Houses are the solution to the rental crisis, not punishments | Bruce Djite

Laws that would dictate what you can and cannot do with your own property are not the solution to the housing crisis, writes Bruce Djite.

It’s that ingredient that drives a football player to take a shot at goal.

It’s also what compels someone to invest in the property market.

If someone has confidence, they take a shot, they have a go!

If they don’t have confidence then the market comes to a standstill. They pass on the opportunity.

Just like a football game, potential investors will hedge their bets or slow the game down.

More than 80 per cent of Australia’s residential rental property is supplied by ‘mum and dad’ investors.

Their confidence is vital to the ongoing supply of rental housing.

But that confidence has taken a hit.

There is a big problem – the cost and risk of supplying rental property has materially increased.

Potential investors right now are weathering higher interest rates and a significant decrease in their borrowing capacity.

In addition, the perceived risk of being able to affordably hold investment property has increased with some members of the political class suggesting punitive measures like rent capping.

This kind of policy encourages investors to convert their rental properties into short term accommodation – but then they also want to tell you that you’re not allowed to do that either.

So, what happens?

Investment slows. Play stops.

The refs are blowing the whistle for play to continue but the players are tired … stuff this – too hard.

The redevelopment of former Bus Station site at 111-129 Franklin Street will include build-to-rent components.

Consequence one – much less rental stock. Consequence two – the cost of renting skyrockets.

There are not enough apartments, townhouses and houses and there is a tremendous amount of competition for the small amount available. Supply and demand. Economics 101.

Housing supply is the only answer to the housing affordability problem.

Politicians suggesting laws that would dictate what you can and cannot do with your own property is fraught and certainly not the solution to the housing crisis.

Thankfully in South Australia there is some light.

We have seen and welcome the State Government announcing several large land releases and new housing developments.

While these announcements are critical to future supply, what about measures that will likely make a difference now?

Last week the Federal Government, with the backing of the States, announced that they will lower the Managed Investment Trust withholding tax rate from 30 to 15 per cent for build-to-rent housing projects so it is now similarly taxed as investment in other asset classes.

What does this tax change mean? In short it means there is now an incentive for institutional investors to develop and manage housing purely dedicated to renters.

Build-to-rent or BTR is a funny name but a very serious part of the solution to the rental affordability crisis.

BTR is a massive asset class in overseas jurisdictions and as close to a policy silver bullet as they come but it is only just getting started in Australia.

Removing the tax hurdles that acted as investment constraints for build-to-rent is a way to turbo charge the supply of rental stock in Australia without just relying on mum and dad investors to do all the heavy lifting for the market. It will also alleviate the strain on Governments to build taxpayer funded housing.

It is a way to get big institutional players to contribute to a social good by funding, constructing, owning and managing purpose-built rental stock that gives renters more certainty, choice and flexibility in where and how they rent.

It will in time take the pressure off the vacancy rate because it complements the conventional rental market.

A recent study by EY, commissioned by the Property Council, showed that by levelling the withholding tax rate, an extra 150,000 Australian rental properties could come online over the next decade.

The Property Council has championed this idea for many years as an essential part of addressing our growing national housing supply deficit.

In March, build-to-rent company Sentinel announced it will develop South Australia’s first project and so this announcement will inject further investment confidence into this innovative sector.

Indeed, the State Government and Adelaide City Council this week announced that Renewal SA would lead the development of the Franklin Street Bus Station site by building two apartment towers with significant affordable housing and build-to-rent components to support an increase in CBD population and support key workers.

With a future economy in South Australia shaped by AUKUS, a university merger and the embrace of the renewable energy industry, Adelaide will need to be able to support significant population growth so announcements like these are crucial to moving the dial on housing supply and choice.

In addition, investors, developers and the construction industry will require confidence to be able to constructively work with all levels of Government through planning challenges.

This will require Councils to resist the urge to preserve the status quo and enable a shift towards high amenity, high liveability, medium density metropolitan living supported by great infrastructure and public transport.

This will increase their rateable base, a preferable revenue generation approach than lazily raising rates which would substantially dampen investment confidence.

Confidence is key. Without it we don’t have a shot.

Bruce Djite is SA Executive Director of Property Council of Australia