Labor proposes slashing build-to-rent tax to provide cheap rent for Aussie families

Analysts say Labor’s to cut negative gearing will drive up rent, but the Opposition has a big tax concession in mind to help ease the burden.

The Labor Party is offering a tax concession to kickstart a build-to-rent market in Australia which it says will lower rental costs by encouraging institutional investors into the sector.

Halving the managed investment trust tax from 30 per cent to 15 aims to balance the impact of the proposed changes to negative gearing and capital gains tax many analysts say will weaken the housing market and drive up rent.

RELATED: Labor’s negative gearing changes will raise Brisbane rent by nearly $5000

RELATED: Despite falling house prices, landlords are raising rents across Australia

The scheme would encourage the development of affordable properties to provide a long-term housing solution, shadow treasurer Chris Bowen said.

“Build-to-rent provides more stable long-term tenancies and more housing in desired locations close to public transport and close to employment opportunities.”

The plan will half the tax rate for managed investment trusts from 30 per cent to 15.

WHAT IS BUILD-TO-RENT?

As the name suggests, build-to-rent consists of developers constructing property but instead of each dwelling being sold off to individuals, the company would hold the assets and earn return through renters.

The concept is popular in the United States, realestate.com.au chief economist Nerida Conisbee said.

“We have a few small projects that have got up and running but almost all of our rental housing is supplied by mum and dad investors,” she told news.com.au.

“Anyone who’s renting in Australia is more than likely renting from an individual investor rather than from a company.”

Ms Conisbee said there’s a lot of interest to invest in build-to-rent.

“Australian super funds invest billions of dollars in build-to-rent in the US but nothing here,” she said.

“It’s something that big holdings of money, including our super funds, are interested in.

“A lot offshore groups are also interested.”

The Shadow Treasurer says build-to-rent is a stable solution for renters.

WOULD IT WORK?

Mr Bowen insisted build-to-rent developments would offer a solution to families whose home is dictated by the motives of individual investors with the power to kick them out at short notice to sell and collect a profit.

“Boosting affordable and stable rental accommodation has a double dividend — it is critical for Australia’s 2.7 million renters that can’t afford to buy a home or are saving to do so, and it boosts construction jobs and economic activity,” he said.

CoreLogic research analyst Cameron Kusher said the concept hasn’t been an attractive option in Australia because rental returns are so modest.

Low rent yields have led investors to focus more on the capital gain of a property.

“There’s been a lot of talk about it for a while now,” Mr Kusher told news.com.au.

“It’s never really been done successfully in Australia but with a greater proportion of people renting long term, they want some certainty and build-to-rent potentially offers that.”

But he said increasing rental yields and lower borrowing costs combined with the proposed tax concession the Labor Party is proposing make build-to-rent an attractive proposition.

“It will still be difficult to get up because it’s brand new and hasn’t been tested in Australia,” Mr Kusher said.

“The other point is there’s no guarantee a big corporate owning a building and renting it out is going to be a better solution than a mum and dad investor, but we’ll have to wait and see if that’s the case.”

Ms Conisbee said the scheme would be vital for the health of the property market given the highly contentious plans to change negative gearing and the capital gains tax if Bill Shorten becomes prime minister.

“What’s happened in Australia is that we’re relying almost 100 per cent on mum and dad investors to supply rental housing,” she said.

“So if you introduce changes to discourage investment in rental properties, then you need someone else to pick up the slack.

“This is one way they’re looking to do it.”

Continue the conversation on Twitter @James_P_Hall or [e-mail]