Calls for more build-to-rent investment ahead of federal budget

The report came one month ahead of the federal budget and followed the National Housing Finance and Investment Corporation (NHFIC) State of the Nation’s Housing 2022–23 recent report that outlined a shortfall of around 79,000 homes over the next 10 years.

The combination of a ‘stronger-than-anticipated’ population recovery, following the opening of the borders in early 2022, construction costs and delays, alongside the steep increase in interest rates will lead to the undersupply of housing in Australia.

Given this, the Property Council of Australia’s chief executive Mike Zorbas said build-to-rent housing could help combat the housing shortfall.

“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 report showed how build-to-rent developments could create 150,000 rental homes over 10 years, significantly helping the Australian government hit its “ambitious 1 million homes housing target by 2029”.

While it is relatively new to the Australian residential market, build-to-rent housing is currently worth around $16.8 billion with an estimated 11 operating projects, and another 72 in the pipeline, according to the Property Council.

As Australia grapples with a worsening housing affordability crisis, Mr Zorbas said “build-to-rent is about as close to a housing policy silver bullet as they come”, but more incentives were needed.

The Property Council’s report made five key recommendations including 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 super fund investors.

Mr Zorbas explained more supply means downward pressure on the cost of renting and buying.

“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,” Mr Zorbas said.

The report also followed Domain’s Rental Report for the March 2023 quarter that revealed the country is experiencing the longest stretch of continuous rental price growth on record, as house rents rise for the eighth quarter in a row and unit rents rise for the seventh.

For the first time since 2009, all capital cities have record house rents highlighting the rental crisis the country is currently going through, Domain said.

The EY report suggested on conservative estimates, if the sector grew to just 3 per cent of Australia’s residential stock, build-to-rent could be worth $290 billion.

“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,” Mr Zorbas said.

Investors withdraw from market, HIA warns

The Housing Institute of Australia (HIA) added that tax and tight regulations had seen a pullback from investments into housing.

HIA’s chief economist Tim Reardon said “commencements of apartments last year were 40 per cent lower than at their peak in 2016.

“The imposition of a range of punitive taxes on investors by state governments, combined with additional constraints through the FIRB and diplomatic disputes, has seen investors withdraw from the market,” Mr Reardon said.

“At the same time, the cost of new apartments is set to increase in 2023 with new regulatory costs imposed through building regulations.

“These regulatory costs are in addition to the increased cost of labour and materials that increased rapidly over the last two years.”

Master Builders Australia CEO Denita Wawn reiterated that the upcoming federal budget should “focus on policies that ensure spending is carefully targeted at boosting productivity for business and allowing for more favourable outcomes when it comes to the cost, quality and quantity of building and construction output”.

“There is no silver bullet; this will take a concerted effort by all levels of government working in collaboration with industry,” said Ms Wawn.

[Related: Housing shortfall expected to worsen: NHFIC]