Build-to-rent developers are celebrating the removal of a significant hurdle to the fledgling sector as the federal government halves the controversial Managed Investment Trust withholding tax.

On 28 April 2023, the Australian Government announced it would provide incentives to increase the supply of housing, by:

• reducing the withholding tax rate for eligible fund payments from managed investment trusts (MIT) attributable to residential build-to-rent projects from 30% to 15%. This measure will apply from 1 July 2024 to income attributable to newly built-to-rent projects.

• increasing the capital works tax deduction depreciation rate for eligible new build-to-rent projects from 2.5% to 4% per year. This measure will apply to projects where construction commence after the Budget (9 May 2023) and will shorten the period that construction costs of eligible building are depreciated from 40 to 25 years.

Note: These measures are not yet law.

Industry advocates have lobbied for years for the 30 per cent tax to be dropped to 15 per cent in line with purpose-built student accommodation assets.

Residential supply is squarely in the sights of the federal government, announcing it would be developing reforms to increase housing supply and affordability across the country in the next six months.

The key industry players estimate the tax break could help deliver as many as 150,000 apartments over the next decade in the emerging build-to-rent sector (Leneghan N & Greber J, 2023).

The move has been welcomed by the Property Council of Australia (PCA) and Urban Development Institute of Australia (UDIA), both of which have been advocating for policy change to incentivise more BTR projects.

Property Council chief executive Mike Zorbas said the move would breathe life into asset class and unlock supply through a new form of housing.

“Today’s announcement is a strong step toward addressing and reversing Australia’s growing housing shortage,” Zorbas said.

“Build-to-rent housing, like purpose-built student accommodation and retirement living, is a positive part of the national housing equation and provides tenants with long-term security of tenure, superior amenities and professionally managed properties.” (The Urban Developer 2023).

Jll suggests in its report that long-term residential growth is slightly above inflation. However, next five years will see above-inflation rental growth. While rental growth will likely slow from the extremes of 2022, it still likely to average above inflation over the decade.

“On basis of population and economic growth outlooks, Australia is a key standout. This, combined with the moderate supply outlook is making a compelling case for the apartment safety and stability of Australia’s residential market.”

Unlocking up to 150,000 new homes is an important win for good public policy which has been many years in making. Built-to-rent is particularly reliant on foreign investment. If you look at who the major players are, the great majority have capital from international sources. I think change is fairly critical for build-to-rent sector, it will certainly unlock more supply and accelerate the delivery of the supply.