WA government to cut taxes to entice 'build-to-rent' developments
/27 May 2022
This month, the WA Government announced there would be a 50% reduction in land tax as part of its 2022-23 state budget. This decision was made as part of the WA Government’s significant reforms to housing availability, to promote build-to-rent (BTR) developments.
Real Estate Institute of WA president, Damian Collins, said the positive outlook for the WA economy will see the current strong cycle for the housing market continue.
"We expect that this strength and the forecast 1.2% increase in population will continue to underpin further growth of WA’s residential sales market,” Mr Collins said.
The State Government’s decision to incentivise the construction of BTR stock acknowledges the critical role the private sector plays in delivering additional housing supply, he said.
What is ‘build-to-rent’, and how does it differ from traditional development models?
According to Canstar, build-to-rent, sometimes referred to as multi-family housing, is a relatively new model of urban housing development. Build-to-rent apartment complexes are designed and constructed by a developer who retains ownership of the building when it’s complete. The apartments are then rented out to tenants by the developer, which also manages and maintains the complex.
These developments sometimes have the backing of an institutional investor like a superannuation fund.
This represents a contrast to the traditional ‘build-to-own’ model, where a property developer might build an apartment complex and then sell the units off to individuals, who will either choose to live in them or rent them out as investment properties.
How BTR schemes may help ease the rental availability crisis
The Property Council of Australia WA’s executive director, Sandra Brewer, has stated that BTR is catching on in Australia. There are now over 20 projects live or under development across the nation.
“Despite being the first mover in the space, WA’s land tax framework meant investment shifted to other markets, despite market conditions making WA one of the most attractive and high demand rental markets in Australia,” Ms Brewer said.
“We are optimistic that the land tax reforms delivered in the recent budget will reinvigorate investor interest in WA and potentially deliver a build to rent boom in the state.”
Element 27 by Sentinel Group in Western Australia - the country's very first entirely build-to-rent development. Picture: Sentinel
With the state’s current rental vacancy rate at just 1.2%, she said encouraging BTR is key to addressing rental market challenges.
“Build to Rent developments do not rely on apartment pre-sales to access finance. They can be built quickly and added to the rental market at a faster rate than Build to Sell,” she said.
“Adding rental stock as quickly as possible will relieve the pressure across the WA market caused by record low rental vacancy rates."
Tanya Steinbeck, WA chief executive of Urban Development Institute of Australia (UDIA), mentioned that improving rental availability is a crucial part of providing people with realistically-priced housing options.
“One of the root causes of the rental shortage is the declining pool of private rentals available to the market due to a decline in investors into the housing market in WA,” Ms Steinbeck said.
“BTR offers an effective longer-term solution to many of our current and long-term rental challenges, however taxation settings have deterred investment in this sector.”
To level the playing field and encourage affordable BTR, Ms Steinbeck said the UDIA has been calling for changes to federal and state-based tax obligations, specifically relating to managed investment trusts, land tax, and GST.
“Adopting these changes and allowing time for the market to respond sufficiently will take time, however there is solid evidence that BTR projects in North America and the United Kingdom have emerged as an attractive investment opportunity for largescale institutional investors and provided a much-needed supply of affordable rental homes,” she said.
The WA Department of Communities is seeking to establish an innovative build-to-rent housing development in partnership with a community housing provider (CHP) or CHP-led consortium to deliver social, affordable and market rental housing on a government-owned site.
In a WA first, the successful CHP will provide integrated asset and tenancy management services under a Ground Lease for a period of up to 49 years.
Lot 501 Smith Street, Highgate – the site of the former public housing apartment complex known as Stirling Towers – has been selected as the prime location to deliver this innovative housing opportunity.
Located approximately two kilometres from the Perth CBD, the site offers an excellent opportunity to deliver a residential development close to public transport, schools and tertiary education facilities, retail and entertainment offerings and other key amenities.
