Australia has a rental supply problem, and purpose-built rental housing is one obvious way to add homes. Yet institutional owners of rental apartments hold only 0.2 per cent of residential market value. In Britain the figure is roughly 5 per cent. In America it is about 12 per cent.
That gap points to a sector that is held back by economics, not by lack of interest. For build-to-rent Australia, three pressures keep showing up: high construction costs, a tax disadvantage and tighter funding conditions.
A 0.2 per cent share tells you what is missing
Build-to-rent means a developer builds apartments and keeps them as rentals, instead of selling them off to individual buyers. The owner earns income over decades, not a one-off sale margin.
That model only works if the numbers stack up at the start. Right now, a recent industry proposal argues, they often do not. The proposal sets out reform across six areas, including a nationwide modular certification scheme, clearer legal definitions and defined pathways for investors.
The GST problem sits at the centre
One grievance stands out. Owners of rental buildings cannot recover the 10 per cent GST paid on construction. Peers in Canada and the UK can.
On a large project, that is a real cost that sits on the balance sheet from day one. A developer who builds to sell passes the cost on to buyers. A developer who builds to hold absorbs it, and has to recoup it through rents over many years.
- Build to sell: cost is passed on at settlement.
- Build to rent: cost is carried, and earned back slowly.
That difference quietly tilts decisions toward apartments for sale, even when the market needs more rentals.
Construction costs and contractor risk compound the squeeze
High building costs are the second wall. When it costs more to build, the rent needed to justify the project rises with it. Rents that high can be hard to achieve, so projects get shelved or never start.
The proposal also flags contractor financial risk. If a builder fails mid-project, the owner can be left with delays and extra costs. Lenders notice that, and tighter development finance makes it harder to line up funding in the first place.
This is where modular construction comes in. Building components in a factory can, in principle, shorten timelines and reduce some site risks. But a nationwide certification scheme would be needed so approvals are not reinvented for every project.
What this means for the rental squeeze
The rental squeeze is a supply problem first. Vacancy stays tight when too few new rentals arrive, and tenants compete harder for what exists. Our guide to rents, vacancy and tenants explains how that pressure builds.
Investor lending is also shifting. We covered how investor loans are moving toward new builds rather than disappearing. Build-to-rent is a different channel for the same goal, but it faces tougher hurdles than a small investor buying a new apartment.
Key numbers
- 0.2 per cent: share of residential market value held as institutional rental apartments in Australia
- About 5 per cent: the equivalent share in Britain
- About 12 per cent: the equivalent share in America
- 10 per cent: GST on construction that owners cannot recover
What could change this picture
The case for reform rests on a simple idea: if the sector is structurally disadvantaged, supply will stay thin. But reform is not free. Changing tax treatment costs revenue, and governments have to weigh that against the housing benefit.
There are also unknowns. Modular construction needs scale to cut costs, and scale needs a steady pipeline of approved projects. Without that, factories sit underused and savings do not materialise.
Watch for any move on GST treatment, a national modular scheme, or clearer investor pathways. Those are the signals that the pipeline could widen. Absent them, expect the share to stay small.
The bottom line
Build-to-rent can add rental homes, but the current settings make it hard to build and hold them. Tax treatment, costs and finance all pull the same way. Until that changes, the sector is unlikely to move far from its current sliver of the market.
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General info, not financial advice.
