Build to rent opportunities for the strata industry

It’s commonly known that Australia is experiencing a severe housing affordability crisis. Our demographics and needs are changing, so we need a plan to deliver a diversity of housing options to suit individual circumstances.

Build to Rent (BTR) and the newer concept of ‘Rent to Buy’ may be part of the plan to deliver new housing options.

Australia currently has the world’s highest household debt to income amongst our peer countries, and amongst the highest in residential property prices. The chart below shows that growth in house prices is substantially correlated to the growth in household debt.

This is not ideal for those chasing the great Australian dream of ‘owning your own home’ and has forced many to rent. In July 2024, the Australian Institute of Health and Welfare reported that 31% of households are renting, and home ownership was down from 70% to 67% based on 2021 Census data².

The impact of vacancy rates

According to SQM Research, the Australian national residential rental vacancy rates was 1.4% in November 2024³.

• A vacancy rate of 3% is considered healthy because it represents a market balanced between tenants and owners
• Vacancy rates above 4% means that there is more housing supply than demand and better for renters
• However, a vacancy rate of less than 2% means high rental demand and higher rents for tenant, which is where Australia currently sits

The Property Council of Australia commissioned a report by EY⁴ that considered the emerging BTR sector as a component of the solution to offer a diversity of housing at scale and pace to help ease the housing crisis. The report shows there is potential for more than 150,000 new BTR homes that could come to market in the next ten years.

BTR housing is potentially a major part of the solution to delivering the Government’s 1.2 million homes target from mid-2024, set by the Australian Housing Accord⁵. Government incentives for investors and the residential development, building and construction sector will help progress the growth of BTR.

So what is build to rent, and what does it offer?

BTR housing is large-scale, purpose-built rental housing that is held in single ownership and professionally managed. It can provide more rental housing choice in areas where people want to live, but they can’t necessarily afford to buy.

BTR is different to the traditional build to sell approach in strata, which dominates the Australian property market. BTR means that instead of building with the aim of selling to buyers, the investor / developer keep these properties leased out to long term renters.

The focus of BTR is to make the apartments desirable for the renter demographic, providing mid to long term lease agreements, with better security and conditions for renters, while still providing a steady income for investors. BTR developers create more shared facilities, services and communal spaces than build to sell. Tenants may also enjoy the security of a longer term lease and convenience of on-site management.

What is rent to buy?

‘Rent to buy’ (RTB) or ‘rent to own’ is an extension of BTR.

RTB is a leasing agreement that allows tenants to buy the property they have lived in at the end of the five year lease period – at a previously agreed price. In these schemes, a portion of the rent goes towards building equity in the property so that the tenant is able to get on to the property ladder by slowly building up their stake in the home.

There are already examples of this is Victoria, such as Assemble’s project in Melbourne’s Kensington, offering 199 apartments. The RTB model allows residents to secure their rent and purchase price for up to five years with the option to buy their home at any stage at an agreed value.

Government incentives for investment in BTR

The ATO has introduced BTR development tax incentives⁶ to give owners and investors in eligible BTR developments access to:

• An accelerated deduction of 4% for capital works relating to BTR developments
• A concessional final withholding tax rate of 15% on eligible fund payments (amounts referrable to rental income and capital gains from the BTR development)

To access these incentives, the owner must first notify their choice to opt in by lodging the BTR development – notice of events approved form.

The BTR development must:

• Consist of 50 or more residential dwellings
• Be made available to rent to the general public with a lease of five or more years
• 10% of dwellings must be available as affordable dwellings
• Continue to be owned by a single entity for at least 15 years

Opportunities for the strata management industry in BTR

Strata managers are well positioned to diversify into servicing the needs of BTR owners and tenants, by providing ‘resident management’ alongside facilities management.

The opportunity is to transfer the strata management skills of dealing with multiple strata owners and tenants to BTR schemes. The strata management skillset is closely aligned to managing large, complex residential BTR developments owned by a single entity, with a focus on tenant relations, building maintenance, community building initiatives, and ensuring smooth operations within the shared facilities.

Specific roles within a BTR project that a strata manager could take on include:

• Building Manager Overseeing the day-to-day operations of the BTR building, including maintenance, repairs and security
• Resident Services Coordinator Managing tenant relations, organising community events and providing support to residents
• Property Manager Handling tenant leasing, rent collection and lease renewals

Insurance solutions for BTR properties

Whitbread’s depth of knowledge, combined with our property and strata insurance experience, provides us with a truly unique insight into the fast growing BTR market. We offer expertise and solutions for the specific needs of BTR schemes. We can also provide insurance advice and cover options for your BTR property and other related risk solutions, including management liability and landlords insurance cover for strata properties.

Visit our Build to Rent page for more information, or if you have any questions you can email us at buildtorent@whitbread.com.au, or contact Whitbread today.

T: 1300 424 627
E: info@whitbread.com.au

^{Important notice
This article provides information rather than financial product or other advice. The content of this article, including any information contained in it, has been prepared without taking into account your objectives, financial situation or needs. You should consider the appropriateness of the information, taking these matters into account, before you act on any information. In particular, you should review the product disclosure statement for any product that the information relates to it before acquiring the product.}

^{Information is current as at the date the article is written as specified within it but is subject to change. Whitbread Insurance Brokers make no representation as to the accuracy or completeness of the information. Various third parties have contributed to the production of this content. All information is subject to copyright and may not be reproduced without the prior written consent of Whitbread Insurance Broker.}

^{This article is not intended to be personal advice and you should not rely on it as a substitute for any form of personal advice. Please contact Whitbread Associates Pty Ltd ABN 69 005 490 228, License Number 229092 trading as Whitbread Insurance Brokers for further information or refer to our website.}

1. Source: CBA, Bloomberg, RBA, Stats NZ, Macrobond ↩︎
2. https://www.aihw.gov.au/reports/australias-welfare/home-ownership-and-housing-tenure ↩︎
3. https://www.linkedin.com/pulse/national-vacancy-rates-rise-14-sqm-research-1afoc/?trackingId=yxOXhBrkRGGXhGcezb%2BSqw%3D%3D ↩︎
4. https://www.propertycouncil.com.au/submissions/a-new-form-of-housing-supply-for-australia-build-to-rent-housing ↩︎
5. https://treasury.gov.au/policy-topics/housing/increasing-housing-supply ↩︎
6. https://www.ato.gov.au/businesses-and-organisations/assets-and-property/build-to-rent-development-tax-incentives ↩︎