In Australia’s housing market, social housing refers to dwellings for low-income people – often the recipients of social welfare – while affordable housing is often ring-fenced for qualifying key workers and has rentals capped at about 80 per cent of market rates.
Build to rent – which in some US cities has grown over the past 30 years to account for up to half of private market rental housing stock – is hampered by Australia’s tax settings from expanding into become a mass-market offering that would become a widespread and genuine alternative to the private rental market, a string of Summit speakers said on Monday.
“Build to rent really requires, for it to be done at scale, … premium rents to stack it up commercially,” Stockland chief executive Tarun Gupta said.
“For it to work at scale at the affordable end, there needs to be some support for the sector.”
Mr Gupta said “tax and other impediments” reduces the attractiveness of investing in build to rent assets. “That’s something that hopefully will be looked at by the new government.”
The comments were a push-back against federal Treasurer Jim Chalmers, who last month called for the $3.4 trillion superannuation sector to steer part of its vast pool of capital toward nation building investments in housing and clean energy.
Speaking at the Superannuation Lending Roundtable hosted by The Australian Financial Review, Dr Chalmers said super investment in infrastructure had not been matched by “what we would love to see in residential housing, and the obvious question that raises for all of us is how do we turn that around”.
The financial muscle of superannuation funds was crucial to meeting the government’s own target of 30,000 new social and affordable dwellings over the next five years through the planned new $10 billions Housing Australia Future Fund, NHFIC chief executive Nathan Dal Bon told the Summit.
“The key is to try to attract superannuation funds into the development sector, which I think is possible with the right structuring,” Mr Dal Bon said.
“I think partnerships with the states will be really critical. So I think to deliver those properties, leverage is critical, using estates and using a range of partnerships from both the financial sector and also developers builders to ensure that you can deliver in that timeframe.”
A goal for the industry is to cut the 30 per cent withholding tax on the profit of foreign investors in managed investment trusts owning build to rent assets. That’s twice the impost of the 15 per cent imposed on investments in other commercial accommodation assets such as student housing and hotels.
While the higher rate does not directly affect local institutions, it keeps foreign funds out, leaving the market more shallow.
At a state level, Mr Towning slammed inefficient planning regimes, which meant that even in places like Melbourne, a 400-unit affordable housing project took two years to get approved.
Mr Chalmers on Monday acknowledged the funds’ interest in housing.
“In my conversations with super funds I’ve been really encouraged by their substantial interest in doing more to invest in affordable housing,” Mr Chalmers told The Australian Financial Review.
“They recognise we have an opportunity to work together to address some of our big national economic challenges in a way that delivers strong returns for members.”
At its Jobs and Skills Summit earlier this month, the federal government said it would use $575 million from the National Housing Infrastructure Facility (NHIF) to improve the risk/reward ratio in affordable and social housing developments, in the hope of encouraging more investment
That comes on top of our $10 billion commitment to the Housing Australia Future Fund.
Mr Towning’s call on the government to find solutions to make investing in affordable housing viable, came as MaxCap co-founder Brae Sokolski called the lack of support for housing supply “the greatest public policy failing of our time”.
“It’s a complete dereliction of duty,” said Mr Sokolski whose non-bank lending business has funded many residential projects.
Mr Sokolski questioned why there had been a jobs summit, but not a housing summit, something he found “incredibly frustrating” given purchasing apartments off-the-plan had been disincentivised by “removing stamp duty benefits”.
This he said made it impossible for developers to reach pre-sale thresholds to securing construction financing.
Mr Sokolski also joined a call across the industry to incentivise build-to-rent by providing tax offsets to make it viable for not only institutional capital, but for private capital too.
Charter Hall boss David Hall said while Australia’s build to rent sector would “get there” it would not surge and become a core institutional sector as quickly as other parts of the world until “we can get long term institutional debt secured against multifamily”.
Mr Harrison pointed to the US, where multifamily investors could secure 30-year debt from the likes of Freddie Mac and Fanny Mae.
He also called for a level playing field in terms of withholding tax to bring in foreign investors, which had funded the growth of the student housing sector.
US build to rent giant Greystar’s Australian head Chris Key said the three big headwinds hampering the sector were construction costs, the rising cost of funds – both in making debt more expensive, but also increasing investors’ return demands – and also cap rate, or yield.
“The third thing is just where cap rates going, and what the relative returns look like in our asset class versus other asset classes,” Mr Key said.
Bernard Armstrong, the chief executive of Cedar Pacific Asset Management, said state-level taxes on foreign buyers were also a drag.
“Being in Queensland… having the foreign buyer surcharge, it makes it very punitive,” Mr Armstrong said.
Industry super fund-owned Aware Real Estate chief executive officer Michelle McNally said her company was an early mover into the affordable housing sector, already owning 500 key worker units and having a pipeline of a further 1200 homes. She said tax changes were needed to create the demand for build to rent that would give the housing type scale.
“Super funds are there to actually get the best returns for their members,” Ms McNally said.
“That is their absolute primary objective. You need to look at housing as a broader living sector and the broader living sector is absolutely an institutional grade asset class internationally and there’s absolutely no reason why it can’t form that part of the landscape here as well.”