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Articles

Build-to-Rent and the financialization of rental housing: future research directions

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Pages 839-874 | Received 20 Dec 2018, Accepted 21 Jun 2019, Published online: 28 Jul 2019
 

Abstract

With the expansion of institutional investors into urban rental markets, many cities have witnessed a rise in Build-to-Rent (BtR). This article reviews the financialization of rental housing literature and identifies opportunities for urban housing scholars to progress understandings of BtR through future empirical and theoretical efforts. In particular, it proposes a broadening of the housing research agenda around three analytical entry points. These entry points relate to relatively understudied structural transformations of our urban housing systems implicated in the rise of BtR, namely: (1) the diversification of build-to-sell development models; (2) the evolution of the private rental sector; and (3) labour market–housing market realignments. Comparative inquiry promises to enrich understandings of BtR by revealing how city rental accommodation and tenancies are recalibrated by the investment imperatives of institutional investors and BtR asset shareholders, and with what benefits and at what costs to whom. Such contributions will also provide rich data to progress conceptual efforts to locate BtR within broader processes of housing financialization.

Disclosure statement

No potential conflict of interest was reported by the author.

Notes

1 Broadly speaking, securitization enables the owner of assets that produce a revenue stream (such as rent payments) to acquire liquidity by selling bonds that represent a share in this future income stream (Fields et al., Citation2016, p. 2). The value of securitization for institutional investors is that it offers a ‘source of leverage to increase return on equity, which they may use to finance further acquisitions and/or lend to other, smaller investors, thereby expanding the industry’ (e.g. Blackstone) (Fields et al., 2016, p. 2). This leveraging is feasible because of rent-backed financial instruments, which include either the issuance of rental securitizations (e.g. multifamily securitizations), by going public as real estate investment trusts (REITs), or by both (Fields et al., 2016). REITs, for their part, are vehicles for the ownership of large portfolios of income-producing property assets. REITs enable investors to receive a stable and regular income stream (derived both from the rental income generated by property the trust owns and from capital growth associated with these assets) without the investors purchasing ‘bricks and mortar’ property. REITs are emerging as important mechanisms for funding investments in rental housing and, as Waldron’s (2017) research emphasizes, REIT shareholders are typically major global hedge funds and institutional investors, and not ‘mum and dad’ investors or other small-holding investors. In the US and Australia, for instance, REITs have a longstanding history in the commercial property sectors and, in the US, as I describe further on, in the multifamily (BtR) sector. In other jurisdictions, such as the UK, allowances for the creation of REITs are far newer, facilitated by recent tax reforms (Martin et al., Citation2018).

2 These ‘co-living’ housing products offer ‘smaller’ (and potentially ‘cheaper’) private units in apartment complexes with a suite of communal facilities, such as communal kitchens, dining rooms, playrooms, and co-work spaces. Associated marketing emphasizes community and are typically aimed at specific demographics, such as ‘millennial’ live/work complexes and ‘over-55s’ retirement ‘villages’.

3 Greystar is a multifamily real estate company involved in investment, development, and property management around the globe. They are the largest multifamily property developers and managers in the US, with almost 500,000 rental units, and properties and interests across Europe, South America, and now Australia. Greystar also provides an institutional investment management platform, with over $US31 billion in gross assets.

4 Prior federal government efforts include, as noted, the now defunct 2008 NRAS scheme, and support for financial intermediary models to channel cost-effective private finance into affordable rental housing (e.g. a bond aggregator agency to issue government-backed bonds to provide low-cost loans to housing associations to support the construction of affordable housing).

5 These criteria are set out in SPPR7 of the Sustainable Urban Housing: Design Standards for New Apartments (Chapter 5) (HPLG, Citation2018a). Planning submissions must include details of a proposed covenant or legal agreement, establishing conditions that the development remains owned and operated by an institutional entity for at least 15 years and prohibiting the sale of individual units or rent of units separately. Additionally, planning submissions must include ‘detailed proposals for supporting communal and recreational amenities’ with the onus on developers to ‘provide an evidence basis that the proposed facilities are appropriate to the intended rental markets’, including (i) resident support facilities – ‘comprising of facilities related to the operation of the development for residents such as laundry facilities, concierge and management facilities, maintenance/repair services, waste management facilities, etc.’ and (ii) resident services and amenities ‘comprising of facilities for communal recreational and other activities by residents including sports facilities, shared TV/lounge areas, work/study spaces, function rooms for use as private dining and kitchen facilities, etc.’ (HPLG, Citation2018a, p. 29). It is worth noting too, that there are also examples of BtR and build-to-sell projects being ‘blended’ within single developments (CBRE, Citation2019, p. 41).

Additional information

Notes on contributors

Megan Nethercote

Megan Nethercote is a Vice Chancellor's research fellow at RMIT University (Melbourne), with interests in the political economy and lived experience of higher-density housing.

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