Ivanhoé Cambridge expects explosive growth in Australian build-to-rent housing
Australia's build-to-rent (BTR) sector is experiencing unprecedented growth, driven by strong market fundamentals, increasing institutional investment, and its potential to address the country's housing crisis, according to Laurent Fischler, head of investments, Asia-Pacific, at Ivanhoé Cambridge.
Ivanhoé Cambridge is the real estate arm of $317-billion Canadian pension investor Caisse de dépôt et placement du Québec (CDPQ).
Ivanhoé Cambridge
"BTR or multifamily is an established and mature asset class across many developed markets globally, such as the US, UK, or Japan. However, in Australia, BTR is still in the early stages of institutionalisation and has significant room for growth," Fischler told AsianInvestor.
Emerging in the early 2010s, Australian BTR has grown into a significant investment opportunity — particularly over the last few years, spurred on by some of the country’s largest superannuation funds, such as Australian Super, Aware Super and Cbus.
The sector has attracted a slew of foreign asset owners like Ivanhoé Cambridge, which has been investing in the space since 2021.
Most recently, Ivanhoé Cambridge entered into a partnership with Scape Australia and APG Asset Management to develop purpose-built student accommodation assets in April of this year.
BEHIND THE BOOM
The BTR sector is supported by strong market fundamentals and tailwinds, according to Fischler.
“There is a growing population, especially in major urban centres such as Sydney and Melbourne, and limited new supply. This trend has been compounded by Covid delays and higher construction costs and interest rates, which has slowed new construction starts,” he said.
High home prices and high interest rates are also making renting a more attractive option than purchasing for many, Fischler added.
Drew Huffman, senior managing director and head of living for Australia at global real estate investor Hines, largely agreed with this assessment.
"There are several demand drivers. We're witnessing historical levels of immigration, a chronic housing undersupply, and a lack of institutional BTR in Australia — all presenting significant opportunities for investors," Huffman told AsianInvestor.
Hines has made several key investments into the sector, most recently in partnership with Cadillac Fairview, the real estate arm of the Ontario Teachers' Pension Plan, to develop and acquire Australian BTR assets.
"Hines is actively pursuing BTR opportunities in key strategic cities with strong fundamentals such as Brisbane, Sydney, Melbourne, and other locations in Australia," said Huffman.
RENTAL INCENTIVE
Australia is in the midst of a housing shortage, and the numbers paint a stark picture.
Over the next decade, around 300,000 people are estimated to immigrate to Australia per annum.
Vacancy rates in Australia's housing sector are at 20-year lows, and only 0.2% of housing stock in Australia is BTR, compared to 12% in the United States.
These factors have contributed to year-over-year rental growth for BTR in Australia of around 10-20% across major markets, according to Huffman.
"Australia is one of the most expensive countries in the world to buy a home. On average, it takes over a decade to save enough for a home loan deposit," he said.
This financial pressure is reshaping renter preferences.
"There's a new renter mindset emerging in Australia, where people are prioritising service, experience, certainty, and community," Huffman adds.
A PROMISING PREMISE
The sector's potential extends beyond addressing housing shortages, according to Fischler.
"Institutional investors tend to have a long-term outlook and pay closer attention to building maintenance, energy efficiency, and quality of product and service, resulting in a better offer for tenants," said Fischler.
Huffman concurs, emphasising the richer experience that BTR is bringing to tenants.
"We're not just building homes — we're building communities. This is part of Hines' lifestyle-driven development approach to BTR,” said Huffman.
"More institutional investment in BTR means more homes for people in Australia. There'll be more supply, and affordability will go up."
Despite its promise, the Australian BTR sector does face some challenges.
"While there're labour shortages and construction costs remain high, there's light at the end of the tunnel. We expect some easing in 2025," said Huffman.
"We're closely following the legislative discussions around the proposed BTR tax concessions in Australia. Tax cuts will help boost housing supply and increase affordability," he said.
ROOM FOR GROWTH
Looking ahead, both experts are optimistic about the sector's future.
"As the sector matures, we expect it will go through a consolidation phase, as smaller players who fail to achieve critical scale get bought out by more dominant operators," said Ivanhoé Cambridge’s Fischler.
"Australia is currently facing a severe housing crisis, with very low vacancies in the major cities, and rapidly rising rents. The government has vowed to help alleviate the crisis by fast-tracking planning applications for new residential projects,” said Fischler.
Increased institutional investment in BTR can help solve the crisis, providing capital to launch projects and ensure high-quality housing construction and operation, he said.
"With more operators and more investors getting involved in the sector, we expect to see rapid growth in the supply and overall quality of new stock in the coming years," added Fischler.
Demography and immigration patterns will have a large impact on driving demand beyond city centres in Australia, according to Hines’ Huffman.
The potential for collaboration is also significant.
"We expect to see more public and private consortiums working together to address Australia's housing shortage on a wider scale," said Huffman.