Helping hand for Australia’s housing crisis: Institutional investors and alternative housing models

Since the housing supply and demand imbalance is expected to be more acute than indicated by the Government’s projected deficit of -79,000 dwellings by 2033, there is a critical requirement for institutional investment to boost alternative housing models, according to Colliers National Director of Residential Capital Markets Robert Papaleo.

“The urgent need for institutional investment and alternative housing models to provide a helping hand for Australia’s housing crisis has many parallels to the UK’s situation in the early 2010s, ahead of institutionalisation of its now robust BTR market.” Mr. Papaleo said.

“Despite limited exposure to the Australian residential sector historically, market activity in 2023 indicated growing interest from institutional investors, who drove the lion’s share of BTR sales in a year which saw 43% of total sales activity since 2015.

“Domination of the rapidly expanding BTR market is a foot in the door to the broader $10.2 trillion residential market for these investors, who have been renowned for providing residential accommodation overseas for decades and are well-poised to support alternative housing models in addition to greenfield development.”

By the end of 2023, completed institutional BTR assets represented an estimated market value of around $3.3 billion, which is approximately 80% of the national BTR market and 0.03% of the total value of Australia’s residential market.

Melbourne currently has the highest share of Australia’s completed BTR stock (48%) due to greater availability of well located, larger sites with permitted schemes of 300+ apartments historically. While South-East Queensland boasts the second largest share of completed stock (39%), due primarily to conversion of the former Gold Coast Commonwealth Games Village.

“Notwithstanding the significant historical barriers to institutional investment in Australia’s residential sector, the BTR market has rapidly evolved since the first institutional-backed BTR projects were delivered in Perth (2017), Gold Coast (2018) Sydney (2020) and Melbourne (2022).” Mr. Papaleo said.

“The nature of projects is maturing, as market participation of institutional investors, who account for six of the top 10 BTR platforms in Australia, 13,650 completed and committed BTR apartments, as well as sites which may provide an additional 8,250 apartments, induces developers to bring forward projects with innovative partnership models and alternative structured deals.”

Over $5 billion in capital was raised in 2023 to support the Australian BTR sector, and while the current average project encompasses 281 apartments, projects set to be delivered by 2028 will contain an average of 365 apartments.

“As the BTR market continues to evolve in 2024 and beyond, institutional capital is expected to also increase investment in Purpose Built Student accommodation, Land Lease Communities and Coliving which are sectors that address more specific needs and can support higher returns for well-positioned sites.” Mr. Papaleo said.

“It is promising that Government recognised in July 2023 that institutional investors can play a positive role in addressing the political, policy and economic imperative of new housing, in addition to identifying policy levers for barriers to such investment.

“Accelerated institutional market participation is necessary to ease pressure on Australian residential supply, as private landlords face higher financing costs and regulation changes reducing rental returns.”