Are investors the saviour of housing affordability?

By Lucy Dean

September 18 2017
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Investors can help turn around a national housing affordability crisis, the Treasurer has said, announcing draft legislation which offers tax concessions on certain affordable housing investments.

Young Aussie borrowers are having such a hard time buying property that one in three are turning to mum and dad for help, research from State Custodians Home Loans has reported. However, Treasurer Scott Morrison thinks new legislation which incentivises investment in affordable housing could turn that around.

The draft legislation, released 14 September, is focused around three areas:

· From 1 January 2018, investors will be able to obtain a 60 per cent capital gains discount in affordable rental housing, provided they hold the property for “at least three years”. The standard discount is 50 per cent.

· Managed investment trusts (MITs) would be able to invest in affordable housing “for the purpose of deriving long-term rent”. MITs are defined by the Australian Taxation Office as a type of trust in which members of the public can collectively invest in passive income activities like shares, property or fixed interest assets.

· As of 14 September, MITs are only able to acquire residential property classed as affordable housing. However, MITs will be able to develop or construct affordable housing property within the MIT.

Mr Morrison, together with Michael Sukkar MP argued: “This will provide further incentive for MITs to invest in affordable housing projects.”

Further, the politicians argued that the draft legislation “is crucial to maintaining the integrity of the tax base and will help direct foreign investment to where it’s needed most”.

However, not all agree with the move. The Property Council of Australia has argued the draft legislation “risks stalling build to rent before it starts”.

Build to rent refers to development schemes which, by design, are built with a focus on long term rental tenants.

“Build to rent is a potential game changer in resolving the housing affordability challenge”, said the chief executive of the council, Ken Morrison.

“We understand the government’s desire to ensure the capital gains tax concessions announced in the budget are targeted towards affordable housing.

“But the unintended consequence of the draft legislation is to completely close down the capacity for MITs from investing in build to rent accommodation.”

The council said housing affordability was a question of supply and put forward that build to rent “has the potential to harness new investment” and contribute tens of thousands of new homes while promoting greater choice for renters.

“In the US, UK, Canada and elsewhere, a scaled-up pipeline of at-market rental can help pull forward more investment in affordable rental housing.

“We need to work through solutions to ensure CGT concessions for affordable housing go where they are intended, but without preventing the emergence of genuine choice for renters via build to rent.”

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