Episode 104 | Build-To-Rent the new standard for renters | Adam Hirst, Mirvac

Will Build-To-Rent curb Australia’s growing population and housing affordability crisis?
On today’s episode we pick the brains of Adam Hirst, General Manager of Build-To-Rent at Mirvac. Adam is currently overseeing Mirvac’s newest development at Sydney Olympic Park, Indigo Pavilion, Australia’s first mass scale build-to-rent project. Adam discusses the overseas success of build-to-rent also known as ‘multifamily’, the viability of this alternative to generic residential development and how this alternative model will benefit renters.

Here’s what we covered:

• What is build-to-rent/Multifamily?

• Is build-to-rent the future for renters?

• Why are build-to-rent leases longer than standard leases?

• What are the building costs associated?

• What are the benefits of build-to-rent?

• Why are superannuation funds investing in build-to-rent?

• Will there be an under supply of housing in 2021 - 2023?

• Why consumers want sustainability but are not willing to pay for it

• How developers are trying to create a community in their developments

• How capitalisation rates impact build-to-rent

• Why to never buy in areas of over supply

GUEST LINKS:
Find out more about Adam Hirst his work in Build-To-Rent.
Indigo Pavilion - Sydney Olympic Park

MENTIONED EPISODES:
Episode 80 | Ed Fernon
Episode 62 | Cecille Weldon

HOST LINKS:
Looking for a Sydney Buyers Agent? www.gooddeeds.com.au
Work with Veronica: info@gooddeeds.com.au 

Looking for a Mortgage Broker? www.wealthful.com.au
Work with Chris: hello@wealthful.com.au

EPISODE TRANSCRIPT: 
Please note that this has been transcribed by half-human-half-robot, so brace yourself for typos and the odd bit of weirdness…
This Episode was recorded on the 28 November, 2019

Veronica Morgan:        You're listening to the elephant in the room property podcast where the big things that never get talked about actually get talked about. I'm Veronica Morgan, real estate agent buyer's agent, cohost of Foxtel's location, location, location Australia and author of a new book auction ready how to buy property even though you're scared shitless.

Chris Bates:                    And I'm Chris Bates, financial planner, mortgage broker, and together we're going to uncover who's really making the decisions when you buy a property.

Veronica Morgan:        Don't forget that you can access the transcript for this episode on the website as well as download our free fool or forecaster report, which experts can you trust to get it right, the elephant in the room.com. Dot. AAU.

Chris Bates:                    Please stick around for this week's elephant rider bootcamp and we have a cracking Dumbo of the week coming up. Before we get started. Everything we talk about on this podcast is generally nature and should never be considered to be personal financial advice. If you're looking to get advice, please seek the help of a licensed financial advisor or buyers agent. They will tailor and document their advice to your personal circumstances. Now let's get cracking.

Veronica Morgan:        Build to rent. What is it? Is it a solution to housing affordability? Is it a way for institutions to invest in residential property? Is it just a new fancy name for boarding houses? And if this is a sector that is poised to go on Australia, who should champion it? Should it be government or private enterprise? What are the hurdles? Who stands to benefit the most? If the build to rent sector is allowed to flourish? There are many overseas markets where this is an established model. Can we look to these as examples of how this sector of the property market can develop here in Australia? In this episode we pick the brains of Adam Hearst, Mirvac group's GM of build to rent. Move back is one developer who has decided to participate in this market and is currently constructing Australia's first mass scale bill Trent project, the Indigo pavilions at Sydney Olympic park. Thank you Adam. We're keen to learn more from you about what this is all about.

Adam Hirst:                     Thanks for having me.

Chris Bates:                    No worries. Pleasure Mike. Thanks for coming in. I mean the bill to rents idea just makes a lot of sense. Right? You know, we've got a lot of people that, you know, unable to buy or looking to buy or cannot afford to buy, let's say, and then need someone to leave. So then it's potentially could be part of the rental market for a long period of time, but there's not many options for them. So bill Trent makes a lot of sense. Can you explain exactly where the model kinase working around the world and exactly what it is?

Adam Hirst:                     Yeah, sure. I mean, from a Mirvac perspective, when we started to look in this space three and a half, four years ago, what we realized, which had correctly pointed out was the average age of our purchaser of our Portland product was getting older and older. So getting up to the 40 years at 40 years old. And because of that, we were missing out on a big customer segment of the market. So we went over and looked at the UK, the us, Japan, and all of these markets have flourishing build to rent markets. The U S is definitely,

Adam Hirst:                     You know, held up as the most mature. It's been around for 50 years. It's a really large part of the market over there. And really interesting to have a look at that. But way, way you gotta where we found it really interesting is when we looked at the UK market is the UK market had a lot of similar reasons that people said build terrain would never work in Australia. Whether it's low yields on residential cultural bias towards home ownership, phase of favorable tax treatment for private investors. All that existed, but the sector has gone from non-existent to 140,000 units under construction in about eight years time. Wow. So looking at that market and then looking at what the actual outcomes are for both the customers and as an investment product gave us a lot of excitement about what it could be in Australia and what we could, what we could pull pull together over here.

Veronica Morgan:        This is very interesting actually. Firstly that your average for buyer age is 40. Is that because of the type of product that Mirvac builds? So you're not sort of building the real cheap entry level stuff. Would that be fair to say?

Adam Hirst:                     Yeah. Well ma, Mirvac does develop, you know, higher end apartments. Definitely. but you say you've seen the average age of first home buyers creep up as well. Over the past 10, 20 years. So it's a phenomenon across the entire market to be honest.

Chris Bates:                    What is your, I'm average age much higher than other, say developers.

Adam Hirst:                     Not sure. Not sure. I don't have the date. The detail on that.

Veronica Morgan:        Yep. Cause I guess there's, there's lots of different ways you could have looked at making sure you get a different age demographic or get a different part of the market. So this is your way of actually getting them into rent or building stock for people to rent longterm. What's the ownership structure likely to be of these buildings?

Adam Hirst:                     Yep. So typically globally, what you see is these built around buildings or multifamily I might use as well because that's what it's called in the U S multifamily. It's just the name that the U S has used, has used for the sector since it existed.

Veronica Morgan:        So it doesn't necessarily mean that that grandparents, parents and kids who are,

Adam Hirst:                     I know there's no, there's no connotation. I get that question a lot. It's just that's what they've called it. What you see over there is it's really a really attractive asset class for superannuation funds, pension funds, because of the longterm stable cash flows that actually come out of the asset class. A lot of the reason people invest in real estate anyway

Chris Bates:                    And the capital growth in. So I'll let you know if you're going to you know, 10 story apartment block in Manhattan I'm sure that's gone up a lot in capital value as well as yield for the investor.

Adam Hirst:                     What's the, you see this subtle shift from not really subtle. You see this shift in when you're looking at a build to rent sense because these investors superannuation funds, pension funds, they've got constant inflows coming in from their members and what they're really looking for is a stable income that they can offset liabilities with. So they're not actually so much focused on the capital growth side of things. What they're focused on is repeatable, defendable income over the long term and build to rent has proven to provide that. Particularly during the GFC in the U S where you know traditional Australian investment asset classes for real estate, you know, retail, industrial office, the vacancy drops significantly. Rents dropped significantly. But what you saw in the JFC in the U S is what if you think it through what played out was in the run up to it, economic growth was going really well.

Adam Hirst:                     Debt was available, house prices were increasing, people couldn't afford to buy. So they rented. Yup. Then you go into the JFC, people lost their jobs, couldn't afford to buy in, they're rented. So all of a sudden you had this really stable stable income stream, which is great for you know, longterm pension funds.

Chris Bates:                    And I guess the people who are renting long term who are attracted to the bilge rent model, they're not thinking about the short term market any way. They're more attracted to short term letting you know one or two year laces rather than, I guess a built a rent's going to be a lot longer. Lacey, is that what you're expecting?

Adam Hirst:                     It's an interesting one. So again, I keep referring to the U S and the UK because the sector doesn't exist here yet. But in the U S the average lease length is 15 months. All right, so which surprises people when I tell them that and but when you think it through, what happens with build to rent is because of the change in the owner of the investment property.

Adam Hirst:                     All of a sudden the owner has a time horizon that's much more aligned with the tenant within it. So they're not going to know, sell because they've been met retirement or sell or want their kids to move in or any other of these reasons that people might get moved out of a rental property. So all of a sudden what the institutional owner wants is constant cashflow. And because of that, they're actually incentivized for the tenant to stay and they want the tenant to stay. Cause the one thing you don't want is downtime and vacancy. Because of that, it actually becomes more favorable for the tenant to have a shorter term lease because they know they can renew regardless, which is interesting. So

Veronica Morgan:        Is that the lease average lease term or is that the average period of 10 years term? Right. So what's your recruitive tenure?

Adam Hirst:                     It's hard to get two really clear facts on it and it really varies depending on the market. So you know, some markets will have 50% turnover every year. Some markets will have 20% turnover every year. It's very difficult to tell.

Veronica Morgan:        So it's, it's interesting isn't it? Because there's a lot of talk about tenants want, you know, the security and permanency of, of residents. But I guess what you're saying is that they don't fear that they're going to be booted out so that they don't need, they don't feel the need to sign a longer lease. Correct.

Adam Hirst:                     And it's interesting. A lot of our customer research we did in Australia when we were going into this space, actually came back with very similar feedback that what people want is security, but they will flexibility, which is contradictory and really

Veronica Morgan:        Security. While they want security. Yeah.

Adam Hirst:                     But they also want that flexibility. Yeah. so.

Chris Bates:                    But will you offer for example, five years or 10 years or 15 year leases?

Adam Hirst:                     Yeah. We'll be offering longer term leases. And what will be and what will be interesting will that, that's, that's what it's going to be really interesting. We'll see what the customer demand is.

Chris Bates:                    Catch 22 I think, you know there will be a part of the market that wants that one or two years, but then there will be a part that and build to rent really that market's already solved. Like if you want a one or two year lease, there's an abundance of apartment options out there. I mean that's why we rent are going backwards. That's who knows going to live in all these new apartments out there. It's not, that's not, there's not a problem for that. Where the problem is is if you have to re lent for 10 15 years and you haven't got any option out there right now where you can sign a lease for that long cause no one wants to give you a lease that long. So built around really should be favoring those type of people because that's the real problem rather than people just looking for a one or two year lease.

Adam Hirst:                     I would say I will, I would agree on the lease term point but I would say there are still significant issues that come up with the existing rental market in terms of, you know, yes you can have a one or two year lease but you don't know what your rental increase is going to be. Right. You don't know when you, if you're going to be able to renew, you might not be able to have pets. If you have a maintenance issue, it might take you three weeks to get fixed. There's not appropriate amenities designed within the building. A lot of that stuff we will be able to provide and build to rent, which will still be attractive to someone that might just want a one or two year lease. But then we can also offer that longer term option if that is what someone wants.

Veronica Morgan:        So I think it comes back down to as well as the why would they want a 10 year leases cause they want security if they're offered security without that and they probably take it without I imagine. But well I'm interested to the cost of building these, are they cheaper or more expensive when you're not selling them to individual consumers?

Adam Hirst:                     Yes. So it's interesting. What you'll see is what we've seen is there's savings in some areas and more costs in other areas. So if you take finishes is a good example because we're owning these for the long term. We'll make different decisions around what products we'll use because we can take a 10 or 15 year view on cost of repair and maintenance. So a good example at Indigo, at Sydney Olympic park is traditionally what we would do is we would carpet all living areas. But what we've done there is we've put tiling in all the living areas, which is more expensive. But if you, and if you crack one tile, we can just replace one tile versus every time a tenant turns out, moves out, we have to remove the entire, all the carpet plus a tenant can put down a rug if they want to. And personalize it themselves. Yes, but you can't take away carpet.

Veronica Morgan:        They get hose out a tile department. Yeah.

Adam Hirst:                     I think another good one is the inclusion of why could so, because we don't want damage of people moving in and out. We include fridges, washing machines, dryers, microwaves. It's all included within the building, within the asset. But that's obviously more expensive than what we traditionally do in, in an, in a built to sell side.

Chris Bates:                    It's a no brainer. That one though isn't a, it does make me laugh when you, you know, in apartment blocks, I mean you've got the lift, which is for the moving staff and then that's all go pro. You're padding up because people are moving in and out. And then because there's a hundred or 200 people in the apartment block, there's always someone movie is a fridge going out. And then is it, you know, walk on these things just be fixed in there. Like why don't you just keep the same fridge and you know, sell it with the fridge. But you know, it's just not the way we do it here.

Adam Hirst:                     No, no, no. It's, it's, it's an interesting change and that's, that, that's, that change from a development standpoint, from a point in time feasibility to a longterm cashflow. It's kind of commercializing in a way. It's the way we'd look at building our office buildings anyway. And it,

Veronica Morgan:        Yeah, because of course, if you've got an eye that commercial builder is more concerned about the quality longterm because you've only got one buyer, you know, it's a bit the same, isn't it really? You've got either one buyer or that plan to hold any of these. Is that like a part of the business model for the mobile? Yeah, so the business model for Mirvac is to hold 50% of the buildings that we build. And then look to bring in institutional partners for the other 50%.

Veronica Morgan:        Not selling entire building to someone.

Adam Hirst:                     No. Right.

Veronica Morgan:        And so there's a motivation. It's going to go back to the build quality debate really, isn't it? That's, that's definitely in the developers interests to make sure that that building is not going to sink into the ground.

Adam Hirst:                     Yeah. And I would say from a Mirvac perspective, we've for 47 years been very focused on quality of our apartments and we're obviously fully integrated build a developer. Yup. so that's something that we've, we do in all parts of our business. But yes, very, very much so. If you're looking at it from a government lens with everything that's going on at the moment, yeah. As a build to rent developer, owner operator, that's all our risk. We're taking all that on. So it's an interesting, again, it's a bit of a shift there.

Chris Bates:                    Yeah. I mean, in theory all builders should be aligned to their buyers because they want a reputation that they want to maintain and grow and they want to have a Bray pay buyers and have buildings and have a name that people go, I want to buy a Mirvac apartment. Unfortunately though, I think a lot of the building industry has potentially maybe focused on short term outcomes of let's just get things done, let's and haven't really put their reputation as, you know, maybe they can, they don't really care as much as say Mirvac who have kind of had all that kind of years. Do you think that's been one of the big problems in the building industry? Why you've started to see this great builders, great products versus products that are having problems and trust starting to grow?

Adam Hirst:                     Yeah. I mean I can't talk on behalf of other builders, but for Mirvac, we've been here for 47 years. We plan on being here for 147 more and the only way you and the only way you do that is by looking after your customers. Whether that's build to sell apartments, whether that's ho house and land packages we do, whether that's build to rent, whether that's office buildings, retail shopping centers, industrial sheds, we look after the customers. We'll be there for the longterm.

Veronica Morgan:        I know, I know we leaving the build to rent and conversation just for a minute and we will all go back there. But I am interested because of this, you know, because of the disasters that we've been hearing about finally and it's been looming for a long time. Let's face it is has it been a market flight to quality? Because you know obviously the brand is going to be certainly give confidence to buyers. Now have you, have you noticed there's been a change or I don't know. I mean you're not in that sec sector of the business. I understand that. But in in terminally has there been conversation around the different type of conversations you might be having with buyers or different type of buyers you might be talking to?

Adam Hirst:                     Yeah, I think we very wait. We expect as the market, particularly the off the plan sale market hopefully returns next year in the year after that there'll be more scrutiny from buyers on that actual build quality and track record and we expect that will be positive for groups like ourselves that have that track record now. But to date, you still haven't seen that off the plan market really start to come back and sort of be interesting to see next year and the year after.

Chris Bates:                    Yeah, cause probably the conversations are just starting to happen that people are thinking, Oh I can't afford to buy a house now or I can't get into the market. I get pushed out of that. Then they start looking at other options like off the plan as a, maybe it's your right and a couple of years time they'll start entering that space and maybe investors will be back as well because investors aren't back yet anyway. Yeah. And then they'll start asking. So it's a real opportunity for groups like yourself to display or articulate all your buildings you've done where the building problems have been, why there'd been problems there.

Adam Hirst:                     And the systems and processes that we go through on every single element of a building to make sure that that quality is there because that's how you get it. It's detailed, it's process and it's repeating that over and over through the entire build process.

Veronica Morgan:        Boring isn't it? It's so necessary.

Chris Bates:                    And I guess as a business, are you seeing a bit of a pivot in saying, well we know that that market's off the ball right now. We need to still be busy when he's still keep our best staff need to keep our builders out there. Are you saying build to rent to take a 5% or 10% of your business or are you saying that bill Trent's something that Mirvac is going full steam ahead to make it a big part of the business? Yeah,

Adam Hirst:                     So build to rent for Mirvac is 100% additive. It's not a, we're taking capacity from a build to sell side or build. It is, it is a, it is a new business area that we're going into. Right. There is significant benefits if we can get this sector going all through cycle capability because the demand for rental product is far more stable than the demand for off the plan apartments. So there is definitely that, that ability to flex through cycle. But from a given where, you know, we're, we're a bit of a different beast in terms of residential property developers because we also have our listed, we're a listed company and we have a trust and that trust is looking for stable net operating income and capital growth over time. So what build to rent allows us to do is to take a really well-proven residential development capability and turn that into a stable income stream for our trust as well, which is very interesting. And how a lot of the U S companies do it. Then they listed, which then you know, from a buyer's perspective gives you another way of investing in real estate because you can invest in a diversified portfolio of listed build to rent product rather than a single property.

Chris Bates:                    Is that how you're going to link the super funds into investing in this space is to invest in the Mirvac trust rather than doing their own projects. Like for example, say boss do their own projects. Yep. Save us property, but it's kind of kind of doing really, they're all kind of the super-fans doing the project. Right. So do you say the super funds are going to come to Mirvac and then invest in your trash, which you will then invest in build to rent?

Adam Hirst:                     Yeah. I th I think interestingly, what you've seen is a number of the superannuation funds are already investing in build to rent in the UK and in the U S and gray stone and Greystar. Yeah, yeah, yep. So they, they, they understand the product now and they understand the cash flows. I think what they're really waiting to see is the proof of concept in Australia which there's obviously our initial building finishing next year. There's one building in Perth that's just finished by U S group and there's a couple more under construction. Once you get that proof of concept exercises cities,

Chris Bates:                    It is shooting a combination of proof of concept.

Adam Hirst:                     Yeah. It's student combination is a form of build to rent. Like it's just a different product type, but a different demographic you're targeting.

Chris Bates:                    Or aged care homes.

Adam Hirst:                     Yup. Yup. Or you know, a lot of what you'll see in the U S and the UK now is retirement living as a lease for lease product and in a high rise building with amenity. It's basically just build to rent with an age restriction. They're all part of, you know this term that a lot of the institutional investors using the under living sectors and a lot of them assigned to look at. I want the entire value chain of that. So I want yep. Student, maybe some co-living build to rent, build to sell house and land packages, retirement age care. And because unlike retail or unlike office, which has, you know, ability to be disrupted as we've seen with, you know, online shopping and the like, everyone always needs a roof over their head. Yeah.

Chris Bates:                    Do you think that crossover between yourselves and co-living like I you, I almost the same or are you different?

Adam Hirst:                     So I have an interesting career living. You put five people who are somewhat involved in this area in us, the more co-living is, and they'll all tell you a different thing. When I say co-living, what I kind of comes to my mind is smaller micro apartments with a really great amenity offering. Yup. And then obviously a shared living and yeah, within a technology overlay that that drives community engagement. Yup. Now from what we're doing from build to retrospective, that technology and community over lane services there, the additional amenity offering is there, but we're providing traditionally sized apartments and traditional mix of apartments because we want a diverse community. So,

Chris Bates:                    And people are kicking you, I haven't got this shared kitchen. They haven't got shared no. Like, you know, entertainment areas, et cetera. It's more about yeah, we all live our lives but got a building that we can stay in if we want. Correct.

Veronica Morgan:        It's more traditional model. We understand that better.

Adam Hirst:                     Yeah. Yeah.

Veronica Morgan:        This is a demographic too that you get to a point where you might couple up, you might be single and love co-living maybe, and then you'd cover up anything, you know, I don't want to be sharing my kitchen anymore.

Adam Hirst:                     Yeah. Or you might move country and not know anyone somewhere in car living makes sense for kind of what student accommodation does in a way make sense. You can meet some people and then you might go, Oh, let's go move into the traditional rental market. Yeah.

Veronica Morgan:        And if listeners are interested in hearing more about co-living, go back to episode 80 when we interviewed ed Pharaoh, Pharaoh foun. Yeah, yeah.

Chris Bates:                    I mean they're, they're built around sectors obviously. You know, lots of money will probably flow there. If you, for example, do build a quality product, right? And everyone in that area wants to live in the build to rent. How are companies like Mirvac going to say, we're not going to just increase our rents and then it just becomes a product that's because it's a great product, right? It gives you, you stay there, it's built well, et cetera, which is probably better than the other stuff that's been built. How a Mirvac going to potentially not just keeping up in the rents, keep going for, cause you've got investors who will probably want a higher yield. And the only way to do that is increase your rent. So yeah, it's a bit of a conflict where you know, you build a good product, everyone wants to live there, it's 10 tempting just to keep increasing your rents.

Adam Hirst:                     Yeah, correct. But again, I come back to we're trying to create a sustainable longterm business here. Now. We're not a benevolent society. We do need to make profit, but you've got to get that balancing act right, of looking after your customers, rewarding loyalty and providing value in what you're offering. And then obviously keeping investors satisfied as well. And that's a balancing act that will be continued to do. And if we get into that situation, that's a great result because that means we've delivered a great product. Yeah, there's demand for it. And this is a sector that can take off. And not only is that great for the build to rent sector, but it's great for the affordability of the general market because like situations you've had over the past two years when you've got all of your supply of apartments in one delivery model, it's very volatile and you're seeing it now in Victoria particularly and and new South Wales as well. There's a big under supply of apartments coming if you have a build to rent model sitting alongside that, but this is from a government standpoint, you've actually diversified your delivery of your key piece of social infrastructure, which is housing, which should provide benefits for affordability generally across the market over time as well.

Chris Bates:                    So the elephant in the room is 100% for you.

Veronica Morgan:        The reason that Chris and I do this podcast is because we passionately believe that property buyers can do it better. We really want to help all of you understand all the risks, but also the ways in which you can avoid your elephant making the decisions.

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Chris Bates:                    So essentially you signed, I'm on this a block is people are probably in the mindset as an oversupply in the short term, but they're maybe in the median term is going to be an under supply. What is Mirvac saying of when this is how this transition of, there's still lots of cranes out there now, right? And we're still building a lot, but those cranes are going to go, yep. What's your, how do you foresee it's going to play out in terms over the next few years? And there's a, when we're going to start saying rents, rising, people really worrying about, you know, where, you know, leases and et cetera.

Adam Hirst:                     Yeah. So 21, 22, 23, we starting to see pretty significant under supply. If you look at most of the forecasts out there relative to population growth. So we expect, particularly Melbourne and Sydney, if there was a lot finishing this year is a bit still finishing next year, but ask that there's not been a lot of apartment projects started over the last two years. So expect to see an under supply coming through at that stage which inevitably will likely lead to rent growth and price growth

Veronica Morgan:        Is that sort of rental open houses? Yeah. Like they, you know, had any few years back was crazy and auctions for rentals. Yeah.

Chris Bates:                    Yes. I, and in 2021 22 we start having this kind of under supply. But how do you, how do you, how's that going to get, you know, if, if people don't want to buy new apartments because they're fearful, how, how is he, how are we going to solve that problem, you know, in terms of, you know, not having enough stock.

Adam Hirst:                     Yeah. So I mean, part of it, the answer in our view is built around because you don't need, you don't have to have a big run up of sales to get going to different financing models. So you don't need to go to a bank necessarily for finance. So if you can get that pipeline going, we can start straight away. And there's a number of developers that are interested in doing that. So I mean that's, that's, that's one way. And obviously medium density. And you know, housing in general is also one way and we're starting to see some inquiry tick up in that, in that space as well.

Chris Bates:                    But I like townhouses and correct. And my understanding though that the labor government and the liberal government both had different policies on what they were going to allow tax incentives for things like build to rent. What would the labor's results been better for bill to rent than say what happens?

Adam Hirst:                     Look, it's hard to say will be what would be better or worse from a, from a strict tech standpoint, the labor government was looking to lower, Oh, sorry. Equalize the tax on build Turin for foreign investors with what they pay on office, retail and industrial. That's 15% versus 30% that stayed at 30%. Which has obviously dampens the appetite for foreign investors in the build to rent space. But in saying that with the election result going liberal, you also didn't have anything get negative gearing removed and the like, which you know, would be, would, would seem to be part of the reason that the housing market may have, may have got a little bit more secure posts, which, you know, is great for the economy more generally as well. So it's hard to say, wouldn't it have been definitely better. But yeah, that that income tax piece is a big one for build to rent. The other big one is land tax. So most countries where this sector exists, it's not a progressive land tax system. So a good example is new South Wales. If you were to take a hundred off the plan, I'm sorry, strata departments that are sold to private investors. Yup. And then you take those. So same a hundred departments and make them a build to rent operator will pay five times the land tax bill that the government would have received otherwise.

Chris Bates:                    Well I think as if there are less days where the a hundred million, the development, you know, they've got $60 million of land and have to pay land tax on it. But if that was between a hundred owners each individually under this ratio,

Adam Hirst:                     70% have one investment. 95% of investors have, yeah. Correct. Yes.

Chris Bates:                    So what you need here is the state government to basically say, well, we're going to change the rules here for these build to rent models where we are going to not charge them land tax because we will make money in other ways. I rates, I stamp Judy. Well, not stamp duty.

Veronica Morgan:        Well, I think we're starting to see why it might not be popular for governments to,

Adam Hirst:                     Well, it's an interesting one, right? So what we've been saying to government is this is about an equal playing field, not incentives. So we're more than from bill TRN perspective. We can pay the, the, the most land tax that you would ever get out of this building if it was strata subdivided. Because if we don't do that, there's not going to be any sector. So there's no loss of revenue. Yeah, that's true. Yeah. So it's all adults anyway. It's all attitude. Yeah, yeah. Makes sense. On, on the LandTech side. Yeah. The STEM G sides. Another interesting one where yes, the STEM Judy equation changes, but not necessarily negatively. It just prolongs it. So these buildings will trade just like office buildings do on cap rates between institutional investors. And when that happens, the state government will get stamp Judy on the entire building in one go rather than individual apartments. So yeah, so it's, it's, it's, we've had a lot of philosophical discussions about this.

Veronica Morgan:        Ah, yeah.

Chris Bates:                    Good for the area, right? Like, and so, you know, it's bringing new jobs, it's creating more community. It's solving a society problem where we need this. So, you know, correctly government's gotta be having that mindset as well as I want to make money today for the budget.

Adam Hirst:                     Correct. There's also, there's the economic activity argument, obviously supply sustainability and you know, construction happening. Gross cost of living is an interesting one. So our co-investor in our first asset at a city Olympic park is the clean energy finance corporation. And they came in for two reasons. One was the view is this sector will take off in Australia like it has everywhere else in the world and obviously want to push those that are first movers to have really well designed sustainable buildings that are lowering greenhouse gas emissions. So that everyone else that comes into the sector does similar things but more interested in more interesting in what comes, what flows from that is, and we'll be able to prove this in a year or two, is that because of that design change, the utility bills that actually within these buildings for the tenants will actually be significantly lower than your traditional building because of that, those, that, those designs upfront. So there's all sorts of, you know, positive benefits out of this sector.

Chris Bates:                    Sustainability thing is interesting. Are you let's say flipping from the build to rent to the traditional off the plan house and land or medium density. Yeah, I moved back noticing a massive shift in terms of we're going all out in sustainability. That sort of movement or cause that's what the consumers want or is it still not really happening? Where you're kind of saying, well, we can put some solar panels and all, we can maybe we don't need to go sustainable design, sustainable materials, blah, blah, blah.

Adam Hirst:                     I'd say we're at a point where sustainability is talked about a lot more from the customer standpoint, but they still don't want to pay for it. Yep. So they'll, they'll, they'll, they'll, they'll, if it's going to be inbuilt and doesn't cost anything, then definitely again, what will be, will be interesting with build to rent is we're hoping we'll be able to prove the benefit because we'll be owning these and be able to show, you know, utility savings and the, and the benefits that can come out of it. Then all of a sudden you can make the link that, that link between more sustainable and a financial outcome.

Chris Bates:                    Yup. But yeah, it's funny that we do, humans are like that though, aren't we? We, we care about the world and I like that. But then if it's choosing cheaper option versus more expensive options, it's better for the world. You know, unfortunately, most humans go down the cheaper option and direct. So it's not till you make that, you know, actual, you know, accounting equation, you know better. It's better to buy an electric car because you will actually in the next five years be much better off.

Veronica Morgan:        But even then, it's a delayed thing isn't it? I mean we, we interviewed Cecille Weldon back in episode 62 and from livability and she was positing that, well, you know, tenants in particular demanding more sustainable buildings because their rent bill, their so their electricity bills are so high and they will actually move because of it. And they're talking about rating buildings and rating apartments for instance, for the actual bill costs and the living costs. And, and I'm, I'm still a little cynical that it's push is it push or pull, you know, but it is, is that whole idea about what will people pay for in the short term versus what they want in the longterm. But they that also, or I should say the benefits in the long term. So I was wondering, is there a part of this model, could it be that you've got a building that part of it gets sold to? No. Individuals who want to other investor will live there. And part of it is build to rent and part of it's commercial. Is that sort of part of that multifaceted building that, is that part of this whole thing?

Adam Hirst:                     Yeah, I mean mixed use in general is obviously growing. People want to live, eat, play in the work in the exact same area. And for Mirvac we can obviously play in all those spaces. So it's a logical area that we, we want to do this in. Indigo is a good example. Indigo is actually 700 apartments total. But 380 a build to sell in 315 a build to rent. So there we've been able to, you know, provide option options, opportunity for different types of tenure, which is great.

Veronica Morgan:        And I guess watching how happens as a building ages or as a complex ages will be interesting. Cause I know there's certain complexes where you find people, tenants will try it up. Bill, you know, owner occupies will trade up within the buildings. You know, there, there's communities that develop and, and I know that some developers like to think that they can actually orchestrate and help create that community. But in a way it's the people and it's the flip that what takes a role. You know, it takes a water, a life of its own doesn't it?

Adam Hirst:                     Yeah. I just, I I just got back from the the U S where we're looking at a whole bunch of build to rent you know, assets and mixed use and saw this really interesting one at Essex crossing in New York, which is very similar to what you're talking about. It was, it's about six or seven buildings over the top of an existing marketplace that they gentrified. We've got great food venue vendors and local food vendors in there. You then got a built to sell building with 70 apartments, 14 of them affordable. You then got to build to rent building on top of the markets, which is 30% affordable, 70% market. You then got an office building with condo on top. You've then got an age restricted build to rent building for over 50 fives and then you had a bit of co-living with another condo on top.

Adam Hirst:                     Yeah. And just watching how that can actually work as a community in an offering. It's fascinating to see what you can do once you've got that diversity of offering,

Chris Bates:                    Which is a problem we created where we haven't been that smart in building multifaceted. So type of stock in one area. I a, you know, places where there's lots of one and two bedroom apartments. We pretty much only target singles or young couples. And then yeah, because there's lots of singles and young couples, older generation don't want to live near cause the parties families don't want to be there cause the parties and movement. And so then you end up just creating a whole segment of part of the culture and then there's, you know, then generally it does also suit part different types of cultures as well. And so some pockets of high rise as a very much dominated by one culture.

Chris Bates:                    And then we start stepping away from a multicultural multi age society, which is probably better for, you know, I guess sometimes people's wellbeing I guess. Yeah. Better for wellbeing and better,

Adam Hirst:                     You know, the whole loneliness epidemic. You know, the more closely we live together, the more alone we are is all part of that. In the, a lot of the research we did again on build to rent and we were talking to renters and customers about what they want. A really interesting one that came up was we were talking to, you know, young professionals, young families saying, look, what I'd really love is, you know, I've got two young kids on a Friday. It'd be great if I could go out with my wife and have dinner for two hours. But you know, the, the hassle of, I've got to pay a babysitter for four hours, you know, the of all that out of the office

Adam Hirst:                     Is too hard. We're then talking to downsizers and we were out of the workforce going, we'd really love a way to make some cash on the side, but we don't want to go back into the traditional workforce. So it's, it's got us thinking, we're trying to work out how to, we don't want you, you can't force community, right? It needs to be, it needs to be organic, but how can we throw out a resin, the resin application that we're building kind of enable that so that those connections get made. Because in an apartment building of 315 apartments, there's 700 people. Those types of relationships should be able to be fostered and maybe it's, you know, we want to play tennis. Maybe it's you want someone to go to the gym with. This should be a way to really help drive that.

Veronica Morgan:        It is interesting cause it, it's the building itself and the facilities and everything don't necessarily lend. It needs human interaction in a way to create it, doesn't it? Because you know, you go to these buildings, huge buildings and often go, go to the mini garden pool. Nobody's in there. Nobody uses the pool, nobody uses the gym. And then you go to other buildings where somebody, it's packed. And where is that word of mouth? Is it an individual that's actually gone out there and created, okay, well we're going to do a spin spin club or whatever, you know, I mean, or we're going to have a barbecue and, and, or let's, you know, fill the grandparent age people out there that his, his kids haven't had kids yet and he'd be, you know, you want to go on and get your, your grandchild Phil and get us, get a, you know, a pseudo grandkids or that is not the word. But you know, mine, my daughter's got an extra grandmother. She's not really her grandmother, but she's been like a grandmother since she was born. You know, so we be an amazing relationship. And you can imagine those things being fostered.

Adam Hirst:                     Yeah, correct. And that again, is part of the build to rent model. So on site at Indigo there'll be community manager who's, whose role is to do your traditional, you know, correct. Collecting rent and and all that kind of stuff. But also to curate the community, put on community events, integrate with the surrounding businesses. You know, the good examples that you do in the U S is where, you know, if there's a pizza shop, for example, we put an additional amenity in this in the building. So there's genuinely a commercial type kitchen in a, in a common area. They bring in the local pizza shop and they do a pizza making course and you get to know some people and you also get to know the local community. And things like that. Middle also be leasing staff and maintenance staff on site so that there's a problem with your microwave.

Adam Hirst:                     You take a photo on your app and you go out, it'll be fixed when you get home. So that you do, even though we're, you know, constantly driving down this technology enabled world at the moment, our view, at least on this is you need the two. Yeah. Because some people want that human interaction. Some people don't. Some people just want to do everything through an app and that's fine. But you need to be able to offer both.

Chris Bates:                    I think this is why the problem with a ranching market has been though is that there's been a lack community in these buildings because people aren't really investing in the building cause they know they're only signing a one year lease that might not be there in a year or two. Their sorrows, their neighbor, they're not, no, they're not going to be there in a couple of years. And so the whole building isn't really investing in the building because everyone knows they're not going to be there longterm because most of it are investor owned, very few owner occupies, et cetera. So this is actually allowing people to, you know, invest in their building because they know they can stay if they want to. Yup. Which is a different world too. You know, what's being built. What's your thoughts about all this other stock? They were built for 20 years where you've got like a car that's kind of aging every year. Right. And the new product is so much better that, and it's getting better.

Chris Bates:                    What, why would people even want to live in the older boring, you know, stock standard apartments. Won't everyone just want to move into these new buildings. And so what's going to, it's going to mean for the people who invested in those old buildings where the desirability of them is dropping every year because new, better quality buildings are coming out.

Adam Hirst:                     Yeah. I mean, part of that is people don't necessarily just live in a building, they live in a location. Yeah. So there needs to be access in the area to stock where they want to live, where their families, where their friends are. And part of it is the constrained nature of supply as well. I mean, vacancy is very tight even as it's blown out sort of what, 3% or something in the, in the, in the last year. Yeah. so there's simply just not enough supply coming through you know, to, to, to, to, to provide that opportunity for there to be a complete shift shift.

Chris Bates:                    Yeah. It's going to be a gradual thing. Yes. But generally speaking though, it's, you know, those newer buildings are going to rise to the top and the stuff that, you know, good Mirvac building's going to say for example, rise to the top within that. But cause they're gonna you know, still be well-built, little still got, you know, nice design to them, et cetera. Still got a lot of owner occupiers who liked that building. So they'll survive. But then you've got potentially a lot of the developers that I invest in a poor every year, like they're not going to be as desirable. Right. So you've gotta be, I guess careful if you own those buildings because there's nothing going to turn them around.

Veronica Morgan:        True. But that's been, it's still a problem now without the build to rent to worry about, you know. But I am interested because Mirvac clearly builds stock for investors as well. I mean, you'd want to have a mix of investors buying a new buildings. Is that some, is this in some way cannibalizing that part of your market?

Adam Hirst:                     Hmm.

Veronica Morgan:        But why would an individual want to buy an individual apartment to invest if it's next to a building that's full of build to rent?

Adam Hirst:                     Yeah, I think they're different. They're ultimately different products, right? So obviously when you know human nature, if you look at something new, you try and link it to something that you know. So everyone initially when built starts happening, they'll compare it to traditional rental. But ultimately it's a different product. It's different designs, different management model and probably will end up with a different customer. And you look at the U S it's been around.

Veronica Morgan:        As in a different type of tenant.

Adam Hirst:                     And you look at the U S and it's been around 50 years and the build to rent market is still on the 12 to 13% of the entire rental market. Is that 88% of it is still mum and dad investors. So they, they exist together. They're just different housing choices in one big continuum.

Veronica Morgan:        How do you envisage the customer or the tenant will differ? So what type of tenant typically might go for a bill to rent versus for a more traditional apartment? Maybe in the building next door.

Adam Hirst:                     Yeah, it's, you know, it's, it's hard to know at this stage because it's all, yeah, it's all theoretical. It'll be very dependent on location as well.

Veronica Morgan:        I want to get to that too because what, one of the things that makes it more affordable for the investor's point of view is obviously a cheapest site, right? So cheapest sites that could be suburb or it could be within a suburb, could be a lesser or further out suburb potentially, you know, a couple of stations away or, and you know, I hear a lot of people would talk a lot about implanters. Talk about this. Oh, you know, families love to live above railway stations. We've heard a few people say it on the podcast actually. And it does make me laugh cause I think, you know, yes it's convenient and yes, your commute cut down, but you know, it typically it's cheaper land, you know, noisier locations and all that sort of stuff. Is, is there in the model, is it, you know, how does it differ? I mean, what sort of sites are chosen for this model? Do you think versus what might be chosen for the build to sell model?

Adam Hirst:                     Yeah, so what we're selling is, you know, simplicity, flexibility and you know, connectivity and the connectivity bit is really around that connectivity to people within the building but also connectivity from a transport point of view. So what we're really looking for is within really close proximity to non road based transport. We're at wherever we're looking, we're looking obviously for the demographic backdrop that is already high rental good income growth, solid jobs within that, within there. And generally what we're finding is that that tends to be younger demographic areas. And then really from that it's comes down to where we can make it work because it's still difficult to make build to rent work. If you take it a straight piece of land and you have a build to sell developer and a build to rent, develop it going after it, the build to sell developer will be able to pay more every day of the week. So it is, it is still tough to make them stack up at the moment.

Veronica Morgan:        Yeah. And your yields are based on what? Because like for instance, in a build to sell, they're going to build it. They're going to work on their margin and sell it, right? Yep. Then that person buys an individual apartment, rent it out, and you know, they might have a guaranteed year of guaranteed rent, which we do not advise to go for people, but you know, and then there's whatever yield that is. Right. But that's based on an inflated price because you're paying a builder's mile, a developer's margin. Whereas in your situation, your, I presuming you don't have the developer's margin built in there. It's a different price modeling, I would think, or cost structure. So how has a yield, you know, calculated?

Adam Hirst:                     Yep. So we're looking at basically a yield on cost you can put there. Right? So we're, we're targeting based on what will actually cost us to build that building land construction cost financing, everything. Yep. Well, what yield can we get out of that based on rents in that area?

Veronica Morgan:        It's going to be higher than what the standalone apartment and the building next door would get.

Adam Hirst:                     Yeah, correct. Correct. Because your cost base is different. Yeah, exactly.

Veronica Morgan:        You got that land tax and stamp duty.

Chris Bates:                    It's, yeah, they've got to also have some type of profit in there because things go wrong. Right. Liking you have cost blowouts and yeah. You know, so a lot of developers are on paper. It looks like it's going to be a very profitable project, but it doesn't take much for that to actually turn around and actually all your profit to go, whether you know wages, you know, et cetera. So you've got to still be building it for a profit. Yeah.

Veronica Morgan:        So just saying they don't, I'm just, it's just interesting to know because one of the issues you mentioned earlier was like the common in the UK is that that low yield, I mean we do have low rental yields in this country, so it as, because it's a for a business and you've got to get income out of it and you've got to get higher than you three and a half percent that there are a lot of investors are getting because they're getting the upside of capital growth to offset that. Whereas in this case, you're not looking at capital. It's not a capital growth play. They didn't come play. So

Adam Hirst:                     Yeah. So the way this model really starts to work then is, and the question is we're building for a yield on cost. What is the cap rate that investors will pay for, you know, fully let build to rent building. Yeah. So we've done a lot of work looking at how cap rates act, act on build to rent relative to office and retail globally. So we've got a view on where that will end up being. Uand the question is, once we build it is, is that where they, where they will be with we think, yes, they've.

Chris Bates:                    Probably been a few years ago, but now that the world's in very low rates and very stuck are there, well that's the, you know, the consensus views that interest rates and returns also based on that and also going to be subdued. And so buying a 5% yielding apartment block that potentially should rise with wage growth or what inflation. Yeah. It's not a bad investment in that low growth, low wage, low EMF interest rate world. Correct. Go back to 2010 11 fast moving stock markets, et cetera. Yep. Not interested. So maybe the world's are also going the right way. Is that what you're saying?

Adam Hirst:                     It's also the risk adjusted nature of it now that people had talked about the GFC and the performance of the asset class. Now that investors understand how defensive it is in terms of an entire portfolio allocation, it makes a lot of sense to have a portion of it. You know, in a defensive asset class like this and you can put the right that bond yields coming in, rates of return requirements coming in is a lot of the reason why this sector is signed to get a lot more traction. Now the key will be, which I think will happen now, is getting enough proof over the next few years that the sector works before. If they do rates go back up again. Because my view is once you prove it and people understand it, then you don't need that low year environment to get it going because people understand it. But you do need that to get it going.

Veronica Morgan:        And you'll have people wanting to invest in thinking 3% yield is good race to the bottom. Isn't it?

Adam Hirst:                     In London build to rent schemes on, you know, the institutions are taking out a generally three to three and a half percent cap. Yeah.

Chris Bates:                    Not much. The, I'm going back to the labor versus liberal thing I didn't, you know, in terms of a lot of Australians thought that, you know, the labor policy around stopping negative gearing but also encouraging people to buy new, to get tax advantages. A lot of people thought the developers really wanted that. They were supportive of the labor policy cause it would have created more demand for new property. Was that kind of Merv acts view that, you know, if the negative guarantee go on, people can only buy knew that it was actually good for developers or did a lot of developers think it didn't actually cry? It wasn't actually a good idea.

Adam Hirst:                     Look, the key for this is stability of policy, right? For any investor, whether it's a private or an institution, you need stable policy from government so you'd know exactly what you're in for and what your returns could be. Yup. So any uncertainty in that is not good regardless which way, which way it goes. So what we're happy about is now clear stability policy from that standpoint. And now we'll see with, you know, the changes on the financing market seemed seeming to own wound weather that then flows through to measurable transaction evidence and then in the next few years what.

Chris Bates:                    Was there I'm forecasting cause I imagine at that point in time that it was likely that labor we're going to win. But had Mirvac done forecasting on what they believe, what you believe that you would sell more if we went down the stopping negative gearing route or if we kept things as they were, was there, you know, kind of behind the scenes, was there a feeling that we would go either way?

Adam Hirst:                     No. Like, you know, we were, we weren't forecasting different scenarios based on an unknown outcome. It goes just to, you know, politics is, it's too uncertain.

Veronica Morgan:        Well, yeah. Well I guess changing direction in your businesses be like turning around the queen Mary, isn't it? I mean it's like the election would come and go before you were able to change any direction that you'd already set in place.

Chris Bates:                    Every week we hear incredible stories of the dumb things. Property buyers do, dumb things that end up costing you a whole lot of money and or a whole lot of stress mistakes that can be avoided. Please. Adam, can you give us an example of a property Dumbo? We can all learn what not to do from these stories.

Adam Hirst:                     I do have a Dumbo boy. It's a, it's, it's my own one.

Veronica Morgan:        Oh, it's solid. Brave man. Go for it.

Adam Hirst:                     So about have being two and a half years ago and then my one son who was one and a half and my wife heavily pregnant, we thought it would be a really good idea to buy a terrorist that had three levels and a whole lot of stairs. We convinced ourselves that we'd be able to buy it and you know, make it perfect for us. We moved in basically top of the market, moved in four weeks in. I don't live here.

Veronica Morgan:        Oh wow. My talk about a lot of buying without regrets and that same very quick turn around and wow.

Adam Hirst:                     What it led onto was a great case study in some of the inherent issues in the rental market because we're now about to move to our fourth property in two years. Wow. Because we were in one that was great and we had great managing agent, but then the owner wanted to move back in. We then moved to another one that had a an issue with slugs that the sluggish shoe, yes. They were coming into the house. Wow. They told us that they weren't going to fix it. We then found them all over the all over the prem and they can be very dangerous for kids. So we said, we're moving out. They said, great, we're going to take you to the tribunal. Oh, we said fine. They then go, yeah,

Veronica Morgan:        Wait, what's the move? Was he is, can I ask

Adam Hirst:                     They then they then said, okay, we won't take you there, but you've got five days to move out. And then so we, so we quickly found some way, which is a great apartment, but it's not, cause we only had five days. It's not in an area that we need our family or anything. So now we're finally moving back to an apartment that we, where we want to live.

Veronica Morgan:        Those terrorists. You rented your terrorists out? Yeah, a pretty good Dumbo.

Chris Bates:                    What was it about the terrorists though? Obviously the young kids and the wife was pregnant so she didn't want to do the stairs and things like that. What was the other thing that made you think that you couldn't live here though?

Veronica Morgan:        Can we wind back? What made you think you could live there? You had one and a half year old and a pregnant wife. There must've been something going on then.

Adam Hirst:                     Yeah. You know, it will still, as Zane out, my son was only one and a half. We lived in the terrorists before that for six years. We were still living in the dream of young professional think Dean foiled, making a decision based on that. And then it kind of hit us pretty hard when we read the third level that killed you in the terrorists, like adding and having gay that cause you're in a terrorist before. So what made it like Ashley and I had stay was the stairs. It was the steepness. It was the steepness of the stairs. Look running after one, running after downstairs running after one running after one kid is a lot different to running after two kids.

Chris Bates:                    Ah, okay. Yes. And you couldn't section well. Yeah. And then it was two smaller living area downstairs. Yeah. Okay. Well wakes. Wow. It's interesting though, like is it really,

Veronica Morgan:        I mean, I don't mean great Dumbo because you, we do try to talk ourselves into things and we do just gloss over, you know, what we don't know. You know, and we do that in our business. We often people at one stage of their lives, you know, they don't know what's coming, particularly with kids, you know and each, as the kids grow, it changes as well. And that's fascinating.

Chris Bates:                    Yeah. Well that is the hardest thing, right. If you, you know, I'm going down that journey, wife's two in a few months, you know, it's kinda, you know, what's the property going to suit us as a people and what we want out of a property and the lifestyle, but then what's also going to suit the practicalities of having a family and maybe it's two, not one. And yeah. And, and it's so hard to do that, how to see the challenges of what you're going to have in a few years. Correct.

Adam Hirst:                     My biggest recommendation is single level apartments are amazing with kids.

Veronica Morgan:        Yeah. Single level yeah. Yeah. That whole, you know, see everything from the kitchen, you know, visibility. They can go in and out and

Adam Hirst:                     On a Saturday, if they wake up early, you can get them out of the cot and you can still go back in line bed and know they're not going to kill themselves. Falling downstairs,

Veronica Morgan:        A bath tub close to the kitchen, all these things. Oh my God. Wow. And so interestingly enough too, because you don't buy a house or home without having all sorts of dreams about living in it and being there and the family growing up and all the rest of it. So now you've sort of had to park that dream of your own home ownership. I mean, you own a property but it's not the same as home ownership is it? And so I guess how is that each being so sweet? Cause you must still have it.

Adam Hirst:                     Yeah. So the itch has been scratched. I'm preparing a da for it at the moment. So that we can hopefully turn it into something that we can move back into. Now. The kids are getting older and can walk up and down stairs. Yeah. That's the plan.

Chris Bates:                    Well, I imagine if it's a three level time rationalizing market's obviously recovered quite a lot in the last six months. So I imagine if that's in a Semina ring location, you would have seen it while there would've been a bit of a dip in 18. Like you're saying what you paid, what might be back to what is, you know, kind of noticed that that's been a bit of a journey with that. Yeah buddy.

Adam Hirst:                     You know, agents are calling a lot at the moment but the cool with this spring selling season and it's going pretty bonkers for existing stock.

Chris Bates:                    The markets potentially, you know, being a bit more forgiving cause you've probably bought a quality asset here and you and you were able to ride out the wave or going and renting all your costs.

Veronica Morgan:        Like you know, you,

Chris Bates:                    Well he hasn't lost the on the shoulders so it's probably gone back to what it was worth. And so it hasn't been a bad financial decision. Yes. You have it for lots of remove less.

Adam Hirst:                     Thank you. Thank you for reminding me of that.

Veronica Morgan:        Adam, thank you so much for sharing that. Dumbo with us and also for your time and, and information is quite insight. Insightful in terms of the layers of this and the things to consider and the fact that a movie is, you know, one of the pioneer or an Australian pioneer, I guess in this area. And I guess watch this space really, isn't it?

Chris Bates:                    Yes. I mean I ended the day, I think if we come back in 10 years time, everyone will know build to rent and on, they'll know someone who lives in a build to rent. So it's just that I think we're at very early stages, so it's good to start the discussion. Yes. Thank you for having me, Joseph.

Chris Bates:                    We want to make you a better elephant rider. And this week's elephant rider training is,

Veronica Morgan:        Let's talk about scarcity now. It is build to rent model takes off. What it is going to do is really going to make individual investors who continue to want to invest in individual properties. It's really going to drive a smart investor towards scarcity. And so in much more so I guess then, I mean we recommend it now anyway to be quite Frank. So the reality is if you are going to be buying an investment apartment, you know, in my business we would recommend you buy in certain areas, in certain types of buildings, et cetera, et cetera. We definitely would invest. It would recommend that you are looking at buying a long way away from where there is oversupply. So currently there's over supply in terms of investor stock right now, tenants like brand new no. These properties that are brand new don't stay brand new forever.

Veronica Morgan:        So of course over time, you know, it all gets absorbed into the marketplace and whatnot. But when they're brand new buildings and when there's a constant supply of brand new buildings, then that can impact on your yield, right? And then we never buy for yield. But that is an important thing to understand that, you know, if you can get better yield and good capital growth, then you want to go for that, right? So the scarcity side of things is really going to become even more important when you've got entire buildings or entire sections of buildings that are specifically built to rent and will be rented out for decades. What often happens in a building now, if it's not so much investor stock, but even I guess with investor stock, ultimately you get some resales investors get to a point where they're not getting the returns that they want.

Veronica Morgan:        Life gets in the way, they decide they need to sell to free ups and cash, whatever it is. As the buildings, as the apartments within a new building over the decades, they start to get resold and even if they have been predominantly sold to investors, you'll start to see owner occupies, move into buildings and they start to develop a flavor and a sort of character and a community of their own. There's no real design behind this. Some of them are good, some of them not so good. So when you've got a build to rent building, it's, it's never going to go through that metamorphosis. And so when you're buying an investment property, you want to be very careful that you're not going to be buying anywhere knee, where you're going to have a constant supply of rental property to compete with yours. When you go to rent it out.

Veronica Morgan:        Now you want that scarcity for both the capital growth and the yield. And so that's one of the reasons why I live for argument's sake. One example is some art deco apartments. Well they're not being built anymore. You know, new apartments don't look like art deco apartments. There's, they're very small blocks. They've got character, they've got charm and then the location in which they're, they are offers certain amenities as well. So I mean that's just one example of that sort of property that will always retain scarcity for both owner occupiers and tenants. Over time. You'll get it if a certain type of tenant, cause the inference in this conversation with Adam was it around that there's a potentially a demographic change or difference between those that will go and seek out a living in a build to rent type building versus those who would seek to live in other types of apartments and other locations.

Veronica Morgan:        So as that takes shape, because as he said, we don't really know how that's going to take shape, but as they take shape, you know, the inference being I think higher income tenants may not go down that path. So I think for looking at investment now, if you're buying for now, you are going to be thinking, we hope you're thinking about 10 years in the future will in 10 years time build to rent could be very, very prolific in these cities. So we want to be buying now with a view to avoid and the competition that those sorts of buildings can offer or potentially offer in the future.