Build-to-Rent is a type of development not often seen in Australia. So it was with great interest that we at Shelter NSW, learned of the NSW Government announcement in late July 2020 to encourage large-scale, rental housing supply by offering land tax discounts. But as we said at the time – we need assurances that the resulting rental housing will be affordable and tenancies actually secure before we can give this our tick of cautious approval. This hesitation was shared by many in the NSW Parliament in early August. Fortunately, important amendments have been made to the Government draft legislation – requiring that any build-to-rent model promote social and affordable housing.
What is Build-to-Rent (BTR)?
According to AHURI , the ‘build to rent’ model focusses on increasing the supply of rental housing through improving investment options and outcomes for institutional investors. As such developers and their financiers build multi-unit buildings and, instead of selling the units, retain them to rent to tenant households. These types of models are recognised as creating opportunities for longer-term (and therefore more secure) tenancies, higher quality properties and if required by authorities, more affordable rents. More on that last point later in this article.
Under the NSW Government proposal, certain build-to-rent developers will be eligible for a 50 per cent land tax discount. To be eligible, the developments will be managed under unified single ownership, include options for longer leases and, at least in metropolitan areas, deliver at least 50 units. We are yet to hear how this will apply in regional areas.
One criticism noted of this type of proposal is that the Government is effectively subsiding large institutional investors. But we accept the argument offered by the Government that the ‘discount’ is better described as correcting an anomaly which currently sees comparable ‘build-to-sell developments’ not subject to the same kind of taxation imposts experienced by the build-to-rent sector.
Doesn’t NSW have enough rental properties already?
Build-to-rent schemes, are designed to provide better quality rental properties and long tenancy agreements. Our vision at Shelter NSW is a ‘secure home for all’, so naturally we support the delivery of housing products that provide greater security. Increasingly, the reality for many Australians is that they will rent for the majority if not all of their lives. Having long-term security of tenure is a critical foundation for personal stability, health and well-being – a lifestyle not available to the vast majority of renters.
An article by Professor Harry Scheule from the UTS Business School, published in The Conversation does a good job explaining why this is such a change for NSW, and indeed Australia.
Do a straw poll at any social gathering (social distanced of course!) and you may be surprised to learn how many people are ‘landlords’. While heavily invested, both emotionally and financially, for most this not a professional undertaking. Scheule alludes to the ‘mum and dad’ euphemism that most politicians and real estate types use to describe this cohort. We at Shelter NSW would describe them as ‘amateurs’ – not to be unkind, but as an observation that for most landlords, the management of their properties and tenancies is not their life’s work! (And while we’re at, we at Shelter NSW are increasingly using the term ‘housing provider’ as we think the language of ‘landlord’ is way too steeped in the power dynamics of a thankfully, by-gone age).
So how is Build-to-Rent a better option to what we have now? According to Scheule, overseas experience suggests that corporations provide more affordable housing, and in many ways, they make better landlords. Large-scale corporate housing providers tend to avoid the heavily scrutinised and often unfair micromanagement we often seen from amateur housing providers. Longer tenancies suit them as much as they suit the tenants. The tenant gets the benefit of a tenancy arrangement that s much closer to the experience of owning one’s own home. We definitely like the sound of that.
Is the promise of improved tenancy security enough?
For us at Shelter NSW the promise (and it is just a promise at this stage) of more secure tenancies isn’t enough. What of affordability? If these more secure, better-designed rental properties go to that part of the population which already has the financial means to cope with the ‘build-to-sell’ rental markets (and its vagaries) then we think this policy change has not reached its potential.
We were pleased to see the NSW Parliament debate this very issue in early August. One important amendment proposed a requirement that the official guidelines that support the implementation of the legislation, require that any BTR development ‘promote social and affordable housing’. The amendment, moved by the NSW Labor Opposition, was passed in the Legislative Council.
But as they say – the devil is in the detail. We’ll be keeping a close eye on this policy change as the detailed regulations are implemented to see whether the spirit of this amendment is honoured.
Will this policy change make a different?
It’s hard to know. As we noted in our submission regarding the draft NSW Housing Strategy, in the absence of properly scoped and transparent targets for social and affordable housing we can’t really assess how much impact schemes like this will have. Given the gaping hole in the supply of truly affordable and secure rental properties in NSW however, we certainly believe the build-to-rent supply model warrants serious attention. It’s obvious that the build-to-sell model can’t deliver for lower income household.
We will watch this policy development with ongoing interest.