Five major property and construction groups have warned of risks to housing supply, with industry-commissioned polling finding more than 60 per cent of small and medium developers expect proposed discretionary trust tax changes to affect project timing and viability.
Small and medium property developers are warning of project cancellations and delays as Australia’s major housing and construction bodies challenge the Federal Government’s proposed changes to discretionary trust taxation.
Polling released by five industry organisations found more than 60 per cent of small-to-medium residential and commercial developers anticipated the proposed changes would affect the timing and viability of their projects.
Among developers expecting an impact, 37 per cent said one or more projects would be cancelled entirely, raising concerns about the flow of new properties to buyers and renters.
The Accent Research polling was commissioned jointly by the Housing Industry Association (HIA), Master Builders Australia (MBA), Property Council of Australia (PCA), Real Estate Institute of Australia (REIA) and Urban Development Institute of Australia (UDIA).
For real estate businesses, the findings point to potential disruption to the development pipeline, although they measure developers’ expectations rather than confirmed cancellations.
REIA President Jacob Caine said the capacity of smaller developers to proceed with projects had consequences beyond their own businesses.
“Small and medium developers are a critical part of Australia’s housing pipeline. When policy changes undermine their confidence or capacity to proceed, the consequences extend well beyond individual businesses.”
The polling also identified possible delays among developers anticipating an impact. Seventeen per cent expected delays of six to 12 months, 13 per cent anticipated delays of less than six months and 7 per cent expected delays exceeding a year.
The accompanying project-impact chart covers expectations for the next 12 months and is based on 95 property developers who expected changes to affect project timing or viability.
While the joint release attributes the findings to the proposed discretionary trust reforms, the chart’s question refers more broadly to the Federal Budget changes.
“Projects delayed or cancelled today mean fewer homes reaching buyers and renters tomorrow,” Mr Caine said.
Pressure on development decisions
The Government proposes introducing a 30 per cent minimum tax on the taxable income of discretionary trusts from 1 July 2028, with trustees responsible for paying the minimum tax.
Treasury says the reform is intended to bring the taxation of trust income more closely into line with the rates paid by wage earners, while retaining the use of trusts for legitimate purposes. Treasury’s July statement.
The industry groups argue that the structures play an important role in business operations and development. Their release says property businesses commonly use discretionary trusts to hold ownership interests and separate development land and real estate assets from commercial risk.
Almost three in 10 businesses surveyed used discretionary trusts to operate their business, hold assets and manage risk. Among trust users, 77 per cent reported reduced confidence because of the proposed changes.
Property Council Chief Executive Mike Zorbas said the reforms would add to existing pressures on development feasibility.
“Housing supply depends on market confidence, investment and projects stacking up commercially. Right now buyer confidence and project feasibility is at a low water mark in key markets across the country.”
An accompanying chart found 68 per cent of real estate businesses reported their tax burden had increased substantially or somewhat over the past five years, compared with 41 per cent of all business owners surveyed.
Mr Zorbas warned that the potential loss of projects would have implications for housing delivery.
“Almost 1 in 4 property and development companies believe one or more of their projects will be cancelled as a result of the government’s new taxes. That would be a catastrophe for housing supply.”
His statement refers to property and development companies more broadly, while the 37 per cent figure applies only to developers expecting an impact.
HIA Managing Director Jocelyn Martin said the proposed trust changes came as new home sales were already under pressure.
“New home sales have fallen for the last four months, after the taxation changes for investors in the federal budget.”
Ms Martin warned that the proposed trust rules would threaten the viability of further projects, arguing that the policy direction was at odds with Australia’s housing ambitions.
“Australia cannot tax its way to 1.2 million homes.”
The research also points to possible changes in investment and expansion plans across the wider business community.
The survey canvassed almost 1,200 small and medium business owners about discretionary trust reforms and other proposed tax changes. The release reports that almost half of business owners aware of the proposed trust changes were considering a response, including reducing investment, restructuring or deferring expansion.
The accompanying chart frames that question more broadly around proposed Federal Budget changes, with 20 per cent reporting reduced investment, 18 per cent considering restructuring and 15 per cent deferring business expansion.
Master Builders Australia Chief Executive Officer Denita Wawn said the consequences could extend to households seeking somewhere to live.
“At a time when we have a housing supply crisis, these changes would hamstring the very businesses that are central to the solution. The consequences of this poor policy will not only impact these businesses, it will also flow onto home buyers and renters.”
The Government says fewer than 10 per cent of Australia’s 2.7 million active small businesses would be affected in any given year.
Draft legislation released on 3 September includes an option for discretionary trusts to elect to make fixed distributions to pre-nominated beneficiaries and be exempt from the minimum tax without restructuring.
It also outlines exclusions, including charitable and special disability trusts, superannuation funds, primary production income, deceased estates and genuine discretionary testamentary trusts. Expanded rollover relief would be available for three years from 1 July 2027 for those choosing to restructure. Consultation on the exposure draft closed on 18 September. Treasury’s September statement.
For UDIA National President Oscar Stanley, the central issue was how government policy would influence the individual investment decisions underpinning housing delivery.
“Housing is built on confidence and capital, if we keep making both harder to find then eventually the homes disappear from the pipeline.”
He said achieving the national housing ambition depended on creating conditions in which businesses would commit to projects.
“The National Housing Accord will ultimately be won or lost in thousands of individual investment decisions. It is crucial then that Government policy needs to encourage those decisions, not discourage them.”