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A new report suggests that equalising the tax regime for managed investment trusts with other institutional asset classes could effectively turbocharge the build-to-rent sector.
The research, commissioned by the Property Council of Australia and conducted by EY, suggests that levelling the investment playing field for build-to-rent (BTR) homes could deliver 150,000 new apartments in 10 years and help address Australia’s stark housing affordability challenges.
The Property Council advocates for this tax change to be handed down in the next federal budget, due out in May.
The report also shows build-to-rent housing, which is still in its fairly nascent stages within the Australian residential market, is currently worth $16.8 billion but has the potential to expand by a factor of 17, to $290 billion. In terms of housing, that equates to 350,000 new apartments in a best-case scenario.
Property Council of Australia chief executive Mike Zorbas called build-to-rent the “missing ingredient” in Australia’s housing mix.
“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,” Mr Zorbas said.
“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.
“Australia is grappling with a worsening housing affordability crisis where state governments miss their housing targets and planning systems fail to keep up. 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,” he said.
According to financial modelling included in the research, if the managed investment trust withholding tax was halved to 15 per cent, in line with other property asset classes, three times as many build-to-rent projects would go ahead compared to the current approach. The Australian government would also stand to receive a 30 per cent increase in tax receipts over a 10-year period.
The current size of the build-to-rent sector in Australia is $16.87 billion, with 11 operating build-to-rent projects and another 72 projects in the pipeline. The build-to-rent sector represents roughly 0.2 per cent of the total value of Australia’s residential housing sector.
In comparison, the US is home to more than 20 million build-to-rent housing units, representing 12 per cent of the country’s total housing stock. The UK, meanwhile, has seen exponential growth in build-to-rent projects, from 47,000 units in 2016 to over 240,000 in 2022.
Mr Zorbas put the growth in overseas BTR sectors largely down to supportive government frameworks.
The report makes five recommendations to support BTR on Australian shores. They include applying a 15 per cent managed investment trust withholding tax rate for foreign investors, a 10 per cent rate for affordable housing, allowing institutions to claim GST, promoting the sector, and addressing the regulatory barriers for domestic superfund investors.
“It’s critical that investments in build-to-rent housing need to be eligible for the 15 per cent 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,” Mr Zorbas said.
“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”.
ABOUT THE AUTHOR
Juliet Helmke
Based in Sydney, Juliet Helmke has a broad range of reporting and editorial experience across the areas of business, technology, entertainment and the arts. She was formerly Senior Editor at The New York Observer.
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