Build-to-rent could boost housing supply by 150,000

Cutting government taxes on build-to-rent developments could lead to an increase of 150,000 new rental properties over the next 10 years, according to a new study.

The study, commissioned by the Property Council of Australia ahead of the Federal Budget, found that if the government halved managed investment trust withholding tax to 15 per cent, in line with other asset classes, it could spur greater investment in the sector and lead to more homes being built.

The report also shows build-to-rent housing, which is relatively new to the Australian residential market, is currently worth $16.8 billion but has the potential to expand 17-fold, to a $290 billion sector, which would see the creation of up to 350,000 new apartments in an optimistic scenario. 

Property Council of Australia Chief Executive Mike Zorbas said build-to-rent housing was 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.” 

The report also suggests 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.

Mr Zorbas said the best way to boost housing supply is to look to tap into institutional investment.

“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,” he said. 

“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.”

According to the study, 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 a business-as usual approach. 

The Australian Government would also receive a 30 per cent increase in tax receipts over a 10-year period.

The study, which was conducted by EY, found that Australia’s build-to-rent market is new and small, and estimates that the current size of the build-to-rent sector in Australia is $16.87 billion (just 0.2 per cent of the total value of the residential housing sector) with only 11 operating build-to-rent projects and another 72 projects in the pipeline. 

According to the study, if the sector grew to just 3 per cent of Australia’s residential stock, it could be worth $290 billion. 

In the US there are more than 20 million build-to-rent housing units, representing 12 per cent of the country’s total housing stock, while in the UK, the build-to-rent sector has grown exponentially in recent years from 47,000 units in 2016 to more than 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,” 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.”

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Rowan Crosby

Rowan Crosby is a senior journalist at Elite Agent specialising in finance and real estate.