Can BTR deliver on the promise?
The BTR sector promises a lot. It promises to improve the supply of housing, improve the quality of construction, provide better services for tenants, and better on-site amenities. It also promises to give tenants better security of tenure and flexible long-term leases.
Proponents also claim that establishing a BTR market will improve affordability. If a BTR market can deliver more rental stock, the increase in supply may take pressure off rental prices. But an extra supply of housing is not guaranteed. Growth of the BTR market may simply shift ownership from individuals to institutions.
There is no guarantee that dwellings within new BTR developments are going to be more affordable than existing rental stock. Supply and demand principles still apply. Institutional owners will seek to maximise the yield on their investment.
Demand will be strongest for rental properties that offer the greatest amenity and these will be priced accordingly. In overseas markets, rents in BTR developments attract a large premium to comparable properties. So creating a high-end rental market in Australia may do little to support rental affordability in the remainder of the market.
The other side of BTR
BTR developments will only deliver properties at below-market-rate rents if it is financially viable to do so. This would need a firm commitment to a program of subsidies. The extent of government support will determine if the BTR market provides affordable housing.
The amount of government support will be dependent on the government’s vision for the role of BTR within the broader housing market. To date, the vision has not been well articulated. The Queensland example seeks to deliver subsidised housing with a public benefit. The NSW and Victorian programs remain unclear on this front.
A BTR market that provides subsidised housing on a large scale is very different to one that supplies market-rate or premium rentals.
A subsidised BTR market and a market-rate BTR market are not mutually exclusive. It is possible to have them both but each is likely to require different forms of policy reform to reach an efficient scale. The diversity of housing stock would be improved if this could be achieved.
Australia has a growing population and home ownership trends imply that an increasing share will never own their own home. Inviting large-scale investment in residential property may be a pragmatic policy response.
Getting policy settings right as the BTR market grows and evolves will be a difficult balancing act. Most Australian households still aspire to own their own homes. Incentivising institutional investment while homeownership is falling will not sit well with everyone.