WHILST the federal government continues to sit idle, the New South Wales government will donate a 1.1ha land parcel in Sydney’s inner-suburb of Redfern to developers for a build-to-rent project, providing a potential catalyst for the fledgling sector in Australia.
It comes as the of households renting in the country reaches parity with households owned outright, driven by surging price growth in some markets, as well as demographic trends that see individuals and couples staying more mobile for longer. In a national first, the Redfern the project will also integrate social and affordable housing with supply for the broader community, as part of the government’s Communities Plus program.
NSW Minister for Social Housing Pru Goward said using the Redfern Communities Plus site under the build-to-rent model allows the Government to retain valuable state-owned land while investors, in partnership with the Community Housing Providers fund, build and manage the site under a long-term lease.
The government-owned island site at 600-660 Elizabeth Street would be provided to investors under a 40-year lease, the asset would be retained by the state at the end of the term.
An expressions of interest and request for proposal process will be carried out over the 12 months to appoint a partner for the redevelopment of the site using the build-to-rent model, with EOI process scheduled to begin later this month.
According to Knight Frank Multihousing Tenant & Investor Survey 2018, the number of rented dwellings across Australian increased by 1.065 million over the past 25 years, at around 42,600 new rented dwellings per year. Over the same period, the number of households that own their dwelling outright has increased by less than 270,000.
The proportion of households in the rental sector is now equal to the number of dwellings owned outright, at 31%. In 1991, 41% of all households owned outright, compared with just 27% of households renting.
In September last year, Federal Treasurer Scott Morrison released draft legislation that would prevent offshore managed investment trusts from acquiring residential property investments, unless it is affordable housing managed by a registered Community Housing Provider. This excludes the build-to-rent sector, and was perceived to be a potential short-circuit for the sector that CBRE had said could be attract up to $300 million of institutional investment over 20 years.
There are only a handful of build-to-rent projects currently in Australia, most notably UBS Grocon’s1,250-unit Commonwealth Games Village site on the Gold Cost, while Salta properties is developing a $330 million mixed-use project at 699 La Trobe Street that will include built-to-rent 260 units and a five-star hotel, and plans for build-to-rent offerings within its recently-approved 426-apartment, $390 million mixed-use project next to its Victoria Gardens Shopping Centre in Richmond.
Over summer, Grocon paid around $35 million for a Southbank site in Melbourne at 256-266 City Road, with a permit for 410 apartments over 61 levels that it will use for executive-style build-to-rent units.
Knight Frank’s survey spoke to 10 groups that all said the draft legislation requires clarification, and that current or even future government policy was a major threat to their business strategy, while land supply and planning policy are further impediments.
The tax regime has also been criticised by Ernst & Young partner Luke Mackintosh, who said that without overseas institutional investors, it would prove “very difficult” for multi-family housing to establish itself in Australia due to the significant capital requirements.
Knight Frank said, “If not for the sector’s hurdles it is evident from the responses that total investment and growth of the sector could be significant. Raising capital is not considered an impediment to progress, and is not a barrier to the evolution of build-to-rent in Australia as an alternative asset class.”
It said initial interest seen broadly across the market could mean a sector potentially worth upwards of $12 billion within 10 years, “if hurdles could be lowered”.
“To reach its potential the sector will require assistance from Government to stimulate and encourage early investors to take a risk on a new sector,” Knight Frank said.
Communities Plus aims to deliver 23,500 new and replacement social and affordable housing dwellings and up to 40,000 private homes over the next 10 years across NSW. Other major sites include Waterloo, Arncliffe, Telopea, Riverwood, and Villawood.
The Elizabeth Street site is opposite Redfern Oval and is also bound by Phillip Street, Kettle Street and Walker Street. It currently comprises a PCYC facility on the corner of Phillip Street, and the NSW government will work with PCYC to include a new facility within the development.
Minister Goward said the Redfern is “a stone’s throw away from the CBD, close to transport, TAFE, universities and endless job opportunities”.
The announcement was welcomed by a range of industry groups.
Chief executive officer of NSW Federation of Housing Associations, Wendy Hayhurst said, “Mixing build-to-rent, social housing and affordable housing together in a well-designed, planned way is exactly what’s needed to create lively, sustainable and diverse communities.”
Urban Taskforce Australia said similar government projects have required around 70% of homes to be market housing, and this was likely for the Redfern site.
“As the project will only be for rental accommodation it will provide much needed housing for those that prefer long-term leasing.
“American examples of build to rent housing have developed a resort like character to the precinct with a range of facilities and amenities that all tenants can share. This pilot project should also look at the sharing of cars within a pool and ensure that child care and play facilities are incorporated.”
Executive director of Property Council NSW, Jane Fitzgerald said this was a “great first step” towards establishing a build-to-rent sector in the state.
Australian Property Journal