Coalition unites to protect build-to-rent industry and build 105,000 new homes

The traditional foes have teamed up in an effort to break a political logjam holding back the emerging build-to-rent sector and worsening the housing crisis.

A powerful coalition of the peak property body and community housing organisations has joined forces in an effort to break the logjam holding back the nation’s build-to-rent industry, saying they would spur the development of 105,000 new homes.

The rising sector has the potential to become a key part of the solution to the country’s worsening housing crisis, but uncertainty over new laws which would apply to the area has held back investment and could leave existing projects stranded.

Government plans to bring more offshore investors into the sector by cutting taxes which apply to the projects have been delayed in the Senate due to opposition from the Greens and the Coalition.

The government has proposed cutting the tax rate from 30 per cent to 15 per cent for Managed Investment Trusts which operate in the sector, but has been met with opposition over concerns it would be handing concessions to property developers.

Developers and international investors have warned, without changes to regulations, new capital will dry up as returns will be unattractive on a global basis and, despite billions of dollars being committed to the area, fewer projects would actually go ahead.

The Property Council of Australia has teamed with not-for-profit bodies the Community Housing Industry Association and National Shelter to propose a new model to ensure build-to-rent projects are both viable and have an affordable element.

They said planned laws need to be improved to provide tax settings to encourage the growth of build-to-rent housing and also better target requirements for 10 per cent affordable housing in the specialist projects to ensure those who need it most can benefit.

Modelling by EY showed tweaking the rules could result in 105,000 rental homes and a minimal cost to the government of $9.3m over a decade.

The powerful trio said the definition of affordable tenancies in proposed laws should be changed to ensure they are available to moderate income earners with at least 20 per cent of the affordable tenancies available to low-income earners.

These homes would be subject to income eligibility limits, so rents are the lower of 74.9 per cent of market value and 30 per cent of household income.

Landlords would also be required to support tenants who move from low-income to moderate incomes and would also not charge renters of affordable homes for luxuries like gyms or swimming pools.

They called for the government to revise the managed investment trust withholding tax rate concession, which applies to offshore groups in the sector, to 10 per cent in order to ensure a level playing field with domestic super funds now coming into the area.

The groups said the changes were necessary to provide affordable tenancies targeted towards low and moderate income households.

“We support the same tax settings for international and domestic investors. Both groups have publicly stated the need for one another in a functioning deep market,” they noted.

Under their plan, affordable tenancies would be managed in partnership with registered, not-for-profit community housing organisations. They also called for rules to be changed to immediately unlock more than 1200 affordable tenancies by extending the 10 per cent MIT withholding tax rate to existing projects.

The Richmond Traders building in Melbourne, housing Home’s properties, owned by the build-to rent company controlled by Daniel Grollo. Picture: Supplied

The situation is urgent partly as the Rudd-era National Rental Affordability Scheme comes to an end, meaning up to 6750 properties will cease to be affordable under the scheme between April and December this year.

“There is therefore a strong imperative to unlock affordable rental housing as soon as possible,” the groups said.

They also called for build-to-rent operators not to use ‘no cause’ evictions — which have just been banned in NSW — in order to qualify for the favourable tax treatments and for them to offer five-year lease terms.

“The requirement in the Bill to provide 10 per cent of dwellings as affordable tenancies in at-market build-to-rent projects must be balanced with tax settings that will still promote and not deter investment. The current Bills do not do this,” the Property Council said in its submission to the inquiry.

“We desperately need more rental homes in Australia, both affordable and at-market. It is possible to retain the requirement for 10 per cent affordable tenancies and still deliver on ambitious and necessary housing targets, but the cost and complexity the requirement introduces must be balanced with tax settings that will encourage the growth of the sector,” the Property Council said.

The peak body said new laws must include assets operating or under construction when the Albanese government announced its plan to cut taxes.

It warned, unless laws were changed, 12,420 rental apartments across about 22 projects would effectively become “stranded assets” subject to higher taxes than newer developments.

“It will wrongly penalise early investors in Australia’s build-to-rent sector and repel a deep pool of patient institutional capital away from Australian housing to other housing markets where settings are inductive, such the US, Canada and the UK,” the PCA said.

Big operator Home, which is run by construction scion Daniel Grollo and backed by Singaporean fund GIC, supported the government’s intentions to stimulate institutional interest and investment in build-to-rent housing by equalising MIT withholding tax rates across asset classes but warned changes were needed.

“In their current form, the Bills will not drive the quantum of institutional investment required to meet the supply of desperately needed rental housing in Australia and truly address the current housing crisis,” Home said.

Originally published as Coalition unites to protect build-to-rent industry and build 105,000 new homes