governments are providing some incentives to this area to improve housing affordability for individuals and places less pressure on the government to build dwellings themselves.

Whilst Build-to-Rent has the potential to improve housing affordability in Australia’s housing market, there currently is insufficient take up to provide any measurable data as to its effectiveness. It may provide a positive contribution to housing stock however it certainly does not seem to be a panacea for Australia’s housing affordability crisis.

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