supported through initiatives including the Victorian Government’ s Regional Worker Accommodation Fund. Regional economic development is also likely to be supported through improved connectivity with cities with potential projects, such as a high speed rail connection between Sydney and Newcastle supporting employment growth across the Central Coast and Hunter regions.
THE ENTRANCE OF BUILD TO RENT IN AUSTRALIA’ S HOUSING MARKET Build-to-rent housing is seen as one way to reduce the shortfall of housing in Australia, with estimates that it could deliver 150,000 new homes over 10 years. Build-to-rent housing developments are built for long-term rental, not sale. Dwellings are rented on longterm leases, with the development owned and operated by institutional landlords such as superannuation and pension funds as a rent-generating asset. Whilst build-to-rent housing is well established in the US and the UK, it is nascent in Australia, being mostly associated with the premium end of the market.
Incentives have recently been introduced to support the creation of build-to-rent as a new investment asset class to make Australian build-to-rent housing more attractive to investors. The NSW Government provides a 50 per cent land tax discount to NSW developers who invest in eligible build-to-rent schemes, as well as exemptions from foreign investor surcharges on stamp duty and land tax when such land is held and developed by an Australian corporation. The Australian Government has reduced the managed investment trust withholding tax rate from 30 to 15 per cent and provides accelerated tax deductions for construction costs, increasing the capital works deduction rate from 2.5 to 4 per cent per year.
capital-intensive and require significant levels of debt and equity. Australia has relatively low rental yields as the property market is driven by high capital growth. To scale, build-to-rent needs to provide equivalent or better risk-adjusted return compared to alternative opportunities.
There are different perspectives on the attractiveness of build-to-rent by institutional investors. Some Australian superannuation funds that invest in such projects in the US do not think the Australian market has the necessary depth or track record yet, while others are investing. Our research noted that international investors only want exposure to big markets in Australia, as opposed to the US where investors are targeting mid-tier cities. It is not yet clear how the Australian Government’ s recent legislation is incentivising investment in Australian build-to-rent. What is evident is that current BTR incentives are not driving institutional investment in housing in the regions. Landcom is however driving pilot projects in the NSW South Coast and Northern Rivers that recognise the opportunity for build-to-rent in the regions.
A NEW HOUSING MODEL: BUILD-TO- RENT-TO-OWN Since the Superannuation Guarantee Act in 1992, Australians have come to accept the right of all workers to accumulate assets for a secure retirement. Yet we have created an inequitable system where many Australians are denied the security afforded by home ownership due to the large barriers of entry such as the cost of servicing a mortgage. This inequity is widely acknowledged, creating fertile ground for a new concept of home ownership grounded in values of equity, custodianship and community benefit.
In seeking to address these challenges, UTS engaged with stakeholders to develop a new housing ownership model. We consulted with community and cooperative housing providers, superannuation funds, banking experts, private and state-owned Build to Rent developers, property experts, housing experts, regional local councils and policymakers.
The concept of our Build-to-Rent-to- Own model is simple. People renting in build-to-rent developments owned by institutional investors should be given the opportunity to acquire an ownership interest in the corporate entity that owns the development.
RESIDENTS IN A BUILD-TO-RENT DEVELOPMENT COULD BUILD AN OWNERSHIP STAKE OVER TIME Our report proposed five principles for a build-to-rent-to-own model:
Inclusivity: All residents, including those in affordable dwellings, can participate, with a contribution of as little as $ 10 per week. The aim is to lower the barriers to entry for those who would otherwise be locked out of housing ownership.
Community first: Residents’ needs come first. This approach will deliver long-term risk-adjusted financial returns, as residents are motivated to stay and there is less turnover. Emphasis shifts towards a more collective, community-based concept of ownership.
Permanent affordability: Shares in the build-to-rent development are not traded on the open market, with shareholders required to be residents of the development. This discourages speculation and helps keep housing affordable for future generations.
Despite the opportunities, there is uncertainty about how build-to-rent will grow in Australia and the extent of its impact on housing affordability.
INVESTOR PERSPECTIVES ON AUSTRALIAN BUILD-TO-RENT UTS’ research found that there is some debate about whether build-to-rent can increase housing supply to the point that it will improve rental affordability. Such housing can be scaled if there is enough capital, but it is unclear how attractive the model is to investors when deployed in Australia. Current build-to-rent projects are
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