Michael Akkawi is a seasoned property developer, CEO, investor and entrepreneur. This article will look at build-to-rent, the latest trend in property investment that is touted with offering a promising solution to the housing crisis currently affecting many countries.
Build-to-rent is an increasingly popular model for investors, developers and policymakers alike, fast becoming the latest trend in the global real estate market. Advocates hail build-to-rent’s potential to solve the housing crisis by boosting supply while simultaneously improving the rental experience.
Around the world today, investors are betting billions on build-to-rent, with more than 8,000 dedicated build-to-rent apartments under construction in Australia alone in 2023 and another 13,000 approved for development across the country. Recognising the significant benefits offered by the burgeoning build-to-rent market, the Australian Government implemented a raft of regulatory changes, including offering a 50% land tax discount for build-to-rent properties in Victoria.
In reality, build-to-rent is far from a new concept. While most residential apartments are constructed by large development companies, with units sold off piecemeal, build-to-rent assets are long-term investments for property owners designed specifically for the rental market. Most build-to-rent projects cater for the middle-to-upper end of the market, incorporating a range of sought-after amenities, such as community spaces, gyms, dining rooms and co-working spaces to entice tenants. Providing more flexibility and longer lease terms, build-to-rent properties offer a more ‘professional’ rental experience, with whole apartment blocks managed by companies with relevant experience rather than tenants dealing with multiple amateur landlords. However, tenant advocates caution against a further ‘corporatisation of housing’, questioning whether renters really are better off with large companies as landlords.
In the United Kingdom, a 2012 government report exploring ways to encourage a greater supply of rental homes led to rapid expansion in the build-to-rent sector. As of 2024, there were an estimated 115,000 build-to-rent units across the country. As Richard Valentine-Selsey of the property services firm Savills suggests, rather than the 12-month contracts commonly seen throughout the UK private landlord market, build-to-rent properties typically offer leases of up to three years. This provides renters with security and consistency, enabling them to plan ahead while staying in a property with amenities and other benefits rolled in. Nevertheless, as Richard Valentine-Selsey also points out, the thing to be avoided is an arms race of trying to deliver more and more amenities at all cost, as this simply has the effect of pushing up cost without necessarily providing tenants with what they really need. From the investor’s perspective, having a consistent, reoccurring revenue stream from a rental property is a key priority.
Already well established, the UK’s build-to-rent sector is continuing to see rapid growth. In Australia and New Zealand, the market is still in its relative infancy. As with any real estate asset, potential disadvantages attach to build-to-rent investments, including the potential for unpredictable or high management and maintenance costs. Although these costs are generally passed on to tenants, they can be a deterrent, impacting profitability. The sector is also vulnerable to market fluctuations affecting property values and rental income.
The build-to-rent sector does have some significant attractions, however, key among them the economies of scale associated with funding and managing multiple units versus the traditional single-occupancy private rental model. Another key benefit of build-to-rent lies in its predictability, typically providing a stable and reliable revenue stream along with the potential for long-term capital gains.
Generally run by professional property managers, build-to-rent investments require little involvement from owners and investors in terms of ongoing upkeep and maintenance and communicating with tenants. Bolstered by increased rental demand, with significant shortages of rental properties across all markets today, from the renter’s perspective build-to-rent offers significant incentives too, delivering conveniently located homes and excellent building facilities with few maintenance obligations.