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The great build-to-rent debate

The argument has been raging in the property industry for years: why can’t the build-to-rent model of housing, popular in both the UK and the US, work in Australia?

It’s a complex issue, and your answer will depend which side of the fence you’re on. The build-to-rent model, also known as the ‘multi-family’ model, would see developers or investors hold portions of completed housing projects to be rented out, rather than selling them on completion.

The model is usually referenced when it comes to housing that benefits low-income families, but it has also experienced popularity in higher-end developments. An enquiry by the Australian Housing and Urban Research Institute in 2017 found that the model, if implemented in Australia, could significantly improve the rental affordability issue and positively impact the homelessness problem.

In this case the scheme would require Government backing, so the developers or investors retaining ownership of the property could offer subsidised rent to tenants.

The build-to-rent model also supports longer lease terms, another model popular in Europe which has yet to be adopted here. By allowing more security to tenants, supporters of the model say it would have the knock-on effect of allowing Australians to better save for eventual home ownership, helping out the affordability issues there also.

“Housing affordability pressures mean that the numbers of people who are renting are rising. Close to one-third of Australians are renting their homes, according to the last Census,” said Property Council Chief Executive Ken Morrison.

“In NSW, almost six out of ten people who rent moved in the last two years, compared to just 15 per cent of homeowners. That’s a huge cost for those households, many of whom are also trying to save for a home deposit.

“Build-to-rent housing offers tenants greater certainty over lease tenure and renewal as their buildings are designed for renters. They can also provide professional building management and maintenance services,” said Mr Morrison.

However, the model also has its detractors. This week Meriton boss Harry Triguboff came out swinging against other developers who have discussed adopting the model, saying they’re only interested in a tax break.

Speaking to the Australian Financial Review, Mr Triguboff referred to other developers as ‘schnorrers’ who had ‘no money to build’ and were relying on the scheme to drum up some capital. Mr Triguboff subsidises his own portfolio with profits from other projects.

It’s an argument that doesn’t sit well with Mr Morrison. He argues that supporters of the build-to-rent model only want it considered as a viable option, the same as any other asset class.

“We’re not asking for a tax cut from the Federal Government, just the opportunity to provide better quality accommodation and more security for people who rent,” Mr Morrison said.

“We’ll leave the political point-scoring to the politicians. What’s most important is providing more choice for Australians who need or prefer to rent.”

The debate was further hampered last year when the Government decided to block managed investment trusts (MIT) that build homes for rent from buying residential property, except for affordable housing.

Treasurer Scott Morrison backed the decision, saying the MIT sector was asking for tax breaks not available to Australian investors. It is thought that the block came as a way to force MITs to support affordable housing.

Last month Shadow Treasurer Chris Bowen weighed in, saying Labor would work with the property industry to resolve tax-integrity issues associated with build-to-rent incentives.

Mr Bowen stated that Mr Morrison’s decision was the “worst piece of economic governance I have seen in my 14 years in parliament” and would effectively block billions of potential dollars in property development by MITs. He rounded out his comments by saying Labor supported tax incentives for developers looking at build-to-rent projects.

The back and forth between the two sides has likely damaged the fledgling sector further, with confusion and uncertainty scaring away potential adopters. The Property Council says that, until the Government takes the matter seriously, Australians will continue to miss out on the potential benefits of build-to-rent.

“The Property Council is simply asking that the [same] Managed Investment Trust rules and tax rates apply to build-to-rent housing as currently apply to shopping centres and office buildings,” said Mr Morrison.

“Given our fast-growing population and housing affordability challenges, we should be doing everything we can to support investment in more housing choices for Australians.”

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