Lower tax on BTR could bolster affordable home numbers

The Property Council of Australia is calling on government to lower the managed investment trust (MIT) withholding tax rate to accelerate the building of 10,000 affordable homes over 10 years (a key part of the government’s committment under the National Housing Accord).

According to new research conducted by EY and commissioned by Property Council of Australia, lowering the tax on build-to-rent (BTR) housing could not only bring on more affordable homes, but also protect 150,000 new homes.

Currently, the MIT final withholding tax regime affects Australian MITs, Australian custodians, and any other interposed Australian entities used by foreign investors to invest indirectly in Australian MITs.

As at 1 July 2024, developments that meet certain criteria are eligible for a reduction in the MIT tax rate applicable from 30 per cent to 15 per cent (as well as an increase in the annual depreciation allowance claimable from 2.5 per cent to 4.0 per cent).

The 15 per cent managed investment trust withholding rate could reportedly result in 150,000 apartments by 2033, according to the Property Council of Australia.

However, the council argued that by lowering the withholding tax rate for all investors (not just foreign investors) to 10 per cent for build-to-rent projects with an affordable housing component, this would facilitate a minimum 5 per cent provision of affordable housing at a 25 per cent discounted market rent.

It should be revenue neutral from a tax perspective, it added.

Property Council chief executive Mike Zorbas elaborated: “Housing supply is the challenge of the decade. We need to pull every budget lever we have to hit our housing targets and build the homes Australians need.

“This new modelling shows one cost neutral government policy improvement will throw the weight of new institutional investment behind the creation of 10,000 affordable rental homes.

“Build-to-rent is a vital component of the country’s housing puzzle, offering tenants security of tenure, enhanced amenities and properties managed by professionals.

“Without every extra dollar of institutional investment Australia can harness, hitting our national target of 1.2 million new homes will be a herculean task.”

Mr Zorbas therefore suggested that the budget include a BTR tax reduction.

“Adjusting the managed investment trust withholding tax to align with other property types was the right choice and it should remain that way to maximise the number of new homes built,” Mr Zorbas said.

“The states already have well developed plans for affordable housing as part of future development and no double up is needed.

“By reducing the managed investment trust withholding rate to 10 per cent, the government can boost the delivery of affordable homes in an asset class that offers well-located, secure, customer-led and community-oriented housing – and this change won’t cost the budget a cent.”

[Related: Qld opposition would raise FHB stamp duty threshold]