What is Build to Rent?

Build to Rent (BTR) is a new concept in the residential real estate market that focuses on creating purpose-built rental communities. Unlike traditional rental properties, BTR developments are designed from the ground up with the renter in mind, offering a combination of high-quality living spaces, premium amenities, and professional property management

Tailored Living for Modern Tenants. Build to Rent properties are modern residential units designed specifically for renting. They provide stability and quality in housing with the flexibility of renting.

Benefits of Build to Rent

One of the key aspects of BTR is its tenant-centric approach. Every aspect of BTR developments, from the planning stages through to the amenities offered, is designed to enhance the quality of life for its residents. This includes:

Discover a new standard of rental living where convenience and community come together to offer you a better living experience. Whether you're a young professional, a growing family, or looking for a vibrant retirement, Build to Rent provides a flexible and modern living solution that adapts to your needs.

Enjoy the ease of moving into a fully equipped home with the freedom to make it your own, supported by a community that values your wellbeing and satisfaction.

BTR properties are professionally managed, which includes all aspects of property maintenance from repairs to lawn care. This hands-off approach allows tenants to enjoy living in a well-maintained home without the responsibilities typically associated with homeownership.

A global problem - Monthly Payment Premium of Owning Over Renting

Urbanization, population growth, and economic shifts have intensified the demand for housing. In many cities across the globe, the available housing stock is not keeping pace with demand, leading to increased prices and decreased affordability. Additionally, a significant portion of the population—especially millennials and Gen Z—are prioritizing flexibility and convenience over homeownership.

In addition, a homeowner must bear the cost of home insurance, landscaping, repairs and maintenance, widening the cost differential with renting. The cost gap will continue driving renter demand and keep occupancy rates higher for longer.

As such, addressing the issues of housing affordability and availability will be critical for urban planners and policymakers. Solutions may include increasing the housing stock, offering incentives for developers to create more rental properties, and implementing policies that balance the scales between renting and buying, thereby making housing accessible and affordable for all societal segments.

Source: CBRE Research, CBRE Econometric Advisors, Realtor.com, U.S. Census, December 2022.

An international outlook:

The BTR sector is revolutionizing urban living worldwide, offering a distinctive approach to residential development. As interest and investment in BTR projects grow in Australia and New Zealand, we compare their early stages with the UK's more mature sector and highlight key factors influencing BTR globally. As of December 2023, New Zealand has 1,307 completed units, 850 under construction, and 3,395 in the pipeline, mostly in Auckland. In Australia, by January 2024, 5,398 units were completed, with 11,582 under construction and 21,627 in planning, with an estimated value of approximately A$39 billion.

According to a recent report from JLL, there are currently 4,340 Build-to-Rent apartments in operation nationally. Additionally, 8,914 Build-to-Rent apartments are under construction, and 6,862 apartments have received development approval but are yet to commence. The pipeline continues to grow with an additional 16,269 Build-to-Rent apartments proposed or in planning. JLL’s report indicates that 59% of the future Build-to-Rent pipeline is in Victoria, 24% in Queensland, and 13% in NSW.

Based on these numbers, Build-to-Rent development is set to become the largest asset class in new property development by 2030, surpassing offices, student accommodation, and logistics. New research from Oxford Economics Australia suggests that new Build-to-Rent project commencements will surge to $10 billion by 2030, up from $2 billion last year.

Despite these encouraging numbers, a significant gap remains in housing availability in Australia’s major capital cities. The critically low level of rental vacancies prompted the Federal Government to address the issue, making housing supply a major focus of the October 2022 budget with a target of over 1 million dwellings built over the next five years (National Housing Accord Target). This was followed by various measures in the 2023-2024 Budget designed to encourage investment in the sector.

Amount (AUD) Developer Description
$1.5bn Coin Icon Sentinel Locked in significant funding from Dutch pension fund PGGM, acquired projects on the Gold Coast (c. 300 units) & Villiers St, North Melbourne (c. 350 units)
$1.5bn Coin Icon Hines Found backing (Aud$1.5bn) from Cadillac Fairview (Canada) and pursued Bank Street, South Melbourne (355 units)
$1.8bn Coin Icon Mirvac Raised platform funding for their $1.8bn Liv platform through the CEFC & Mitsubishi (Japan)
- Greystar Acquired sites in Zetland (c. 182 units) and Collingwood with UEM Sunrise (400 units)
- Home Acquired a new project on Queens Rd, Melbourne (560 units) and submitted for town planning
- Lendlease Entered the market with partnerships for Melbourne CBD (797 units) & Brisbane Showgrounds projects (443 units)
- Novus Acquired Bowen Cr, South Melbourne (215 units) & a second Chatswood (NSW) project (257 units)
- Super Housing Partnerships (SHP) Launched an affordable housing/Build to Rent fund with Australian Super & Hesta
- AXA IM Alts Acquired a forward funded project with Deicorp in Westmead (400 units), partnering with St George CHP to manage the affordable housing
- Cedar Pacific Launched a fund-raising campaign for their BTR platform
- Barings Moved into Canberra with the acquisition of Dickson Village (140 units) on behalf of Aware Real Estate
- Local South Melbourne & Golden Age Local South Melbourne started construction & teamed up with Golden Age in Box Hill (425 units) for a turnkey investment
- Tetris Capital, Icon Kajima & CHL Awarded the Ground Lease Model Stage 2 as their second PPP with the Victorian State Government for approximately 1,400 units in a blend of Social, Affordable and Market rent housing through the 40-year landlease project

How Build-To-Rent Differs from Traditional Residential Properties

BTR developments stand apart from traditional residential properties as they are specifically designed, constructed, and managed for the sole purpose of renting to tenants. One defining characteristic of BTR is its resilience against changing market dynamics. Investors are increasingly attracted to the residential sector due to its defensive characteristics, particularly its ability to adjust rental income streams more swiftly in response to high inflation.

Unlike other major asset classes, residential rents have consistently kept pace with inflation over the long term and shown a high correlation with inflation fluctuations. This stability contrasts with the wider fluctuations seen in the rental cycles of other asset classes, driven by varying supply-demand dynamics.

We believe the BTR trend is not just a temporary phase but a lasting, transformative phenomenon that will continue to redefine the housing rental landscape.

Reshaping Rental Markets for the Next Decade

In the current macroeconomic landscape, which has posed challenges across various sectors, BTR is emerging as a standout performer due to its capacity to yield stable, inflation-linked income over extended periods.

The BTR model aims to align the interests of investors seeking long-term income streams with those of tenants. Over time, this alignment will result in a more diverse product mix, enhancing service offerings and widening options for renters. The expansion of the potential tenant market and a deep, liquid investment landscape provide ideal conditions for BTR to establish itself as the next major institutional asset class.

The investor pivot towards residential sectors is expected to have a profound impact on Australia due to its significant growth potential and favorable starting position.

In the coming months, the potential development pipeline is likely to expand further as developers seek to benefit from the current surge in rental growth. However, the pace of schemes under construction may be slower to accelerate until construction cost pressures ease.

Benefits of BTR for Investors and Landlords

Given the housing shortage in New Zealand, there is likely to be ongoing strong demand for BTR rentals and higher rental yields. With longer-term tenancies, there will be less tenant turnover and consistent cash flow, which may be a welcome change for developers who would otherwise have to sell the properties upon completion.

Qualifying BTR providers may be eligible for exclusion from the interest limitation rules, enabling investors to deduct interest costs against the income they earn from a property.

The coalition government has indicated that legislation will be introduced to facilitate overseas investment in BTR. For our summary of the Overseas Investment Act update for BTR developments, please see OIO Spotlight: Government issues new directive on foreign investment for build-to-rent housing developments | Hesketh Henry.

BTR vs Other Housing Programs

BTR should not be confused with Rent-To-Own or Shared Equity programs, which aim to help individuals achieve home ownership. Rent-To-Own programs allow approved buyers to enter into a 5-year tenancy agreement with an equity provider, such as the New Zealand Housing Foundation or Kainga Ora, with an option to purchase a share of the property at the end of the tenancy (and gradually buy out the remaining shares over time). Other shared equity programs include Kainga Ora’s First Home Partner, which has been fully subscribed since September 2023.

Why Build-to-Rent?

Build-to-Rent (BTR) introduces a new paradigm in residential living, focusing on long-term stability and community building. Unlike traditional rental models, BTR developments are specifically designed for renters, providing amenities and services that enhance the living experience.

Our BTR properties are built with the latest technologies to ensure energy efficiency and digital integration. Smart home features and high-speed internet connectivity are standard, aligning with the modern lifestyle expectations of our residents.

The benefits include seamless rental management, built-in community spaces, and a focus on tenant satisfaction and retention, making it an ideal choice for investors looking for steady returns and for residents seeking a high-quality living environment.

  • Community Focus: Designed to foster a sense of community, BTR developments often include shared spaces and community events that promote social interaction.
  • Professional Management: With institutional property management, tenants receive prompt and professional service for maintenance and other needs.
  • Quality Amenities: Many BTR properties feature amenities such as pools, fitness centers, and green spaces, enhancing the living experience.
  • Desirable Locations: BTR developments are strategically located to offer convenient access to major employment centers, retail, and entertainment.
  • Modern Living Spaces: BTR homes are built with high-quality materials and include features like private yards and spacious floor plans, tailored for comfort and privacy.
  • Flexibility: Renting in a BTR property provides flexibility for residents, accommodating various life stages without the commitment of homeownership.