housing affordability – PropertyESP

Build to Rent is one (very viable) option for affordability

Samantha Reece, Director of PropertyESP recently attended the Property Council Build to Rent (BTR) breakfast and found the session so interesting, she thought she would share.

BTR is a new term which has only recently crept into WA’s vocabulary, but in the USA and UK this is a housing model that has begun to gain real traction.

In the USA the BTR sector is the second largest asset class. The listed USA BTR REIT sector alone has a combined market capitalisation of $144 billion, over $50 billion larger than the entire ASX REIT sector.

In the UK, (perhaps the market most similar to Australia in terms of cultural views on renting versus buying) BTR has only existed for about 6 years, however with the support of government investment funds, incentives and concessions, has grown rapidly from a standing start to over 80,000 purpose BTR apartments.

And here is the key – Government investment.

These models have been successful because it is a JV between private and public sector with investment from institutions. In turn tenants can move into these apartments/homes and secure a ten year lease at CPI giving them security of tenure.

What is also interesting to note, is that the BTR model can be applied just as well to greenfields as built form.

With this model holding $2.1 trillion in real estate value world-wide it has become a preferred investment model because of its liquidity, relatively low capital expenditures (each apartment has its own building manager) and the risk adjusted returns.

But in order for this to get off the ground in WA we firstly need a favourable regulatory environment as well as tax ratings with banks and government then contributing 80% of the funds.

Sound impossible? Well obviously it is not because Australians are investing a billion dollars in BTR in the USA and UK as we speak.

For too long we have been talking about affordability and now we are seeing the ramifications for not taking more urgent action.

Housing Choice Australia just recently released results that showed 806,100 households in Australia were seeking reoccurring rent assistance. A further 1.3 million people can’t afford to purchase a property and this is expected to grow to 1.7 million.

In contrast there has been an increase in just 4.5% of social housing stock.

The BTR model defines social housing as in fact economic infrastructure.

You build houses to accommodate people who need to work in these areas such as nurses, police, teachers and the like. The fact that they are housed in close proximity to their workplaces reduces the need for other infrastructure such as public transport and roads.

In this instance social housing is seen as long term investment for the benefit of many generations. And that is essential. Based on current trends it is likely that my own children will struggle to own their own homes in years to come.

National Developer Mirvac to their credit are already trialling this model in the East Coast and it is the bold, that in fact will create a new housing choice in Australia and in return – reap the gains.

There are certainly a number of disruptors currently in the property arena and the next five years are going to be interesting times.

Let’s hope that BTR is in that mix.

Where does suburbia fit into the Perth equation?

PropertyESP recently attended the PIA State Conference which was aptly termed “Rocking the suburbs.”

Minister Rita Saffioti opened the conference and posed the question – does every suburb wish to be rocked and went on to explain that in the East, the focus in the 1990’s was all about the inner ring and that suburbs were seen nearly as a second class choice.

In contrast – Perth is the exact opposite – even some 27 years on.

Our population growth certainly has been part of the reason for this evolution with some residents happy to travel over an hour into the City for work while living in our burgeoning outer suburbs. This is true regardless of age.

But what is evident in the Eastern States, is that now, some three decades later, the inner city is reserved solely for the wealthy.

Interestingly 83% of lawyers work in our CBD, 62% engineers, 39% white collar professionals and 26% health workers – however this is not reflected in their choice of housing suburb.

This is partially because house sizes have not declined drastically and yet the range of housing choices in the CBD continues to cater for 1-2 person households.

The Minister therefore believes that we will see a shift whereby suburbia will become more like business districts and the City will evolve into an amenity district. This certainly aligns with their Metronet model.

At PropertyESP we believe that Perth will follow the same pattern as the East, with the CBD becoming a desired location over the next decade. But first we need to see greater choice of housing and added amenities such as schools in order to cater to a broader cross section of the community.

But on the tail of that, there are many suburbs that were established in the 1970’s to 90’s that really do lack any sense of pulse and hence in order to retain their residents, their Councils will also need to be progressive in the provision of services and development of community spirit.

There is no doubt that Perth is in a flux of change and as a result of significant investment in the inner CBD and key suburban shopping centres, we will see the rise of preferred suburbs over the next 5-10 years. But that also means that there will be many suburbs that languish.

The question is, are the LGA’s prepared to rock the boat and their suburbs and evolve with WA’s changing needs?

Perth’s housing supply falls short

The question on everyone’s lips of late has been “Are we being oversupplied with apartments?” but recent research from the Australian Housing and Urban Research Institute (AHURI) and the Bankwest Curtin Economics Centre (BCEC), has shown that in fact increases in housing stock in Perth have failed to match population growth.

The study – Housing supply responsiveness in Australia: distribution, drivers and institutional settings, led by Professor Rachel Ong, Deputy Director of BCEC, examines how well supply is keeping up with demand across Australia’s regions and capital cities.

And while the rest of Australia has been able to match demand – Perth has lagged behind.

The report also found that most of Perth’s housing was concentrated in the mid to high price segments.

While typically construction of housing at the top end of the price scale tends to then allow for an increase in availability of affordable housing – this has not been evident in Perth.

It therefore appears that Perth is in fact in dire need of more apartments – but in the right locations.

The recent WA Apartment Advocacy research showed that renters were seeking locations that were close to their work as well as conveniences such as public transport, shops, gyms and restaurants. And while the Metronet will free up many opportunities for affordable housing along the train line – this also needs to be matched with services and facilities.

The fact is, we need more housing and we need affordable options and that is going to require creative thinking outside of the box. But either way – urgent action is needed!

Read more about this article and PropertyESP’s Samantha Reece’s comments in this weekend’s edition of the West Australian.

Renters seek more

The WA Apartment survey – the first of its kind in WA – recently interviewed 113 renters who have shown that while apartments are their preference, they are seeking more in terms of amenities and space.

The survey showed that 39% moved from a house into an apartment and went from 2-3 bedrooms to 1-2 bedrooms.

However when asked what they would choose next, while 73% said they would consider an apartment, their preferences were clearly for 2-3 bedrooms. This linked to the fact that 20% were using a bedroom as a study/home office.

Convenience was also a major driver when choosing an apartment, with 91% of the renters in walking distance to public transport, 90% to cafes, 86% to a grocery shop and 84% to services such as hairdressers.

Renters also tended to look first for apartments in Perth, East Perth and West Perth before then expanding out to encompass Mt Lawley, South Perth, Highgate, Subiaco, Leederville and Northbridge. This was because most renters wanted to have a direct route to work, with 86% stating the travel time to work influenced their decision when choosing an apartment.

84% also indicated that safety and security was a major influence in their renting decisions along with being able to lock up and leave, low maintenance and affordability (75% respectively).

However what was also interesting, was that while 44% had no prior experience living in an apartment, 82% would still recommend apartment living.

There is no doubt that apartment living is becoming an evolving trend for renters, but just like owner occupiers – bigger is better!

If you are keen to learn the full results of the WAAA survey (and guarantee your investment success) contact Samantha Reece on 0452 067 117. You can be assured you won’t find this level of information anywhere else!

Poll demonstrates support for apartments

The newly formed Western Australian Apartment Advocacy (WAAA) decided to conduct a poll at the Perth Royal Show last week, and the results clearly demonstrated an overwhelming 93% support for apartments.

WAAA Managing Director Samantha Reece randomly surveyed 300 people over the course of the eight day show, and not surprisingly the majority of people recognised that Perth could no longer sprawl further north or south.

It was the first poll of its kind in WA and respondents reflected a cross section of country as well as Perth based residents, all ages and genders. In addition,of the 300 surveyed, only 12% of these were apartment owners.

Regardless of the respondent mix, the poll has however demonstrated that the majority of people believe apartments play a role within Perth and WA.

Of the 7% that did oppose apartments, this tended to be driven by misconceptions that they would end up as slums, reduce neighbouring house values or even erode the community spirit.

In conjunction, some additional verbatim comments also provided an insight into buyers desires.

Young families said that they would purchase an apartment if there was a playground/community garden at the ground level.

While older male respondents also indicated that they would like a Men’s Shed or a place where they could tinker with their tools.

Certainly having apartments near a supermarket and also transport rated highly. But by far the strata fees and prohibitive cost of apartments were a major stumbling block for some potential buyers.

However what this feedback does tend to demonstrate is that apartment designs now need to break the mould of just one and two bedroom configurations.

For some time now, apartments have only meet a small portion of the market (young couples and downsizers) but we are now seeing a growing appetite for apartments being driven by families as well.

From this feedback it is quite clear that the inclusion of gyms, saunas, entertainment rooms etc now needs to be rethought, in order to provide some added variety.

WAAA was commenced by Ms Reece in September, to provide a voice for apartment dwellers as well as those people who support apartments.

Its catalyst was the growing number of small vocal minority groups, who were opposing apartments, regardless of the context.

The WAAA is now seeking to add more balance to the dialogue about housing choice.

If you would like to join the discussion about apartments in WA log onto http://www.waaa.net.au and register.

Micro is the new black

At a recent conference, PropertyESP heard from a young graduate who pleaded the need for diversity in housing within WA.

He spoke about starting out on a graduate salary, wanting to leave home but not wanting to pay $300 rent per week (because he was very rarely at home!) nor wanting to share a group home.

He introduced the concept of micro apartments, which start from just 30sqm and which are a part of most cities’ landscapes – except Perth.

For so long, councils have been opposed to smaller apartments as they are viewed as encouraging low socio economic groups into the community – but the reality is – these are also some of the most innovative housing concepts on a world-wide scale.

The idea behind micro-apartments is that they accommodate all the facilities of a normal apartment, such as shower, living room and bedroom, but their versatility and flexibility is where you really maximise space.

Demand in the Unites States is so great that developers can’t build these micro apartments quickly enough and has led to the Mayor of New York, Michael Bloomberg, seeking proposals from developers to construct micro apartments on city owned land that contain at least 75% of apartments ranging in size between 25 – 28 square metres.

And of course that makes them a highly affordable option, something that Perth is also lacking at present.

The added beauty of these kinds of apartments is that it caters to the sole occupant, which can then free up the 3-4 bedroom apartments and homes, close to the CBD for couples and families.

We can no longer make one style of product and hope it meets the needs of all Perth’s buyers. Choice is vital and micro apartments are one of the solutions which we would like to see heralded to WA.

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PropertyESP undertakes long term sales analysis to tell our clients about various property cycles. We are different from other companies. We like to get into the nitty gritty which then guides development decisions. Basically we make sense of property.