Institutional push
The world's largest asset manager Blackstone put out a couple of sob story news pieces this week, effectively begging for more tax breaks for corporations, since it's too expensive for institutional investors to build housing in Australia.
Their indirect lobbying may or may not be successful, but keeping the initial construction costs down is only the first challenge in making institutional housing projects work at scale.
By way of an example, The Collective at Canary Wharf in London was billed as the world's largest luxury co-living development with 705 micro-apartments over 21 storeys.
The development was set to be super-luxurious, with gym, jacuzzi, pool, steam room, shared working spaces, live events, and more, advertised as "faff-free renting."
Due to design and management challenges,
the reality for some of the longer-term tenants was more akin to living in a youth hostel, with damage, security issues and theft, mould, peeling paint, partying and noise complaints, and so on.
The result was an endless slew of 1-star reviews from disheartened tenants, some of whom reported that the stay was the worst they'd ever experienced.
Institutional projects where - there are no owners with a vested interest in the upkeep of the block - must deliver on product, design, and management, for everything to work as promised, while remaining profitable.
This can be done for smaller and medium-sized projects, but often appears harder to achieve at scale.
In this instance, the original developers sank into administration.
It's worth remember that institutional housing projects are purely delivered to generate high returns for investors, so inevitably the rents are not cheap, and the pitch for investors assumes that rents will go up by at least 3 per cent per annum ad infinitum, while repairs and maintenance costs remain modest.
A 2-bedroom apartment in a Melbourne Build-to-Rent project will most likely cost the tenant around $45,000 per annum, and in Sydney the figure would likely be over $50,000.
With the Labor government achieving a significant majority in the recent election, there will certainly be a big push for more institutionally-owned housing over the remainder of the decade, so it will be interesting to see how such challenges are navigated.
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