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.

 

 

 

 

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Apartments transform suburbs – and for the better!

Curious to see what has happened with the recent 2016 census, PropertyESP took a look at 3 suburbs that have been transformed by apartment developments to see what other changes to the suburb this had brought.

East Perth – originally an industrial suburb, EPRA (now MRA) was established in 1991 to redevelop and urbanise the suburb.   It did so with the development of Claisebrook Village, with introduced 1450 new dwellings as well as retail and commercial properties on the site of the former East Perth Gasworks, scrap yards, contaminated industrial sites, empty warehouses and railway yards (Source: MRA Claisebrook Village Fact Sheet).

In the 2001 Census of Population and Housing, East Perth (which is broader than just Claisebrook Village) had 1631 occupied private dwellings that were apartments and flats (making 81.2% of all occupied private dwellings in the suburb).  By 2016, this had risen to 4018 apartments and flats (88.8% of occupied private dwellings).  The big transformation of East Perth occurred between 2006 & 2011, with the addition of 1160 occupied private dwellings that were apartments and flats (a 67% increase), and between 2011 & 2016, with the addition of 1125 occupied private dwellings that were apartments of flats (a 39% increase).

What else changed in East Perth over this time?

  • There was a change from these apartments and flats being predominantly rentals to owner occupied.   In 2006 and 2011, the level of owner occupancy was hovered around 34%.  By 2016, 64% of occupied private dwellings that were apartments or flats were owner occupied.  Over the same period, the level of owner occupancy for apartments and flats in Greater Perth was unchanged (around 32%).  With the redevelopment, people are choosing to own and live in apartments and flats in East Perth.
  • Median household incomes for the suburb have surged ahead of Greater Perth.  In 2006, the median household income for East Perth was $1106 per week … on par with the $1086 for Greater Perth.  By 2016, median household income for East Perth had risen to $2301, well ahead of the $1643 for Greater Perth.
  • The types of households attracted to the suburb has changed.  In 2001, 46% of East Perth households were lone person households and 29% were couple households.  By 2016, the two were on par – 37% lone person households and 36% couple households.  Both groups have remained relatively stable across Greater Perth over the same period.  Whilst families have not been attracted to East Perth in droves – they currently make up 16% of households – they have risen in number, up 251% from 210 households in 2001 to 737 households in 2016.

Burswood – another older suburb that gained new life and widespread awareness with the building of the (then) Burswood Casino in the 1980s.  The suburb was officially gazetted in 1993.  Subsequent apartment developments in a similar vein to East Perth have continued to change the suburb but it’s location on the eastern bank of the Swan River provides for a different lifestyle experience to East Perth.

The 2001 Census of Population and Housing counted 187 occupied private dwellings that were apartments and flats (making 37.4% of all occupied private dwellings in the suburb).  By 2016 this had risen 183% to 530 occupied private dwellings that were apartments or flats.  More importantly, this changed the housing profile of the suburb, with 57.2% of occupied private dwellings being apartments or flats.  The really big transformation in Burswood occurred between 2006 & 2011.

What else changed in Burswood over this time?

  • As was observed in East Perth, there was an increase in owner occupancy of apartments and flats in the suburb.   In 2001 and 2006, the level of owner occupancy was hovered around 21%.  This rose to 36% in 2011 and 41% in 2016.  Apartments and flats in Burswood are still the domain of renters, but it has seen a doubling of owner occupancy levels over 15 years.
  • Median household incomes for the suburb have surged ahead of Greater Perth.  In 2006, the median household income for Burswood was $1091 per week … on par with the $1086 for Greater Perth.  By 2016, median household income for Burswood had risen to $2273, well ahead of the $1643 for Greater Perth.
  • The types of households attracted to the suburb has changed as well.  In 2001, 38% of Burswood households were lone person households and 31% were couple households.  By 2016, the situation has reversed – 30% lone person households and 38% couple households.  The proportion of family households has also increased, up from 18% in 2001 to 23% in 2016.  In numbers, they have risen 14% from 87 households in 2001 to 213 households in 2016.

Cockburn Central – the first purpose built TOD in the Perth metro area.  It was named in 2007 and was counted as a separate suburb for the first time in the 2011 Census.  The 2016 counted 403 apartments or flats as occupied private dwellings, making up 70.8% of the 569 occupied private dwellings in the suburb.  At 10 years of age, there’s not much  history or transformation to explore.  But as a purpose built regional centre for the surrounding area and designed with density and connectivity in mind, it serves as an interesting comparison to the other suburbs.

Firstly geography, Cockburn Central is 24km from the Perth CBD, connected by the Kwinana Freeway and Transperth rail.  That makes it further from Perth than East Perth and Burswood.  It has a number of employment opportunities close by, and is also well placed to connect to employment opportunities in the Perth CBD and the SW metropolitan industrial areas.

Who is living in Cockburn Central?

  • Cockburn Central is very much a renters suburb.  At the 2016 Census of Population and Housing, 71% of occupied private dwellings that are apartments or flats are rented, higher than for Cockburn Central properties in general (58%).   The level of renting is higher than for Greater Perth.
  • Median household income for the suburb is similar to Greater Perth – $1625 per week.
  • 37% of households are lone person households (similar to East Perth), 34% are couple households (lower than East Perth but, like East Perth, the proportion of couple households is growing).

With the newness of this suburb, it does tend to however indicate that it may follow the same pattern as Burswood and East Perth in time.

As PropertyESP has always attested – apartments in the housing mix does tend to attract a more professional resident with higher disposable incomes and that is good for the LGA overall.  If you would like to know what is happening in your suburb of development contact Sam Reece at info@propertyesp.com.au.  We love to get into the nitty gritty!

Coastal living the new black

Despite the resistance by coastal suburbs to welcome apartment living into their community – the research from the WA Apartment Advocacy has clearly shown that this status is going to have to change – and soon.

Of the 155 apartment owner occupiers surveyed, 15% had been living in a coastal location before then moving into their apartment (19% living on the coast).  However when asked where they would choose to live next time – 70% stated an apartment and 49% stated a coastal location.  44% also indicated they would choose riverside.  This was evenly dispersed across all age groups.

Of the 113 renters interviewed, 11% had been living on the coast and 14% moved into a coastal apartment.  But when asked where they would choose to live next 73% stated an apartment and 47% demonstrated a preference to coastal locations.

Of those living in the inner city – the owner occupiers showed a movement away from this address with a drop of 61% to 50% as this being their preferred location.

With Perth’s apartment market still very young, and limited supply in restricted locations, Perth apartment livers have chosen the best from what is on offer.

But ultimately what they want is access to the coast – which up until now has only been available to the privileged.

Councils that have therefore chosen to listen to the 5% of their population who reject apartment living have quite obviously chosen to ignore the majority who want this choice (and rightly so) for their home.

It is a message that Councils and Government will now need to start listening to.

At PropertyESP we are glad for this intelligence which raises the argument for permitting apartment living in key locations such as Trigg, Scarborough, Cottesloe and so forth.  Because without it – all we hear are the nay sayers.  But now there is a larger voice speaking up – and they are saying yay for choice!

Flight to bigger apartments evident

The first poll research of its kind in WA, with 268 apartment residents (owner occupiers and renters) has shown a real appetite for larger apartments.

The WA Apartment Advocacy (WAAA) data has demonstrated that 35% of renters moved from a two bedroom and 26% from three bedroom properties into one (35%) and two (34%) bedroom apartments.  But asked what would they move into next, 48% said two bedroom and 38% indicated three bedroom properties.

This was mirrored by the owner occupiers as well, with 35% moving from a three bedroom property and 39% from a four bedroom into predominantly two bedroom apartments (64%). However, when thinking about their next move, 33% would move into a two bedroom and 53% into a three bedroom property.

The research demonstrates that the need for a third bedroom was driven by resident’s usage of the space in their apartments, with 61% of owner occupiers and 48% of renters, using a bedroom as a study or a study nook in their apartment.

For some time now, the WA apartment market has been focused on one and two bedroom apartments but this data gives food for thought to both developers and investors alike.

 

At PropertyESP we tend to concur with WAAA in that baby boomers should no longer be called downsizers but more aptly right sizers and up-stylers.

Why? Because these people have been typically living in their family home for 25 years and so what they are seeking is a spacious apartment with all the mod cons.

While apartment analysis to date has been focusing on what has been selling – this data tells us what the next market trend is.  Those that are wise will take note!

 

Applecross apartments defy the norm

We recently conducted some research on behalf of a client of ours examining what was happening in the apartment market in Applecross and Mt Pleasant from 2011-2016.  This data was very interesting because despite having some initial setbacks, these two suburbs have once again rebounded.

Looking at 164 apartment sales in the five year period, the analysis showed that the median sale price in Applecross in 2011 was $875,000 and peaked at $1,250,000 in 2014 before settling at $1.1 million at the end of 2016.

Mt Pleasant apartment sales on the other hand started at median price point of $1,125,000 in 2011 before plummeting to $660,000 in 2013 before then rising again to $1,195,000 in 2016.

price per annum

The data also demonstrated that regardless of one, two or three bedroom apartments, there was an upswing in the median property price for both Applecross and Mt Pleasant in 2016.

bedroom sales

But what was most surprising was that being on the rivers edge (no road in front) or river front (with a road in front) reflected no price difference and as such we believe that this a paradigm that will definitely shift in years to come with the $235 million Canning Bridge redevelopment.

The data also demonstrated that rental yields were approximately 4.2% for apartments compared to 3.3% for houses in these areas.

As you can imagine this company now has good news to share with its buyers and that will only build confidence.

If you want to know what is happening in your suburb than contact the team at PropertyESP.  We delve into the nitty gritty and unveil good news!

 

 

 

 

 

 

 

 

 

 

 

 

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!