Co-Living is Winning on Yields; Planning is Another Story Entirely

It was touted as the next frontier of the living sector, a nimble and affordable answer to the key-worker housing conundrum in our capital cities. But co-living is being held back. Not by demand, design or capital, but a planning system that really only enables the asset class in one state in Australia. BDO project and infrastructure advisory partner Luke Mackintosh says demand for co-living is well-established. But planning has not kept up with that demand. “It really only works in New South Wales, under the boarding-house planning pathway, which allows for boarding-house-type rooming,” Mackintosh says. “We’re not seeing it as much in Victoria or in Queensland or in other states. There are pockets of it, and developers are trying to make it work, but they can’t really get the design right [under current planning constraints].” A patchwork of workarounds The core problem, Mackintosh says, is that most states outside NSW have no planning pathway purpose-built for co-living. Victoria’s apartment design standards make the format’s signature 25sq m studios difficult to get over the line as standard residential product, so developers have instead been forced into a workaround: converting serviced apartment permits into co-living schemes. That workaround comes with a catch. Serviced apartment permits typically cap stays at three months—well short of the roughly nine-month stay that makes the co-living model work operationally and financially, according to Mackintosh. “So they’re sort of changing that into co-living … but it’s very difficult to stay for 12 months because of the requirements under the legislation,” Mackintosh says. “They can’t be the permanent place of residence.” In Queensland, a different kind of workaround has emerged: products that function as co-living but are classified as “rooming accommodation” to clear planning hurdles. “But rooming accommodation implies there’s no kitchen—it’s just a room,” Mackintosh says, “whereas co-living is a step up from rooming house.” ▲ Arklife is extending its push into Australia's fast-evolving living sector with plans for its debut co-living development in Brisbane, Little Constance. Mackintosh says co-living sits a rung above boarding-house product: apartments include a bed and cooking facilities, with laundry, co-working and communal amenity shared across the building—closer to a scaled-down build-to-rent offering than a rooming house. But the scale is much smaller than the likes of build-to-rent, averaging between 50 and 80 rooms. Tax treatment: an unlikely advantage Where planning has held co-living back, tax treatment has quietly worked in its favour, according to Mackintosh. Because co-living is classified as commercial residential premises, operators can claim input tax credits on costs and remit only 5.5 per cent of rent as GST. “The only leakage around GST is 5 per cent off your revenues,” Mackintosh says, whereas build-to-rent gets no such concession. Build-to-rent is let under standard residential tenancy arrangements rather than a licence agreement; its GST costs aren’t creditable, which means developers are instead hit with an effective, unrecoverable cost at settlement. “You’re taking 10 per cent out of the gross value, which is in effect more than the development profit of the actual asset itself,” Mackintosh says. The Property Council of Australia has been campaigning for Australia to adopt the Canadian model, where a build-to-rent product can be sold as a going concern and treated as a fully input-taxed supply. Why scale has lagged behind build-to-rent Co-living’s planning constraints have also kept it well below the scale needed to attract mainstream institutional capital. Boarding-house product has traditionally run to five to 20 rooms; co-living projects today typically land between 50 and 80 apartments—few are more than 120. ▲ Cox Architecture’s rendering of Building C, a 12-storey co-living building with 266 rooms proposed for Urban Property Group's Wollongong gasworks precinct. Institutionally backed build-to-rent tends to be at a much grander scale of about 350 apartments. “It’s always been too small for institutional investment,” Mackintosh says—though that’s beginning to shift. He points to a 400-apartment project under way in Brisbane and a 350-apartment scheme in Sydney as early signs of co-living scaling toward build-to-rent sized delivery. On the operating side, a handful of names still dominate the sector. UKO is the dominant pure-play operator and doesn’t develop at all. Pelicano stands out as one of only a few genuine operator-developers in the space, running build-to-rent, co-living and build-to-sell side by side. New entrant Weave Living is starting to bring institutional capital to bear on its own projects, while most developers, Mackintosh says, are reluctant to move into management because “they don’t have systems”. The yield case Despite the friction, co-living’s returns stack up attractively against its living-sector peers. Mackintosh puts core build-to-rent yields at around 4.5 per cent, co-living at 5 to 5.25 per cent, and student accommodation, which is perceived as higher-turnover, higher-risk, at 5.5 to 5.75 per cent. “Co-living sits as an asset class in between build-to-rent and student accommodation,” he says, and he isn’t expecting compression any time soon given the current rate environment. Source: BDO's A clearer pathway for growth and institutional investment Co-Living report. That yield premium, combined with the affordability story, is starting to draw institutional attention regardless of the planning drag. Mackintosh says interest from groups such as PGIM shows larger balance sheets are circling. “At the end of the day, if you’re a living-sector company, you want to look at not only build-to-sell, but co-living-type assets as part of the stable,” he says. A deliberately vanilla product Design-wise, co-living isn’t trying to be aspirational. “It’s pretty vanilla—you can’t do much with 25sq m apartments,” Mackintosh says. Shared laundries, minimal car parking, communal co-working space and a balcony are about the extent of the amenity offer. “There’s no floor-to-ceiling glass facades. You save cost, but it is an affordable product, targeting the key worker market.” ▲ A street-level rendering of Scape Waterloo, where a former light-industrial auction house site would become a seven-storey co-living scheme. That affordability is the whole thesis. Mackintosh says co-living studios are aimed at workers earning between $80,000 and $90,000 a year—very much the “key worker” cohort that has been priced out of $800-to-$900-a-week one-bedroom build-to-rent product in the same inner-city, transport-connected locations. “It’s a very nimble product,” he says, “close to transport nodes, heavy transport infrastructure”—and well suited to modular construction given its small, repeatable floorplate. The constraint is planning, not appetite Asked directly whether easing planning settings in Victoria and Queensland would trigger a flood of new supply, Mackintosh says it will not be an influx; rather, Melbourne- and Queensland-based developers will pursue projects and find institutional takeout partners once they’re built. But the ceiling is visible. “It’s really around planning,” he says. He points to a project his team is working on near train stations in Melbourne that would have been delivered 12 months ago “if we could get the planning for it. It’s really hard to get the planning for it.” For a product that already clears the harder hurdles—yield, affordability, tax treatment, institutional interest—planning inconsistency between the states is now the single biggest constraint standing between co-living and its next stage of growth. Want to know more about co-living? Watch our on-demand webinar that tackles the key issues facing the nascent industry .

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Taryn Paris
Wed 23 Sep 26

Co-Living is Winning on Yields; Planning is Another Story Entirely