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A key measure announced during the last federal budget is one step closer to becoming reality with the release of draft legislation to introduce tax incentives for build-to-rent (BTR) projects.
Now open for feedback from stakeholders, the current proposal would reduce the final withholding tax rate on eligible fund payments from managed investment trusts from 30 per cent to 15 per cent on BTR projects, and increase the rate for the capital works tax deduction from 2.5 per cent to 4 per cent per year.
The incentives would apply to new projects that commenced construction after the policy’s announcement in last year’s budget on 9 May 2023.
The development must consist of 50 or more apartments or dwellings, made available for rent to the general public, and it’s proposed that the apartments must be owned and rented by a single owner for a period of 15 years, with a minimum of 10 per cent of the dwellings in any development made available as affordable rentals.
According to a release from the Treasurer, Jim Chalmers, and Housing Minister, Julie Collins, the government is particularly interested in hearing feedback on the length of time the dwellings must be retained under a single ownership, and whether the mandate for affordable tenancies should be included.
The duo billed the forthcoming tax changes as an “important contribution” to achieving the national target of building 1.2 million new homes over five years from 1 July 2024.
But the Property Council of Australia’s group executive for policy and advocacy, Matthew Kandelaars, said the details of the legislation will very much determine how successful the change will be in spurring BTR development.
“The enormous potential of a 150,000-apartment pipeline hangs in the balance and there’s only one chance to get this legislation right,” Kandelaars stated.
According to modelling commissioned by the Property Council and conducted by EY – which was also referenced by the government in its legislative announcement – a reduction in the managed investment trust (MIT) withholding rate to 15 per cent has the potential to lead to the creation of 150,000 apartments by 2033.
However, implementing an affordable housing mandate and further reducing the tax withholding rate to 10 per cent could accelerate the delivery of 10,000 affordable homes over 10 years on top of those 150,000 dwellings, per the modelling.
The Property Council is advocating for the government to go further.
“Affordable housing is a crucial part of a broader housing mix, which is why we proposed an additional model that would protect the pipeline of 150,000 BTR apartments and deliver a further 10,000 affordable rental apartments at no extra cost to the taxpayer,” Kandelaars said.
“Even with the best of intentions, drafting missteps could risk the delivery of high-amenity, securely tenured homes backed by the institutional capital that’s critical to deliver the homes our nation desperately needs,” he warned.
Meanwhile the Real Estate Institute of Australia (REIA) recently cautioned against pinning hopes on the BTR sector to deliver housing relief.
Noting that BTR units currently account for just 3,800 completed dwellings, and that only 43 per cent of the 44,139 BTR units currently proposed have approval, REIA president Leanne Pilkington said the current pipeline “wouldn’t touch the sides” of the projection that BTR could unlock over 150,000 dwellings.
“BTR will take time to come online and our shortages are now,” Pilkington commented.
The institute is urging the federal government to consider BTR housing as a supplement to traditional private residential investment.
“While projections suggest an expansion of the BTR pipeline in the coming years, it’s evident that private residential investors will continue to dominate the rental market landscape for the foreseeable future,” Pilkington said.
ABOUT THE AUTHOR
Juliet Helmke
Based in Sydney, Juliet Helmke has a broad range of reporting and editorial experience across the areas of business, technology, entertainment and the arts. She was formerly Senior Editor at The New York Observer.
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