Rental Revolution Headed Our Way
A housing rental revolution is one it’s way and if you’re a private investor you need to be prepared. If you are a tenant, then you’ll also be impacted as the rules of renting an apartment or house will soon be turned on their head.
For many years, the question of housing affordability has mainly focused on would be first time buyers. That debate has been grabbing all the attention, while changes to the rental market have snuck up and are now taking on greater urgency.
Several factors driving this however, before looking at what change we can expect, let’s take a snap-shot of the local housing rental market.
According to the Australian Bureau of Statistics Australia (ABS) we currently have a housing stock of some 7.8 million homes, of all types. That includes 2.5 that are owned with no mortgage and 2.7 with mortgages.
A further 2.3 million homes are rented with about 1.24 detached-homes and 662,000 apartments. Of the total rental market, only 314,700 homes are government owned and the balance are mainly in private ownership.
The private rental market accounts for approximately 31% of supply and that compares with 21% in the UK. Changes to the rental market have the potential to impact a lot of investors and many tenants, however it’s clear that the rental market is about to change.
Change is going to be triggered by the potentially large-scale arrival of built-to-rent (BTR) projects that will be the big tipping point for the rental market. Already very well established in the USA and Canada and now trending in the UK the size of the BTR market here in Australia has been estimated at $300 billion.
That figure may well be modest given that BTR investments in the USA in property terms is only exceeded by investment into the office market.
BTR Will Impact the Private Rental Market
There’s going to be a ripple affect across the whole housing market from the arrival of BTR that will change how we view the entire rental market that will impact everything from lease terms to the quality and extent of facilities and the quality of property management services.
In Australia BTR projects are new, they are only just starting to be developed and the numbers are small and most are still in the planning stages.
However, taking the USA, Canada and UK as examples the scope for the BTR market here is large. BTR not only provides a new investment vehicle but it also addresses shifting demographics and can help to build a sense of community through the shared facilities that BTR projects often deliver in abundance.
In the USA and Canada and now in the UK, BTR buildings are home to a myriad of amenities that can often include private cinema rooms, pet spas, basketball courts, party rooms, resident’s lounge, children’s playroom and rooftop gardens.
Many also have 24-hour concierge services and with expanding home delivery from supermarkets and pre-packaged meal services exploding in popularity, they can have refrigerated on-site storage rooms.
Another popular innovation is the inclusion of work spaces with super fast internet services, so people can work from home without having to travel to work. These work spaces make smaller apartments more attractive and could even eliminate the need for an additional bedroom come home office.
These are all amenities that you might more often associate with a resort and the range of facilities is always increasing and not just available in select buildings. Driven by strong demand, they are generally universal and it’s here that a challenge will arise for existing private investors.
As BTR projects become more common, tenants in the market will be ever more selective and rental apartments that lack a good level of amenity will see rentals under downward pressure.
To compete, private investment apartments located in buildings with a range of services will become more popular, projects that are very well located to neighbourhood facilities and transport will also be popular. However, buildings and apartments in secondary locations with poor or no facilities will risk lower rents and higher vacancies.
Two further factors that make BTR rentals attractive to tenants are longer leases, which can run to 10-year terms and quality, often on-site property management. But this trend will also impact unruly tenants who might run-a-muck with rental properties. Those tenants with poor rental histories take note!
Today’s tenants are prepared to pay for quality and security, which are needs that are not always meet by older more outdated buildings in poor locations.
The overseas experience also shows that BTR demand runs across all apartment types from studios and 1 bedroom apartments to larger 3 bedroom apartments to accommodate a family. And rentals can range from the more competitive sector of the market to more expensive high-end apartments, that are sometimes furnished.
The BTR trend will change the rental market and tenants are set to benefit, however landlords who neglect the maintenance and upkeep of their properties or fail to ‘do the right thing’ for their tenants may well face stiff competition and lower rentals.
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