Article | Intelligent Investment
Ways Property Leaders Are Tackling Australia’s Housing Crisis
From the interest rate outlook to the rise of alternative investments, the Property Council’s Antony Knep and Charter Hall’s Carmel Hourigan provide their analysis.
August 13, 2024
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In the next five years, residential housing supply will fluctuate between 50,000 to 70,000 apartments while demand will run at 75,000. Australia’s vacancy rate is also expected to remain below 1% for the next half decade while rents are forecast to grow 28% in the same period. These findings come via CBRE’s in-house research and highlights a challenging path for those looking for a place to call home in the coming years.
It’s also why it was a dominating topic of discussion at the Property Council of Australia’s annual Property Leaders’ Summit which featured insights and ideas from some of the country’s most prominent figures in property.
From interest rate predictions to growing investment areas beyond the core assets, here’s what Antony Knep, the Property Council’s Executive Director of Capital Markets, and Carmel Hourigan, the Capital Markets Division Council President and Charter Hall Office CEO, had to say in one of our latest Talking Property episodes.
“To solve this housing crisis, we are really going to have to put intense capital in for long periods of time,” says Hourigan. “This is not going to be a short fix. We do need stability from both Federal and State in terms of the way the legislation, the taxes are working so people can understand them.”
The summit highlighted the $32 billion in funding directed towards housing infrastructure which covers areas like the Housing Australia Future Fund (HAFF) and changes towards the build to rent sector. It also touched on the important role of land leases and providing more affordable housing for home seekers.
Given the international trends with institutional investors, global pension funds and sovereign wealth funds acting as the big investors in the residential housing sector, Australia could soon mimic this approach.
“Naturally, we are turning our attention to things like build to rent in Australia, which is very much in its infancy,” says Hourigan. “It’s not the only solution, but we do think it's part of the solution to the problem.”
In order to fast track housing goals, Knep adds that Australia needs to be more competitive globally in terms of attracting capital partners.
“An example of needing a level playing field is the recent thin capitalisation rules. This makes capital partnering more expensive from a tax deductibility perspective in Australia compared to other jurisdictions like the UK and the US who have a carve-out for real estate. It does make us a little bit more uncompetitive when we're competing for capital for build to rent projects, for example.”
Other areas of improvement require legislation such as Foreign Investment Review Board fees and regulation, as well as timing delays and inefficiencies.
“These all make Australia more expensive to do deals in. I think a freer flowing, more transparent, and better regulated environment would be advantageous for us.”
Given the close ties between housing supply and interest rates, there’s a natural conversation around when Australia could start to see rates drop again. The general answer amongst Summit speakers? Later rather than sooner.
“We've seen that consensus forecast change a bit and one of the things that we would say is that if we are going to get a rate cut, that will probably come much later in the year, if not into 2025,” Hourigan says.
“You're always going to get a conflicting view on timing and extent of monetary policy intervention. I feel post-budget, there's continued inflationary pressure across the board on materials, labour, construction, insurance and energy. I believe the expectations of a rate cut have been pushed out and we just need to see some of these inflationary pressures come off,” adds Knep.
At the Summit, it was also confirmed that the alternatives sector is seeing plenty of positive sentiment and interest from both global and domestic investors. What began in the infrastructure space has now seen a broader appetite towards the different types of housing projects under the alternates umbrella.
“You can see that in affordable housing and student accommodation where they can get exposure to global thematics that we think there's going to be real growth,” explains Hourigan.
“I think we agree that housing densification, some of those thematics that we're seeing, population growth, energy transition - people are just generally very interested from a capital perspective. We're seeing strong demand from everyone who comes into this Australian market looking at some of those opportunities.”
CBRE’s latest lender debt survey found that student accommodation came in third place for where lenders wanted to put their money. The reason behind this promising result?
“With student accommodation, I think it's obvious now as a market we've got some really good operators in that space. There is a good opportunity to invest with institutional-quality operators who've got good pipelines as well,” she says.
The sector isn’t without some reservations though as scalability continues to be a challenge in some of these alternatives in Australia. Those who are moving into this market early are simply hoping that it will grow into something much larger. It’s why Knep believes that scalability is one key factor in the success of alternatives locally.
“We've seen a lot of interest in data centres that require significant energy transition. It's critical for the development of that sector and real estate value-add and repositioning is going to be critical. That's potentially where data comes into the picture for higher and better use for your asset.
“There's also discussions around childcare, aged care, healthcare, and life sciences, but it's just not scalable at the moment. We need to find a way around that.
“Clearly, there's a lot of demand but we just have to position the capital and have the opportunities and the liquidity to make it work.”
Listen to the full Talking Property podcast episode now to find out what’s else is top of mind for Australia’s property leaders.
It’s also why it was a dominating topic of discussion at the Property Council of Australia’s annual Property Leaders’ Summit which featured insights and ideas from some of the country’s most prominent figures in property.
From interest rate predictions to growing investment areas beyond the core assets, here’s what Antony Knep, the Property Council’s Executive Director of Capital Markets, and Carmel Hourigan, the Capital Markets Division Council President and Charter Hall Office CEO, had to say in one of our latest Talking Property episodes.
Addressing the housing crisis
Despite different approaches from both major political parties, experts believe that the Government has one of the biggest roles to play in easing the current housing supply crisis.“To solve this housing crisis, we are really going to have to put intense capital in for long periods of time,” says Hourigan. “This is not going to be a short fix. We do need stability from both Federal and State in terms of the way the legislation, the taxes are working so people can understand them.”
The summit highlighted the $32 billion in funding directed towards housing infrastructure which covers areas like the Housing Australia Future Fund (HAFF) and changes towards the build to rent sector. It also touched on the important role of land leases and providing more affordable housing for home seekers.
Given the international trends with institutional investors, global pension funds and sovereign wealth funds acting as the big investors in the residential housing sector, Australia could soon mimic this approach.
“Naturally, we are turning our attention to things like build to rent in Australia, which is very much in its infancy,” says Hourigan. “It’s not the only solution, but we do think it's part of the solution to the problem.”
In order to fast track housing goals, Knep adds that Australia needs to be more competitive globally in terms of attracting capital partners.
“An example of needing a level playing field is the recent thin capitalisation rules. This makes capital partnering more expensive from a tax deductibility perspective in Australia compared to other jurisdictions like the UK and the US who have a carve-out for real estate. It does make us a little bit more uncompetitive when we're competing for capital for build to rent projects, for example.”
Other areas of improvement require legislation such as Foreign Investment Review Board fees and regulation, as well as timing delays and inefficiencies.
“These all make Australia more expensive to do deals in. I think a freer flowing, more transparent, and better regulated environment would be advantageous for us.”
Given the close ties between housing supply and interest rates, there’s a natural conversation around when Australia could start to see rates drop again. The general answer amongst Summit speakers? Later rather than sooner.
“We've seen that consensus forecast change a bit and one of the things that we would say is that if we are going to get a rate cut, that will probably come much later in the year, if not into 2025,” Hourigan says.
“You're always going to get a conflicting view on timing and extent of monetary policy intervention. I feel post-budget, there's continued inflationary pressure across the board on materials, labour, construction, insurance and energy. I believe the expectations of a rate cut have been pushed out and we just need to see some of these inflationary pressures come off,” adds Knep.
Growing appetite for alternatives
CBRE’s Phil Rowland and Sameer Chopra recently covered the growing demand for alternative assets, a sector with a current collective worth of $100 billion in the Australian investment market.At the Summit, it was also confirmed that the alternatives sector is seeing plenty of positive sentiment and interest from both global and domestic investors. What began in the infrastructure space has now seen a broader appetite towards the different types of housing projects under the alternates umbrella.
“You can see that in affordable housing and student accommodation where they can get exposure to global thematics that we think there's going to be real growth,” explains Hourigan.
“I think we agree that housing densification, some of those thematics that we're seeing, population growth, energy transition - people are just generally very interested from a capital perspective. We're seeing strong demand from everyone who comes into this Australian market looking at some of those opportunities.”
CBRE’s latest lender debt survey found that student accommodation came in third place for where lenders wanted to put their money. The reason behind this promising result?
“With student accommodation, I think it's obvious now as a market we've got some really good operators in that space. There is a good opportunity to invest with institutional-quality operators who've got good pipelines as well,” she says.
The sector isn’t without some reservations though as scalability continues to be a challenge in some of these alternatives in Australia. Those who are moving into this market early are simply hoping that it will grow into something much larger. It’s why Knep believes that scalability is one key factor in the success of alternatives locally.
“We've seen a lot of interest in data centres that require significant energy transition. It's critical for the development of that sector and real estate value-add and repositioning is going to be critical. That's potentially where data comes into the picture for higher and better use for your asset.
“There's also discussions around childcare, aged care, healthcare, and life sciences, but it's just not scalable at the moment. We need to find a way around that.
“Clearly, there's a lot of demand but we just have to position the capital and have the opportunities and the liquidity to make it work.”
Listen to the full Talking Property podcast episode now to find out what’s else is top of mind for Australia’s property leaders.