Australia’s build to rent industry has sprung to life. Boosted by a raft of new state and territory policies and last November’s federal tax concessions, there are now an estimated 8900 built-to-rent (BTR) apartments under construction in Australia. Many more have been completed or have official planning consent.
This surge could help Australia decarbonise its building stock, but only if we set the right foundations. Otherwise, the industry will, like many of our homes, require costly retrofits in the future.
Spinifex is an opinion column. If you would like to contribute, contact us to ask for a detailed brief.
By 2050 or earlier, all of Australia’s homes must be zero emissions to meet our responsibilities under the Paris Agreement. To achieve this, the International Energy Agency urges that new buildings should be “zero-carbon ready” by 2030. This means homes that are highly energy efficient, electrified and not burdened by the use of fossil fuels, such as gas.
But Australia isn’t ready. Scheduled amendments to the National Construction Code (NCC) aren’t ambitious enough to ensure new homes will be aligned with global climate goals. And the Labor government doesn’t appear to have a plan for incentivising performance above the Code for the influx of new construction it promised as part of its election pledge. The build to rent asset class is one key opportunity to do this.
We don’t have to look too far to see how this can work. The government-owned Clean Energy Finance Corporation invested in Mirvac’s Australian BTR Club, which delivered the LIV Indigo project of 315 apartments at Sydney Olympic Park. It was designed to reduce emissions by 40 per cent above the standard set by the Code.
The government could also require BTR projects to perform above the Code to be eligible for tax concessions or subsidies. The newly introduced lower rate of withholding tax requires a proportion of apartments to be leased at a rent discounted from the market rate. This measure to support housing affordability sets a precedent for a similar model supporting sustainability.
BTR developments weren’t explicitly part of Labor’s pre-election pledges. But if designed correctly, they can help deliver on the trifecta it promised: making it easier to buy, better to rent, and to build more homes faster.
Institutional owners invariably want longer-term tenancies. So, do many renters, anxious to avoid the unpredictability of insecure short-term leases. BTR developers are far more shovel-ready than built-to-sell projects, which often rely on pre-sales to kick start construction.
By offering renting as a sustainable and more stress-free long-term option, it can free up properties for those set on home ownership.
The entry of publicly listed companies into Australia’s rental market will also expose a growing part of the building stock to the scrutiny of shareholders, along with energy and emissions disclosures. In more mature markets like Europe, the energy performance of rental properties has not just been improved by technology, civil society and government policy. Our analysis at Accela shows that corporate pressure has also played a key role. Investors have the power to force attitudes to change in the boardroom and to reshape ambitions.
There are, though, inevitable headwinds. Land isn’t cheap. Neither is construction, while access to capital is complicated by global political and economic turbulence. The most green build to rent properties tend to be more expensive, appealing to high-end tenants. Projects must include units that are offered below market rates, not just to support rental affordability, but energy equity, too.
Transformative changes are needed to future-proof our housing stock, not just powder-puff measures. Governments, both federal and state, must encourage and support the leaders in the BTR sector, and give the laggards a decisive helping hand. If done right, these developments have the potential to make shareholders happy, reduce emissions, and be socially progressive with more shared facilities and communal space.
The Australian public has given the Labor government a significant mandate to address Australia’s housing, climate and cost-of-living crises. Supporting zero carbon ready built-to-rent offerings is one way to address all three.
Simon Graham is a built environment analyst and communications manager at Accela Research, a nonprofit investor-advisory group focused on climate transition.