Can Build-To-Rent Generate Affordable Housing Outcomes? A Whole-Life Costing Approach to Investment Analysis

Prince Acheampong,George William Earl

doi:10.5430/afr.v9n4p85

Abstract

Doubts remain among stakeholders in academia and the housing industry about the potential success of build-to-rent to generate positive outcomes for institutional investors and affordable dwellings for low- and moderate-income households. However, a systematic study on the viability of build-to-rent to deliver affordable housing in Australia is largely rare and non-existent in the literature. We fill this gap in the literature by investigating the financial viability of build-to-rent and its potential to generate affordable rental housing outcomes in Brisbane, Australia. Using rental prices from CoreLogic (Formerly RP data) and construction-related costing data from WT Partners Australia for 2019, we apply the whole-life costing approach to investment analysis and confirm that build-to-rent can be feasible in Australia under equity financing. Also, we find that under the current regulatory regimes and market structure, build-to-rent will fail to deliver affordable housing outcomes. Moreover, providing free land alone cannot help to make build-to-rent affordable. Thus, significant public subsidy and tax concessions, particularly on Goods and Services Tax (GST) on construction-related costs, may be required if build-to-rent developments are to generate affordable housing outcomes in Australia.

Highlights

Financing affordable rental housing in urban centres continues to be a challenge across the world
Build-to-rent can be feasible under equity financing but will fail to produce affordable housing outcomes without significant public subsidy
The paper explores the possibility of build-to-rent generating affordable housing outcomes, while providing investors with the required IRR

Summary

Introduction

Financing affordable rental housing in urban centres continues to be a challenge across the world. Bryant (2016), in particular, observed that increased land cost due to its high demand makes it difficult to acquire appropriate locations for affordable housing and puts the development of new affordable rental housing at risk. In recognition of the need for affordable rental housing, governments across the globe have, over time, instituted various affordable housing financing systems. The aim of such financing systems as noted by King (2009) is to provide funds through public and private institutions to customers who want to buy or rent a house and cannot afford to do so on their income. These financing systems take different forms (Warnock & Warnock, 2008) and include the Central Provident Fund (CPF) in Singapore, Housing Provident Fund (HPF) in China, Homes and Communities Programme (HCP) in the United Kingdom (UK), and the Low-Income Housing Tax Credit (LIHTC) in the United States (U.S) (Todd & Burnett, 2015)

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Discussion

Conclusion