22 November 2022

Affordable rentals push as Government dangles carrots for build-to-rent projects

| Ian Bushnell
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Andrew Barr on Budget day

Chief Minister Andrew Barr: the ACT will need more housing to cope with its growing population. Photo: Lottie Twyford.

The ACT Government will offer subsidies and tax concessions for multi-unit build-to-rent proposals that include a minimum number of affordable rentals as part of its plan to boost housing in the Territory by about 30,000 dwellings over the next five years.

It is calling on developers, build-to-rent operators and community housing providers to provide at least 15 per cent affordable rental dwellings as part of an existing or planned build-to-rent development.

Chief Minister Andrew Barr said the affordable rental dwellings would need to be rented at less than market rent under an agreement for at least 15 years to households who met the income-based eligibility criteria.

“The request for proposal process will consider financial assistance and tax concessions for build-to-rent developments where at least 15 per cent of dwellings (and a minimum of 10 dwellings) are rented as affordable rental tenancies,” he said.

“Build-to-rent projects significantly increase the number of rentals in the ACT, and the Government is interested in further adding the number of affordable rentals available in the ACT through these developments.”

READ ALSO Taylor boarding house proposal offers boutique build-to-rent option

The Government has already released a block in Turner to the market as a pilot build-to-rent project with a mandatory minimum affordable rental component.

Mr Barr said the ACT’s population was set to grow from around 455,000 to 500,000 in the next five years.

The Government planned to meet this extra demand through more public housing, more social housing, more affordable rental properties, more rental properties, more urban infill developments and more greenfield developments.

“It’s the most comprehensive housing commitment in the Territory’s history with a single goal to provide more housing options for more Canberrans,” Mr Barr said.

The ACT is already grappling with a rental affordability crisis and extremely tight vacancy rates, putting extra pressure on public and community housing.

Financial assistance to proponents could be offered in the form of direct subsidy, land tax concessions, or lease variation charge (LVC) discounts.

Projects with 50 per cent or more dwellings as affordable rental could be eligible to pay no LVC across the development.

The Government may also contemplate some upfront financial assistance such as a grant to assist with development costs.

But the Government will not consider a concession on general rates or the foreign ownership land tax surcharge.

There are additional benefits for eligible community housing projects, including a land tax exemption and LVC discount.

The Government wants projects that will deliver long-term rentals, universal dwelling and service standards so affordable rental tenants enjoy the same quality housing and amenities as market rent tenants, and favourable locations for higher density living, with good access to transport, work and study.

READ ALSO Proposed five-storey apartment block at Kippax Centre jumps dwellings limit

Its preference is for developments where there is a single title, or no titling of the residential dwellings so that the individual dwellings are retained in a true long-term rental model.

Build-to-rent while common overseas is relatively new to Australia but is becoming an increasingly popular response to the challenges posed by Australia’s highly-priced property market.

Projects are usually developed under a single title to provide long-term, secure rentals and managed by a single entity rather than individual landlords.

They usually offer a range of amenities.

The first round will close on 7 February 2023 and be finalised as part of the 2023-24 budget process.

The Government will consider proposals that are both pre-development application (DA) and post-DA, as long as there is a site attached.

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Agree with comments that Government Built ‘rent to own’ is much better than Mr Barr’s push for a big business led ‘build to rent’.

Why subsidise big business property developers in the hope it will drive down house prices? They are past masters in extracting money from taxpayers and funnelling it through complex avoidance programs that don’t deliver on the initial promise.

Mr Barr wants both a high taxed property market for the ACT governments coffers AND a low cost property and rental market for Canberrans. That’s a tough divide to conquer and deliver both sides of the equation.

Barr has zero credibility on housing affordability. His latest brainwave is to hand tax breaks to rentier interests and invite them to enserf Canberrans. He is part of the problem – a captured Pollie – a business partner of big money interests rather than guardian of the public interest. Barr’s management of land, the SLA and revenue collection in the ACT is inept, inequitable, and undermines cohesive society.

CoreLogic’s latest Quarterly Rental Review reckons Canberra’s residential gross rental yield is just under 4%. After rates, land tax, maintenance/repairs, insurance, body corporate, management etc, net yields are under 3%. This is a problem for the build-to-rent carpetbaggers. AustralianSuper CEO, Paul Schroder, no doubt softening governments up to provide “incentives”, has said that superannuation funds are not interested unless yields of at least 6%, possibly up to 11%.

The super funds can no longer anticipate capital gains from housing above the rate of inflation to add to the yield: Australian housing, and Canberra’s in particular, is already amongst the most expensive in the world. So either a doubling or tripling of current market rents or massive subsidies (transfers from tax payers to industry) will be required to make build-to-rent attractive to them.

Take a median 2 bed, 80sqm, 1 carpark unit in Belco: $580K to buy + transaction costs and stamp duty of $20K. 6% return on that capital is $36K. Add annual costs of $5K (rates/landtax), $3K (strata), $3K (provision for repairs/maint), $3K (insurance, letting costs & management) and the minimum rental to eke out their 6% is $50k/yr, or about $960/week. At 11%, its $1540/week.

This is only happening because the ACT Government lacks the will and wherewithal to manage public housing and run a large-scale rent-to-buy scheme. Build-to-rent is just a contrivance to absolve themselves of responsibility for affordable housing.

The Productivity Commission recently warned against subsidies, finding built-to-rent targeted middle-to-high income earners and does not increase supply. Check out their report: “In need of repair: The National Housing and Homelessness Agreement”
https://www.pc.gov.au/inquiries/completed/housing-homelessness/report/housing-homelessness.pdf

Well said. A comparison of Singapore and HDB to the ACT government is stark and shows how utterly inept and/or corrupt our politicians are.

ACT Government has missed its affordable housing and public housing targets for a decade or so.

I wonder if using the money to build new public housing would be more effective than giving it to property developers for build to rent.

High density property developers have a good track record in eking out financial incentives from governments and then not delivering quite what the government or public anticipated. Some of the adaptable housing projects never ended up housing a disabled person and instead were sold to the highest bidder. Previous high rise projects around the Civic zone haven’t had a single affordable unit despite the initial media spruiking of the developer when he bought the land.

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