Sydney rental housing construction is booming across the city

Data from the Property Council of Australia shows that rental properties make up just 0.2% of the Australian property market, compared to 5.4% in the UK and 12% in the US.

But NSW chief executive Katie Stevenson says the federal government’s halving of the managed investment trust withholding tax on build-to-rent to 15 per cent earlier this year will result in more than 150,000 new homes over the next decade could. “Build-to-rent has the potential to dramatically improve the supply of quality rental properties, and as supply increases, rents go down because there are more options on the market,” she said.

The latest figures from JLL Research show that construction activity will increase across the country in the next year.

With 315 one-, two- and three-bedroom apartments, LIV Indigo is one of the first housing estates that Mirvac built to let apartments instead of selling them.

Angela Buckley, build-to-rent chief executive at Mirvac, says the company sees a “significant market opportunity” in a new housing category that’s better for renters.

“Customer experience is typically poor and contract term security is limited,” says Buckley. “Whether people rent voluntarily or out of necessity, they represent a large and growing market in need of a reliable and quality supply of housing.”

The New South Wales government introduced tax breaks and planning reforms in 2020 and 2021 to encourage the construction of new rental housing. The federal threshold for significant development projects, which allows developers to bypass local authorities and submit rental plans to the planning department, has been lowered from $100 million to $50 million in the greater Sydney area and $30 million elsewhere .

There are 20 proposed developments for rent in the planning system which, if approved, will create more than 6,600 new homes (Prime Minister Chris Minns has warned that New South Wales “will be short of 130,000 homes over the next five years”) . NSW Land and Housing Corporation also has a $32 million social and affordable rental housing project in North Parramatta.

In a strategy paper for 2022, the property developer lobby group Urban Development Institute of Australia called for further tax and regulatory reforms to promote affordable housing for rent. From building to renting.

The institute’s NSW chief executive, Steve Mann, says construction rentals are typically valued at rents up to 20 per cent above market, “and the model requires high rental growth to regain ground as yields rise”.

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“Build-to-rent is part of a larger puzzle,” he says. “It will help but not solve the housing crisis. Due to the high level of convenience and the associated costs, the first projects are always aimed at as premium products.”

Adjacent to the Sydney Olympic Park, Mirvac has a build-to-rent property in Melbourne’s CBD and a 396-apartment development under construction in the Newstead area of ​​Brisbane, providing 99 apartments for essential workers at affordable rates by the Queensland Government subsidized rents. Both the Sydney and Melbourne rentals feature a health and wellness facility, cinema rooms, a games room, co-working spaces, and an indoor pool and spa.

“We provide on-site maintenance and customer service through a simple app, all appliances are included in each apartment, and pets are welcome, and our residents can paint their walls and hang pictures,” says Buckley.

Chen moved into a one-bed room at the LIV Indigo after her landlord asked her to vacate her previous home in Burwood, where she had lived for nine years. “Being in the private rental market is pretty stressful,” says Chen. “I had to think about moving if they decided to sell or refurbish.”

Pospieszny has been living in the complex with dog Joshie since 2020 and – with the support of the landlord – has moved several times to apartments of different sizes in the building. “We moved in and a lightbulb burned out,” he says. “Within an hour of making a request, someone came by to change it.”

One of the one bedroom living rooms in the LIV Indigo rental complex.

One of the one bedroom living rooms in the LIV Indigo rental complex.Credit:

Mirvac isn’t the only developer to say it will treat renters better than the current crowd of amateur landlords under current laws. The Urban Property Group has approximately 250 rental apartments in Penrith and Dulwich Hill with plans for an additional 1,500 units.

Urban’s Navali project in Penrith has 21 apartments for NDIS and lower income tenants renting up to 75 per cent of the private market price. The development is in partnership with local authority housing provider Link Wentworth.

Urban managing director Patrick Elias says the build-to-rent model offers residents greater home security.

“As we’ve seen over the past year, a hot rental market can present significant challenges,” he says. “All too often, this results in tenants having to pay significantly more to keep a rental property or move to a new location during periods of high demand.”

The Navali build-to-rent project offers affordable housing but likely won't be the norm in the industry.

The Navali build-to-rent project offers affordable housing but likely won’t be the norm in the industry.Credit: Urban Property Group

Estelle Grech, head of planning policy for the Sydney Committee, says rental properties offer tenants more peace of mind and security without fear of surprise price hikes: “In terms of design, you’re more likely to get quality common spaces. and a conscious focus on building a sense of community.”

According to Grech, the average developer building homes for sale had no reason to worry about the long-term living and operating costs of a building: “But when you’re dealing with a long-term oriented institutional investor, sustainability and quality assessments are a priority, um reduce ongoing maintenance costs.”

Build-to-rent is not affordable housing, she says, “and isn’t trying to be.” “But there’s nothing stopping the government from working with developers in areas of high need to subsidize housing for key workers.”

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The 2022 study, led by Chris Martin, senior research fellow at the University of NSW’s City Futures Research Center, found that there were about 11,800 build-to-rent units in Australia – most operated by Meriton. “It really says something about our current landlords and property managers that the prospect of a mega-corporate landlord can be a good thing,” he says.

However, Martin says that the experiences of large foreign landlords have not always been positive. “In some countries not much is built; Instead, they’re buying up existing inventory,” he says. “There is evidence from abroad that they are evicting more frequently and raising rents more aggressively.”

While renters’ advocates speak of community amenities like patio gardens and yoga rooms, Martin says they’re also calling for design standards that would allow for smaller and less well-ventilated dwellings than is currently allowed.

However, other models are also emerging in which facilities are exchanged for cheaper rents. Non-profit real estate developer Nightingale Housing has partnered with Fresh Hope Communities to build studio-like apartments measuring up to 35 square meters in Marrickville that will be rented at below-market prices.

Nightingale Marrickville is made up of apartments it calls Teilhaus-Style, which means “part of the house” in German. They’re more affordable because they don’t have individual washrooms, parking lots, or second toilets, says CEO Dan McKenna.

The Nightingale Marrickville development will be built under the Pensions Act.

The Nightingale Marrickville development will be built under the Pensions Act.Credit: Rhett Wyman

The 54 apartments will be offered at 80 per cent of market rent in an agreement with an income cap – at least 20 per cent will be offered to locksmiths, Aboriginal Australians, people with disabilities, carers and single women over 55.

The project, approved under the planning rules for boarding houses, is located on a Church of Christ site in Marrickville.

According to McKenna, there are structural barriers to providing rental properties in a high-priced market like Sydney that could be addressed: “This could be through more streamlined permitting processes at the local government level, or through funding support and improved subsidies at the state and federal levels.”

Alistair Sisson, a research associate at Macquarie University, says the greater security that build-to-rent potentially offers comes at a price. “That’s partly because it’s new property – and with apartments, new property is usually rented out at an additional cost – and partly because it offers more security than traditional private renting,” he says. “It is likely that it will continue to be a premium product while tenancies in the private rental sector remain as uncertain as they are.”

Mirvac's LIV Munro rental project in Melbourne CBD. The sector can always be valued with a premium.

Mirvac’s LIV Munro rental project in Melbourne CBD. The sector can always be valued with a premium.Credit: Justin McManus

Additionally, Sisson says that even if rentals become safer overall, the rental yield investors need to earn a return from build-to-rent properties means they are most likely still premium housing options.

“The real estate market in Sydney and Australia is probably not the most favorable for rental housing due to high prices and modest rental yields, as the real gains are realized through capital gains on property sales,” he says.

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Sisson says build-to-rent could create more social and affordable housing if governments pay for it. “Due to the corporate structure of the owners, it is difficult to include social and affordable housing in traditional shift systems,” he says. “Build-to-rent apartment complexes could potentially accommodate rental mixes more easily if subsidies are available.”

Proponents of build-to-rent say it frees up inventory further down the market – a process known as filtering – which indirectly creates more affordable housing, but Martin says that claim isn’t backed by any evidence.

“Over time, real estate filters down, but it doesn’t accumulate as a stock of affordable housing,” he says. “Before this happens, they are put to another use, e.g. B. Own use or refurbishment.”

The rental housing sector is also paralyzed by tax breaks that are driving up real estate prices, says Martin. “Australia’s smallholder landlords, whose losses have been cushioned by negative debt, have kept rental yields lower than build-to-rent firms could sustain.”

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Justin Scaccy

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