Budget changes will allow for 150,000 extra build-to-rent homes

Changes will "level the tax playing field" for build-to-rent homes, property expert says

Budget changes will allow for 150,000 extra build-to-rent homes

Property developers say they can construct an extra 150,000 build-to-rent homes thanks to tax changes in the Albanese government’s latest budget.

A change in tax rules will “level the tax playing field” between specialist build-to-rent towers and commercial investments, a property expert told The Australian. The change is expected to jumpstart the already $17 billion industry.

The towers, aimed exclusively at renters, are primarily backed by large international investors, The Australian reported.

The construction of build-to-sell units has been stifled by spiking costs for materials and labour, drawing out completion times and pushing many builders into insolvency. Banks are also putting the brakes on risky lending to developers.

Build-to-rent towers, meanwhile, have been touted as part of the solution to Australia’s housing crisis – although they won’t help drive rents down in the short term due to a shortage of supply, The Australian reported.

New incentives

The budget included new incentives to encourage investment in build-to-rent projects. After a national cabinet meeting in April, Prime Minister ANthony Albanese announced that Labor had secured an agreement to cut the managed investment trust tax rate from 30% to 15% for build-to-rent housing projects starting July 1, The Australian reported.

Read next: Peak body pushes for more build-to-rent projects

According to the budget, the government will increase the rate for the capital works tax deduction to 4% per year for new build-to-rent projects with construction starting after 7:30pm on May 9. It will also reduce the final withholding tax rate on eligible fund payments from managed investment trust investments from 30% to 15%.

“This measure will apply to build-to-rent projects consisting of 50 or more apartments or dwellings made available for rent to the general public,” the budget said.

“An important lever” to ease supply concerns

Many build-to-rent towers are projected to be constructed in the coming years, providing more housing supply to deal with an expected spike in migration.

The Investa Property Group’s Indi business is building 5,000 units in Sydney and Melbourne. Investa chief executive Peter Menegazzo told The Australian that the build-to-rent sector was booming.

“It’s an important lever to help ease housing supply issues in Australia and, as we can see, there’s a major crisis happening,” he said. “It’s a role to play given the future residential needs of the country.”

Menegazzo said the federal budget’s tax change would make it easier to develop build-to-rent sites.

“What that will do is speed up supply, and that is exactly what we need if the government wants to hit its migration targets,” he told The Australian.

Mike Zorbas, chief executive of the Property Council, also lauded the new tax changes.

“The government’s decision to level the tax playing field for build-to-rent projects is a significant one, unlocking up to 150,000 new homes to relieve pressures in the rental market,” Zorbas told The Australian. “Build-to-rent housing, like purpose-built student accommodation and retirement living, is an important part of the national housing solution.”

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