Following the budget, we have been interested in the commentary about “build to rent” as a new housing model to address Australia’s housing crisis. The recent tax changes bring ‘build to rent’ into the same category as other property classes, like student housing. A lower holding tax of 15% is intended to encourage institutional and overseas investors like super funds and trusts to invest. In this post we investigate ‘build to rent’ more closely and whether it has the potential to alleviate the current housing shortage.
Australia is exploring a new housing model known as ‘build to rent’ to address the housing crisis. The approach where a residential asset of typically more than 150 apartments is held for rent in a single ownership. The projects to date have been aimed at the upper end of the market, featuring professional management, concierges and even doggy-day spas. The question is whether build to rent can provide a consistent supply of rental housing for the wider market?
Tax changes and build to rent
- The recent budget introduced tax changes that bring build to rent into the same category as other property classes, such as commercial logistics or student accommodation.
- By imposing a holding tax rate of 15%, the Government aims to encourage more institutional and overseas investment, like super funds and trusts.
- The tax changes won’t apply to projects with less than 50 rental dwellings, thus excluding developers of medium density build to rent projects.
Progress and outlook
- As of February, Australia only had 11 operational ‘build to rent’ projects, with two built using local capital However, there are 72 projects in the pipeline including overseas investors.
- Build to rent has been popular with commercial investors in the UK and USA. Australia is in the early stages of adopting ‘build to rent’. The local market has been hesitant due to concerns about foreign ownership and the historical preference for Australians to aspire to home ownership, rather than long term rental.
Potential benefits and challenges in Australia
- The Government requires investors to hold at least 50 dwellings under single ownership for at least 10 years before they can be sold. In addition, investors must offer leases of at least 3 years, providing stability for renters in an uncertain market.
- The types of finance available overseas for build to rent projects is reportedly much broader and generous than in Australia.
Build to rent has the potential to address Australia’s housing shortage by providing a steady supply of rental properties and offering greater stability for tenants. The recent tax changes should make the property class more attractive for commercial investors. The challenges remain around the cultural perception and the need for more inclusive and affordable offerings. However, the progress made thus far suggests that build to rent could become a game changer for the Australia rental market, potentially offering a faster solution to the housing shortage than anticipated.