Housing solution given major tax boost as Australia faces 'critical problem'
A tax break will be extended 'indefinitely' for owners of new build-to-rent developments as the NSW government tries to boost rental supply in the country's most expensive property market. The change was announced today ahead of the state budget, alongside rules to help fast-track infrastructure.
The NSW budget will extend the 50 per cent land tax discount on build-to-rent developments indefinitely. The tax break was due to expire in 2039 under the previous government.
University of Queensland Professor of Finance Shaun Bond told Yahoo Finance build-to-rent could have a 'big impact' on the landscape of Australian housing over the coming years and was 'key' to taking some pressure off the market.
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'The key problem we have in Australia is we just haven't been building enough homes. This is a critical problem that was severely exacerbated during Covid when all the supply chains shut down and we've seen a big increase in material costs and a lot of building companies went out of business,' he said.
NSW Treasurer Daniel Mookhey said the measures announced would give developers the certainty they needed to build more homes faster.
'We are making sure we build the homes we need, along with the essential infrastructure we need to go with them,' he said.
'Extending the tax incentives for build-to-rent will make it easier for developers to build, and give renters more choice.'
Property Council NSW executive director Katie Stevenson welcomed the measures and said there was no time to waste, given we are still falling short of the government's goal of building 1.2 million homes by 2029.
'Making the BTR exemption permanent provides long-term certainty to investors and developers, helping to enable more high-quality rental homes to be delivered across NSW,' she said.
To be eligible for the tax concession, a building must be owned by a single owner and manager and include at least 50 rental dwellings.
Build-to-rent is an established practice in the UK and USA, but it is still a fairly new concept in Australia.
Residential apartments are usually built by developers, with units sold off one by one. With build-to-rent, the units are designed specifically for renters and are held in a single ownership and professionally managed.
They usually build a large number of units, with some having 200 or 300 units. They may offer longer-term lease options, better security for tenants and more rental housing choices in areas people want to live.
Investors are pouring billions into the sector, with more than 8,900 dedicated build-to-rent apartments under construction in Australia at the end of last year and a further 20,000 units approved for development over the next five years.
Other states like Victoria also have a 50 per cent land tax discount in place to encourage build-to-rent properties.
Bond said one of the advantages of build-to-rent was that it helped bring supply on more quickly.
'You have maybe a large pension fund or institutional investor who might be able to provide large amounts of capital, because you could need $100 million or more for a big new development, and they can make that decision pretty quickly to go ahead,' he told Yahoo Finance.
'Because they have the resources, they can team up with a big developer and bring that property online.
'Whereas the traditional model in Australia has mainly been a developer will propose a new development, and then they'll have to do pre-sales, so it might take you two years to get the 60 or 70 per cent pre-sales you need to start construction.'
Build-to-rent properties can also have a bigger focus on lifestyle factors for tenants.
'They'll really focus on the amenities that they offer to a tenant, because they want the tenants to stay there and be happy,' Bond said.
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