It might be coming as a ‘new thing’ with a local twist.
I think it’s a very good idea.
In the block of flats I’m in only 4 of us are owners living here, out of 12 units.
Times have changed, we now have young families renting in the flats here, complete with babies and pets, but without the facilities that the article mentions: storage, bicycle-racks, etc.
There’s a huge turnout of tenants,
no community feeling,
absent owners are rarely interested in the everyday business of living here, don’t even bother to turn up for the annual meetings.
I’m all for it, hope it catches on fast!
It’s another option. Some questions come to mind.
- How stable and long term are the leases?
- Are rent increases over the longer term reasonable, eg regulated, linked to CPI? Current rentals tend to follow market rates which can increase rapidly, but less commonly fall.
- Does Government need to update existing tenancy legislation to ensure it supports tenants entering into longer term contracts?
It’s important to consider that the delivery of a project is a fixed cost. Australian property investors often rely on negative gearing and property inflation to generate substantial returns over time. They may have better access to finance, or in the instance of larger investors secure longer term agreements with less market volatility.
In comparison first home buyers have no offsets for expenses, and home loans can have greater exposure to market changes. The one benefit is monthly repayments do not increase with inflation, resulting in less financial burden relative to personal income over time.
It’s open to conjecture whether Australian property developers and the investors (local or foreign) involved would deliver a fairer outcome, or follow the path of other major property investments such as those in Capital City Airports?
So many questions and so few answers for now. I’ll refrain from speculating on any local details but once supply and demand meet (years away), competition becomes defacto regulation. eg. An empty flat is a cost, an occupied one is cash flow.
Not suggesting our odds for that to happen are big, but that is the theory and how it works cross pond. Individual lets are all over the place in comparison to the corporate owned apartment complexes ‘as the business’ that are generally stable and predictable.
Although I suspect this might not go like the US model it is a cash stream proposition not a capital gains or property flipping proposition.
The Australian taxation system is greatly to blame for many undesirable outcomes. Depending on one’s relative viewing point, and ability to make change.
Agree. Housing is of such great importance to all of us, it’s a shame that it has been made into an ‘item’ of commerce, buying and selling, investing to make high profits, using it for taxation benefits…
Not a new concept - although the “community” part might be.
My grandmother was in a block of units that were all long term rentals owned by the one entity. Unfortunately their business model was nil maintenance and oversight. Very difficult to get out of the lease without substantial financial loss, no input into who moved in. My grandmother’s dementia was developing, she became a problem thinking she was in charge of the units and evicted one family throwing their furniture on the street, and fought with others. Multiple families moved into single units and basically lived on the balcony and public areas. No one ever returned calls or letters, or fixed the stairs when they fell down.
On Gardening Australia Costa visited a similar type of set up with a community garden space that wasn’t being used as intended. That building had an employee who looked after it (an added cost). So I suppose some of these may start with good intentions to build community connections and miss the mark. Some may be just brilliant. Depends who lives there.
My concern is similar. It is not such a rosy picture unless actively managed. Job mobility, proportion of cheap dwellings for low income earners and attention to maintenance make a big difference to liability, but I don’t understand how this model addresses them. I would expect that we have considerable demand for more affordable rentals just now, rather than high-end developments in inner-city areas.
The American model has on-site management, and sometimes gated and/or with full time security, location dependent.
Think Westfield-like management and operation with apartments instead of shops and for the better ones, maybe like a holiday resort or hotel in some ways. Here is a random complex near Houston TX.
and instead of the real estate managers being independents and often hurdles, there are services like
Perhaps as close as Australia gets are the gated lifestyle communities.
Stockland is one provider,
And how another functions,
Clearly targeted at a particular clientele, with the means. The arrangement of ‘leasehold’ though is very different from the alternate meaning of lease. There appear to be a variety of financial options depending on property.
Not really a rental?
A family member whose only income was a modest pension and US social security lived in this one for many years to compare the ‘bang for buck’ with our market.
All under $2,000 pcm (some well under) at today’s prices.
My take is that it is largely our tax regimen that dissuades such developments, and that needs to change for developers/business to start building properties for rent rather than for sale (and then flipping).
It might fix the build-to-fall-apart problem that exists in Sydney at the moment. There’s not much incentive for a big developer to build a pile of %%%% if the developer is going to continue owning it.
It is unclear what the implications of the BTR model would be for the build-to-Airbnb problem. In essence you would be at the mercy of the developer (since the developer would control 100% of the notional strata corp). That may still need government intervention.
Related to that, what happens if a developer wants to exit? what happens when a developer does exit?
Done right the developer is not the owner. Back to an ownership model like Westfield’s but with a twist. The owner can eventually sell out but as a going business, not a capital gains exercise (if done right - but what are the odds?)
There are quite a few different options but the more restrictions that you place on it, the less attractive as an investment it is, which then has cost implications, including rental cost implications.
I don’t know for sure what you mean by the developer is not the owner but let’s say that the developer is the owner then in the worst case scenario the developer becomes insolvent and hence sale of the building is mandatory - or some trust entity is the owner (and the developer perhaps is just the operator) and that trust entity becomes insolvent (and that model then also partially undermines an attempt to fix the build-to-fall-apart problem).
‘Developer’ and ‘owner’ might be my bad for semantics so lets not dwell on it.
Any business can go bust. If a business is, from the outset, a cash flow proposal and it is sufficiently funded a decent build is likely. If it is well managed with competitive rental costs and included amenities it would be akin to a term deposit for income rather than day trading on the markets as is closer to the present approach, eg build and flip.
The tax system should reward such investment/businesses to address housing shortages and affordability.
There are various business and finance models, some higher risk than others.
IE There are investors with $1M trying to turn it into a $10M instant windfall on a $100M project using other peoples (at risk) money. At the other end are more responsible investors with $1000M looking for a $100M project with a long term prospect of secure income and capital growth.
Whether Australia can unburden itself from the former and encourage the second might depend on how policy is set to favour one over the other. Recent events in the industry point out which apply today.
What should be (but is unlikely to be) a simple tax adjustment to encourage building for renting would be to tax net rental income as capital gains (or at a rate sufficiently less than regular income) rather than regular income. It should encourage long term interests to at least equal short term ‘take the money and run’ interests.
I think the idea is to build a group of apartments and then sell the whole building to a property trust or super fund. Their interest is not in selling each apartment to an owner occupier, or investor landlord, but in getting long term rental income over decades.
It would be in the PT or SF interest to offer and indeed want long term rental agreements from tenents.
That gives more certainty for both sides.
Is there an assumption that people rent because they like to rent? I believe the majority would prefer to own their own housing rather than rent. Governments have gone missing when it comes to housing. The purpose of government is to address the needs of people, and those needs are housing, health, education, and security. My parents rented ‘public housing’, in an estate with thousands of houses; with parks, schools, shops all planned by the government. The rent was small compared to income, and in less than 20 years my parents, on a worker’s income, were able to buy their own home.
If governments were prepared to do this today, I believe many people would buy rather than rent. It makes a lot of sense to me. Building is one of the drivers of the economy, and by building when the economy is slow and backing off when the economy is booming the government can directly stimulate and dampen the economy, something they don’t do very well now. By increasing supply, downward pressure is exerted on rentals and this flows on to lowering house prices in the private sector. Landlords are mainly in the business to make money, and will build whatever makes money. Many developments are disputed by councils because the developer is not interested in what benefits the potential renter/buyer but what makes the most money.
And as an aside, the government could do it more efficiently. My parents house was built in a factory and trucked on site in sections. Houses were put on site at the rate of one or two a day. Although they were cheap standardised buildings most are now over 60 years old and still sound.
Australia has a landlord layer that basically moves money from renters into their own pockets. 30 years ago an acquaintance was receiving some money, not a lot, from a trust. He decided to become a landlord and bought with the banks help a rental property. By revaluing property and increasing borrowing he was able to buy another property, then another. After 10 years his portfolio was valued at over $5 million and his equity (due mainly to capital gains) was half. Total investment was I believe $7000 p.a. And to do this he did nothing constructive. Did not lift a hammer, did not personally collect rent or put more than a couple of hours a week into the enterprise.
This story is not unusual. I have met many people who have “made their millions” this way. Slaves were outlawed a long time ago, but today’s renters are de facto slaves. These apartment schemes are just more of the same.
Some do because the like to move around from time to time, unencumbered.
Majority or minority there should be affordable housing.
Depending on the government some, such as your acquaintance, may not agree. There is a segment of the population that is very supportive of how the government has ‘managed’ to put dollars in certain pockets with real estate.