Studies by the Property Council of Australia indicate that federal government support for build-to-rent (BTR) investment in the upcoming Federal Budget could create a further 150,000 new apartments in the wake of the country’s housing crisis.
Undertaken by EY, the study demonstrates that a level investment playing field – equalising the tax regime for managed investment trusts with other institutional asset classes – could see the 150,000 new units created within a decade, assisting the government’s targets of one million homes by 2029. The entirety of the build-to-rent market is valued currently at $16.8 billion, but has a potential to grow into a $290 billion sector, which could see up to 350,000 new homes constructed in a best case scenario.
“With a 79,300-home deficit to 2033, Australia needs better planning, more land supply, proper housing targets and a national strategy on build-to-rent and purpose-built student accommodation,” says Property Council Chief Executive, Mike Zorbas.
“The potential to create 150,000 homes over the next 10 years with just one asset class shows build-to-rent is about as close to a housing policy silver bullet as they come.
The report makes five key recommendations, including applying a 15 percent managed investment trust withholding tax rate for foreign investors, a 10 percent rate for affordable housing, allowing institutions to claim GST, promoting the sector, and addressing the regulatory barriers for domestic superfund investors.
“Australia is grappling with a worsening housing affordability crisis where state governments miss their housing targets and planning systems fail to keep up,” Zorbas continues.
“To offer more housing choices and affordable options to Australians, we need to tap into institutional investment in build-to-rent housing from Australia and abroad.
“More supply means downward pressure on the cost of renting and buying, and people who live in build-to-rent housing will enjoy the benefits of professionally managed properties, good locations, superior amenities and long-term security of tenure.”
EY’s estimates found that if the managed investment trust withholding tax was halved to 15 percent in line with other property asset classes, three times as many build-to-rent projects would go ahead compared to a business-as-usual approach. The Australian Government would also receive a 30 percent increase in tax receipts over a decade.
There are currently 11 operating build-to-rent projects in Australia, with 72 in the pipeline. The US has some 20 million BTR units, which represents 12 percent of its housing stock. In just six years, BTR units in the UK has increased from 47,000 in 2016 to 240,000 in 2022.
“The growth of build-to-rent in the UK and US has been strongly supported by governments at all levels welcoming institutional investment,” Zorbas says.
“It’s critical that investments in build-to-rent housing need to be eligible for the 15 percent withholding tax rate, and an incentivised tax rate of 10 per cent for investors that choose to incorporate the supply of affordable housing dwellings within their build-to-rent projects.
“To accomplish the ambitious goals established in the national Housing Accord, the government needs to level the build-to-rent investment playing field in the May 2023 Budget.”
