Build-to-rent piece of housing puzzle but no quick fix

Poppy Johnston |

Homes purposefully built for leasing long term could help boost rental supply.
Homes purposefully built for leasing long term could help boost rental supply.

It’s been a tough couple of years to be a renter.

As competition for properties has intensified and rents have surged, policymakers have been searching for solutions.

While not an answer to the immediate price crunch, the build-to-rent housing model has been billed as a way to help boost the supply of rental properties and take pressure off the market in the long run.

Common in the United States and the United Kingdom, the model involves developers and financiers hanging onto larger scale housing developments to rent homes out long term, as opposed to building dwellings with the intention to sell them, as is more typical in Australia.

For renters, the promise is greater stability, with longer leases and typically less chance of the dwelling going up for sale or the investor deciding to live in it.

And while some projects have been completed and there are more in the pipeline, build-to-rent has been slow to find its feet in Australia.

The property industry has pointed the finger at unfavourable tax settings and has been pushing for changes, with the federal government committing to tweaks in the 2023 budget and unveiling draft legislation earlier this week.

Minister for Housing Julie Collins.
Housing Minister Julie Collins says build-to-rent is a model used overseas to boost housing supply. (Mick Tsikas/AAP PHOTOS)

Federal Housing Minister Julie Collins said the tax incentives would encourage investment in the sector and build-to-rent was a model used successfully overseas to increase housing supply.

“Attracting more investment into housing will support our ambitious national effort to build 1.2 million new, well-located homes over five years from 1 July 2024,” she said.

Australian Housing and Urban Research Institute managing director Michael Fotheringham said the reworked tax settings were broadly in line with what industry had been asking for and should make projects more feasible.

Under the government’s proposal, Dr Fotheringham said build-to-rent projects eligible for tax incentives should deliver on the promise of security, with owners required to offer three-year leases and the development effectively locked into rental-only mode for 15 years.

And he was cautiously optimistic firmer financial footing for build-to-rent would help improve housing affordability, but said it was no silver bullet.

“We’ve got to get all of the ingredients working,” he told AAP.

“This is one of the potential ingredients.”

Houses being built at Ipswich in Queensland.
Better Renting executive director Joel Dignam says build-to-rent should be in the policy toolkit. (Darren England/AAP PHOTOS)

Better Renting executive director Joel Dignam agreed build-to-rent should be part of the policy toolkit and while typically servicing the premium end of the market, should add to overall rental supply and result in less competition for lower priced properties.

“It’s not a housing type pitched at low income renters,” he told AAP.

To qualify for the favourable tax treatment, the government is proposing developments include 10 per cent of homes rented out roughly 25 per cent below the market rate.

Mr Dignam said that was a positive addition but was unsure the homes would be truly affordable.

“If they’re already charging a premium above market rent, their affordable rentals might actually end up being at the same price as other unaffordable rentals elsewhere,” he said.

Dr Fotheringham also said it would only produce a small number of more affordable homes, with 10 per cent amounting just to five in a 50 dwelling project.

He also said the owner or investor would want to offset the lower revenue from the affordable homes by charging a premium for the remaining rentals.

The Property Council, which has broadly welcomed the proposed tax regime, plans to investigate the affordable tenancies stipulation to ensure it would not erode the “level playing field” the changes sought to create.

The council has long pitched build-to-rent as part of the solution to Australia’s housing crisis, with modelling by EY commissioned by the industry group suggesting it could help deliver 150,000 new homes over 10 years.

Real Estate Institute of Australia president Leanne Pilkington said more build-to-rent was a piece of the puzzle but only a small one.

“Build-to-rent will take time to come online and our shortages are now.”

Ms Pilkington told AAP individual private owners, who were the main players in the residential rental market, should be a bigger focus for policy makers.

“If we’re going to incentivise big investors, why don’t we have a look at, for example, first homebuyers still getting incentives to buy a rental property?” she asked.

When it comes to passing the laws through parliament, Dr Fotheringham said built to rent tax regime tweaks should be uncontroversial.

“It’s a question of whether partisan politics trumps good policy outcomes,” he said.

AAP