Levelling the investment playing field for build-to-rent homes could deliver 150,000 new apartments and help address Australia’s stark housing affordability challenges, according to a new study commissioned by the Property Council of Australia.
The study by EY found that a level investment playing field for BTR developments could create 150,000 rental homes over 10 years, significantly helping the Australian government hit its ambitious target of 1 million homes by 2029, and considerably easing the pressures in the rental market.
BTR housing, which is relatively new to the Australian residential market, is currently valued at $16.8 billion with the potential to expand to a $290 billion sector, which would see the creation of up to 350,000 new apartments in an optimistic scenario, the report also found.
Mike Zorbas (pictured above), Property Council of Australia CEO, said build-to-rent housing is 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,” 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.
“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.”
The report, released ahead of the May federal budget, found equalizing the tax regime for managed investment trusts with other institutional asset classes would efficiently boost Australia’s housing supply as well as help those who were already pioneering BTR in the country.
High-level financial modelling undertaken as part of the study showed that if the managed investment trust withholding tax was halved to 15%, in line with other property asset classes, three times as many BTR projects would proceed compared to a business-as-usual approach. The Australian government would also get a 30% rise in tax receipts over a 10-year period.
Australia’s BTR market is new and small compared to other countries. EY estimated that the sector has the current size of $16.87 billion with only 11 operating build-to-rent projects, and another 72 projects in the pipeline. That’s just 0.2% of the total value of the residential housing sector. If the sector grew to just 3% of Australia’s residential stock, it could be valued at $290 billion, according to the report’s conservative estimates.
In the US, BTR housing units numbered more than 20 million, representing 12% of the country’s total housing stock. In the UK, the BTR sector has grown exponentially in recent years from 47,000 units in 2016 to over 240,000 just last year.
“The growth of build-to-rent in the UK and US has been strongly supported by governments at all levels welcoming institutional investment,” Zorbas said.
The report proposed to apply a 15% managed investment trust withholding tax rate for foreign investors, a 10% rate for affordable housing, allow institutions to claim GST, promote the sector, and address the regulatory barriers for domestic superfund investors.
“It’s critical that investments in build-to-rent housing need to be eligible for the 15% withholding tax rate, and an incentivised tax rate of 10% for investors that choose to incorporate the supply of affordable housing dwellings within their build-to-rent projects,” 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.”
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