Property Council of Australia’s Chief Executive Mike Zorbas has appeared before the Senate Economics Legislation Committee on 7 August 2024, urging modifications to the proposed Build to Rent legislation to support the creation of over 100,000 rental homes.
Mike stated that in its current state, the Bills will undermine the government’s stated intention of encouraging more rental housing.
“All sides of politics know Australia is in a housing crisis.
“The average age of a first home buyer is 37 in Sydney and 36 in Melbourne. We can deliver 105,000 rental homes, and immediately unlock 1,200 affordable tenancies through the changes proposed and that is a big contributor to getting to our national housing targets. Build to Rent is the missing piece of the Australian housing puzzle.
“At the time when new housing supply is desperately needed, the current settings are repelling investment. Thousands of new rental homes that should be under construction are not.
“Build to Rent offers high amenity, secure tenure for renters in comfortable, energy efficient homes with shared facilities and community programs. As CHIA and Shelter agree, we must make urgent changes to the draft legislation. We hope all parliamentarians will support our proposal to significantly increase housing supply.
“We simply won’t solve the housing puzzle without Build to Rent.”
Mike Zorbas, Chief Executive, Property Council of Australia
In his opening statement to the committee, Mike thanked the committee for the opportunity to appear and in doing so, acknowledged the traditional custodians across more than 500 indigenous nations throughout Australia.
He was joined by two active Build to Rent practitioners – Ange from Mirvac, Christian from Home and Frankie who is also from the Property Council.
The Property Council’s membership consists of all the significant global investors in Build to Rent housing and the leading owners, operators and investors in Australia’s own nascent Build to Rent sector. The Council is having this conversation about a national housing crisis because the average age of a first home buyer is now 37 in Sydney and 36 in Melbourne.
Mike stated that despite Australia’s global advantage in wealth and land supply, its housing hopes have been undone by a lack of national and state government vision and planning across every type of housing – renting, buying and social housing – since the turn of this century.
By the National Housing Supply and Affordability Council’s own estimates, Australia is on track to deliver 297,000 new homes under its national target 2029 of 1.2 million homes.
This stable platform for individual investment is part of the solution.
Mike questioned that what is at stake in the Committee’s deliberations is larger than the government’s Housing Australia Future Fund’s 40,000 homes by 2029. He highlighted that support for the changes the Council proposes to the Build to Rent legislation could potentially activate 40,000 to 50,000 new homes over the next five years.
Standing with the Property Council, CHIA and Shelter agree that it would be helpful to add more than the housing stock promised under the HAFF by 2029. This would take pressure off the broader rental market, whilst also adding essential low income housing into this mix.
Mike expressed that if the Build to Rent legislation is unamended, it is just a sad bookmark about a type of housing supply that should have attracted a pool of large-scale patient capital but won’t as it stands.
The RBA says 3% vacancy is a healthy rental market. Australia is currently at around 1% in many parts of the country – so new housing supply is vital.
Drafted as it should have been, Mike highlighted that the Build to Rent legislation could have delivered 160,000 new apartments to 2033 – including 10,000 affordable homes. That opportunity has been squandered, he says but sensible and simple fixes can still deliver 105,000 rental homes.
Build to Rent is part of the supply solution
Given the nature of Build to Rent, it is a missing piece of the Australian housing puzzle, says the Property Council of Australia. Although it is 5% in the UK and 12% in US, Build to Rent in Australia is only 0.2% of the country’s housing market.
The reason Build to Rent is stunted in Australia is that long-term patient capital – mostly foreign pension funds – currently must pay double the amount of tax they would if they were investing in offices, shopping centres, hotels and industrial property.
Over a decade, the Property Council has consistently championed the benefits of an Australian investment regime that would put Build to Rent on a level playing field with other property types.
The Property Council welcomed the Government’s initial announcement in the May 2023 Budget to lower the managed investment trust (MIT) withholding tax from 30% to 15%.
Uncertainty and delay
The anticipation of the Australian government’s public ambition to add to Build to Rent housing supply, following US, Canadian and UK governments, has been the sole reason for tens of billions of dollars of Build to Rent investment to date.
The Property Council of Australia says that uncertainty caused by the 11-month Build to Rent consultation delay post the May 2023 Budget announcement, and material issues introduced in the early exposure draft, have already eroded investment.
Capital flows into the sector have effectively stalled. The Property Council of Australia is currently repelling a patient pool of institutional capital. Thousands of new rental homes that should be under construction are not.
Key areas of improvement
The Property Council of Australia expresses that in its current state, the Bills will undermine the government’s stated intention of encouraging desperately needed rental housing.
- Limiting access of the most common trust structures to the concessional tax rate
In the Property Council of Australia’s detailed submission, it raised some technical issues which, if left unaddressed, will render the legislation completely ineffective.
- Maximise the supply of at-market and affordable housing and deliver 105,000 rental homes.
EY modelling shows that the best opportunity to maximise supply of Build to Rent housing while retaining mandatory affordable housing requirements is to implement changes proposed by CHIA, National Shelter and the Property Council of Australia.
This includes lowering the managed investment trust (MIT) withholding tax rate to 10%, making a proportion of the 10% affordable tenancies available to low-income households, and ensuring affordable tenancies are managed in partnership with registered not-for-profit community housing organisations. This could result in the delivery of 105,000 rental homes.
- Extending the concessional tax rate to Build to Rent projects that were operating or in development prior to the 2023 Budget announcement.
This could immediately unlock over 1,200 affordable tenancies. At a time of severe rental crisis, the National Rental Affordability Scheme (NRAS) is coming to an end and up to 6,750 properties will cease to be affordable under the scheme in the period of April to December 2024. There is therefore a strong imperative to unlock affordable rental housing as soon as possible.
Investor sentiment in a low supply environment
The negative perception investors have about the viability of Build to Rent investment in Australia needs to be corrected, the Property Council of Australia highlights.
Australian super funds have made it clear that they cannot scale investment in Build to Rent projects until the sector is a more mature, well-capitalised, ‘liquid,’ asset class.
This occurs against the glaring backdrop of low Australian housing starts. The latest figures from the Australian Bureau of Statistics released in July 2024 showed approvals for apartments in May 2024 are down almost 32% from the same time 12 months ago.
The Property Council of Australia’s engagement
Since the draft legislation was released by the Government, the Property Council of Australia has engaged with the Treasury, ATO and Government to try and make these Bills work.
It has partnered with CHIA and National Shelter to seek broad agreement on the settings that will maximise both the supply of at-market rental housing and the provision of affordable housing as part of Build to Rent developments.
The Property Council of Australia now strongly urges Parliament to support its joint proposal and enable the delivery of 105,000 rental homes by 2033 – again, more than the HAFF will deliver over the decade – because the housing crisis that Australia is in demands that all solutions be brought to bear.
