The Build-to-Rent Boom: A Solution That Misses the Mark?

As Australia’s rental crisis deepens, build-to-rent developments promise more housing—but will they build the right homes in the right places at the right price?

The recent passage of build-to-rent legislation is expected to unlock 80,000 new homes nationwide, heralded as a significant step towards addressing Australia’s housing supply issues.

These developments, often backed by institutional investors, are designed as purpose-built rental properties.

Unlike traditional build-to-sell models, the properties are retained and managed by developers or investors, offering tenants a long-term renting experience.

Melbourne is leading the charge, with BTR developments predicted to dominate the city’s rental market over the next three years.

Projects are sprouting up in inner-city areas, offering amenities like gyms, co-working spaces, and community hubs aimed at attracting higher-income tenants.

The catch: not where it's needed most

While BTR developments increase rental supply, they predominantly target prime urban areas where land values are high, and rents can offset construction costs.

For developers, it makes financial sense to focus on affluent suburbs and CBD locations, where higher rental yields can be achieved.

However, this creates a mismatch between where homes are being built and where affordable housing is desperately needed.

Families, key workers, and lower-income renters in outer suburbs or regional areas are unlikely to benefit from these developments.

For example, the New South Wales planning guidelines for BTR encourage projects in central locations to leverage existing infrastructure, further sidelining suburban or regional communities.

Affordability: a missing piece

The inherent cost structure of BTR developments means affordability isn’t their strong suit.

These projects often involve high construction costs, premium amenities, and a need to provide competitive returns for investors.

As a result, rents in BTR properties are typically at the mid to upper end of the market.

Efforts to introduce affordable housing components, such as set-aside quotas for discounted rents, are limited and often financially unviable without significant government subsidies.

Even when such measures are included, the scale is modest compared to the broader affordability crisis.

For instance, New South Wales' flexible design requirements for BTR developments aim to support diverse tenant needs, but they don’t mandate affordability.

A Band-Aid for a bigger problem?

While the BTR sector addresses the supply side of the equation, it doesn’t tackle structural issues like social housing shortages or the uneven distribution of housing stock.

Critics argue that BTR is more about providing a new asset class for institutional investors than a genuine solution to Australia’s rental affordability crisis.

While it's a step forward, the focus on high-demand, high-rent urban areas means many Australians in need of affordable housing will remain priced out.

What needs to change?

If BTR is to contribute meaningfully to solving Australia's housing crisis, several adjustments are necessary:

1. Incentives for affordable housing: Governments could introduce subsidies or tax breaks for BTR projects that include a significant portion of affordable rental units.
2. Diversified locations: Encouraging BTR developments in outer suburbs and regional areas could address geographic disparities in housing availability.
3. Partnerships with social housing Providers: Blending BTR projects with public and community housing initiatives could better serve lower-income households.
4. Government intervention: To ensure affordability, rent controls or quotas for low-income tenants might be necessary in high-demand areas.

Conclusion

Build-to-rent is undoubtedly a step in the right direction for increasing Australia’s rental supply, but it’s not a silver bullet for affordability.

Its current trajectory focuses on delivering high-quality rental stock in premium locations, benefiting higher-income earners while leaving lower-income Australians underserved.

For BTR to truly make a dent in the housing crisis, a sharper focus on affordability and geographic equity is essential.

Otherwise, it risks becoming another well-intentioned initiative that falls short of solving the bigger issue.

About Leanne Jopson Leanne is National Director of Property Management at Metropole and a Property Professional in every sense of the word. With 20 years' experience in real estate, Leanne brings a wealth of knowledge and experience to maximise returns and minimise stress for their clients.