First steps on the build-to-rent journey

First steps on the build-to-rent journeyAllowing managed investment trusts to develop or acquire affordable housing sends a positive signal to the industry, says the Property Council’s chief of housing, Glenn Byres. But it’s still early days for build-to-rent.The Federal Government will encourage investment in new and existing affordable rental housing by increasing the capital gains tax discount from per cent to 60 per cent for affordable housing from 1 January 2018.And from 1 July 2017, managed investment trusts (MITs) will be allowed to develop or acquire affordable housing to hold for rent.These reforms offer foreign and domestic investors, including superannuation funds, new long-term, stable investment opportunities in the property sector and may direct more investment into affordable housing.”These are good first steps – and we see this as a sign the government understands it will need to progressively re-gear the policy settings to encourage more investment in new rental market product,” Byres (pictured) says.”But the Federal Government will need to go a lot further to get the scale of institutional investment required for build-to-rent product.”A recent survey by CHOICE found a third of Australian householders currently rent, and more than 40 per cent have been in the rental market for more than a decade.The build-to-rent or ‘multi-family’ sector – whereby institutional groups build apartments to lease on a long-term basis – is thriving in other parts of the world. In the United States, for instance, multi-family is the largest asset class. Byres says the Property Council is engaging with Federal Government agencies to “walk through the returns that are required to encourage big institutional investors into affordable housing and build-to-rent”.In both the US and Britain, investors are seeing returns of between four and seven per cent.The Property Council will also kick off a new build-to-rent roundtable that brings together a “host of the major members” who will identify the policy barriers and test the market’s appetite for build-to-rent as a new asset class.”We are still going through the exploratory phase,” Byres says, adding that the group will examine how build-to-rent can satisfy investor returns, how it sits within a development or portfolio, and the subsidies required from government to make it work.”There is a whole suite of secondary issues to consider too, such as how strata laws intersect, how land tax works and how design rules are applied. We have a lot of work to do.”Several Property Council members are actively engaged in the space, and in some cases are speaking publicly. Susan Lloyd-Hurwitz, the Property Council’s national president and chief executive of Mirvac recently argued that “renting in Australia is generally a very miserable customer experience” and the market was ready for change.Lloyd-Hurwitz has said that a build-to-rent sector could deliver “large scale, affordable, well-managed rental stock” and “would provide another viable secure housing choice”.”There’s plenty of institutional money ready to invest in this new asset class, but in its infancy it needs support from State and Federal Government through targeted incentives to help induce institutional-scale capital,” she says.Byres believes the Property Council’s new roundtable is indicative of build-to-rent’s growing support. “It’s being treated seriously by conventional developers, but also, behind the scenes, by the investment community, including large superannuation funds,” he concludes.