Build-to-rent quickest solution to housing problem

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BUILD to rent (BTR) housing may be the quickest solution to assist in the delivery of almost 1.6 million new homes across Australia over the next 10 years, but existing government policies are not conducive to the emerging viable asset class which has proven to be successful overseas, according to research from Allens and Urbis.

The research said Australian cities are consistently named among the world’s most liveable, but it warns a growing housing problem puts the country at risk of losing this position.

Due to population growth there is a need to deliver almost 1.6 million homes, including an additional 500,000 rental properties in the next 10 years. The problem is particularly acute in the short term. Across the eastern seaboard’s inner-city markets, there is only 1.5 years’ worth of housing demand in apartment supply that is under construction. There is a further 2.2 years of demand in the pipeline that is approved but not yet selling.

Based on Australia Bureau of Statistics projects, the report warns over 200,000 rental households will be in rental stress within the decade.

However the report said existing policy settings are not conducive to BTR emerging as a viable asset class in any Australian jurisdiction.

Allens managing associate Tim Chislett said with further support from governments, the sector has potential to become large enough to improve liveability and affordability, and address Australia’s accommodation supply shortage.

“BTR supporters aren’t necessarily asking governments for more favourable concessions than other asset classes; they’re simply seeking a level playing field. With some key policy changes, BTR’s potential will be unlocked,” Chislett said.

The new report identifies three areas where changes to government policies are needed, to support the growth of the sector in Australia: Managed Investment Trusts (MITs), land tax and planning.

Currently BTR is denied the concessional tax rate of 15% that applies to income from most other property asset classes for foreign investors in MITs. For BTR to qualify for the MIT concessional rate and be given a level playing field, it should be classified as ‘commercial residential’.

State governments should consider providing land tax concessions for BTR projects and remove foreign land tax surcharges, to make BTR more attractive to foreign investors. By virtue of BTR residential towers being owned by a single landlord, states stand to gain more land tax revenue for BTR projects than Build-to-Sell, under the current law, and on an asset by asset basis.

Defining what a BTR asset is could provide an opportunity for states to adopt tailored planning policies to ensure BTR reaches its full potential. BTR currently falls under the general concept of ‘residential accommodation’ in all Australian jurisdictions.

According to the report, for Australian cities to remain some of the world’s most liveable an increase supply in housing is required.

Urbis director Mark Dawson said warns the major cities risk face an acute housing shortage.

“There is a further 2.2 years of supply that is approved but not yet selling. If we can fast-track some of this for new rental housing, it would boost both housing and the economy.

“BTR holds a key to addressing Australia’s growing housing problems; governments just need to unlock its potential,” he said.

Allens partner Michael Graves said a thriving BTR sector offers a range of economic and social benefits and caters to the demands of modern consumers.

“It’s no longer about owning a house. There’s a need for accommodation that’s close to work, offers high quality amenities and guarantees security of tenure, and BTR deliver on all these demands,” Graves said.

Conservative estimates indicate that stimulating BTR delivery to a scale of 10,000 units ($2bn in construction investment) could support an average of 2,200 jobs per year linked to the construction phase alone.

Growing that to 50,000 units, or around 1/3 of the inner-city apartment pipeline on the eastern seaboard could support 11,000 jobs per year in the construction phase, as well as an average of $1.5bn in Gross Value Added.

If incentives were to further shorten the timeframe of delivery or amplify volume of units the economic benefits would increase.

Currently there are 6,580 total BTR dwellings stock in Australia comprising 1,600 completed, 830 under construction and 4,140 planned.

BTR, known as multifamily housing in the US, has been successfully in the United Kingdom since its introduction in 2012.

The report said tax reform in the UK, including providing land tax concessions, was the lever that kick-started BTR’s rapid growth. Over 68,000 units have been built or under construction since 2012.

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