New research commissioned by the Property Council of Australia, conducted by EY, has suggested that a reduction in a single tax on build-to-rent housing could result in the creation of 10,000 new affordable rental homes without incurring costs to taxpayers.
The study indicated that lowering the managed investment trust (MIT) withholding tax rate to 10% for build-to-rent projects featuring an affordable housing component could accelerate the construction of 10,000 affordable homes over the next decade.
“Housing supply is the challenge of the decade. We need to pull every budget lever we have to hit our housing targets and build the homes Australians need,” said Mike Zorbas (pictured above), Property Council CEO.
“This new modelling shows one cost-neutral government policy improvement will throw the weight of new institutional investment behind the creation of 10,000 affordable rental homes. Build-to-rent is a vital component of the country’s housing puzzle, offering tenants security of tenure, enhanced amenities, and properties managed by professionals.
“Without every extra dollar of institutional investment Australia can harness, hitting our national target of 1.2 million new homes will be a Herculean task.”
The research suggested that lowering the MIT withholding tax rate to 10% could enable the allocation of at least 5% of apartments in projects for affordable housing at a 25% discount to market rent. This approach, according to the study, would encourage the creation of affordable homes without posing a disincentive to institutional investment.
The recent modelling builds upon EY's 2023 research commissioned by the Property Council, indicating that a 15% managed investment trust withholding rate could result in 150,000 apartments by 2033 – a change announced in the May 2023 federal budget.
However, the specifics of this budget measure are yet to be finalised, and the Property Council has cautioned against forced affordable housing elements at the 15% tax rate for build-to-rent housing, as it may jeopardise the creation of 150,000 new apartments.
To avoid potential investment disincentives, the new research recommended incentivising affordable housing at a separate tax rate of 10%.
Zorbas said aligning the managed investment trust withholding tax with other property types was the right choice and can maximise the number of new homes built.
“The states already have well developed plans for affordable housing as part of future development and no double up is needed,” he said. “By reducing the managed investment trust withholding rate to 10%, the government can boost the delivery of affordable homes in an asset class that offers well-located, secure, customer-led, and community-oriented housing – and this change won’t cost the budget a cent.”
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