Build to Rent legislation is under the microscope

Australians will not be protected from rent gouging or other predatory landlord behaviour under a proposed government program to alleviate the housing crisis, advocates and experts say.

The federal government’s Build to Rent legislation is under the microscope after the Greens and opposition teamed up in June to send the bill to a Senate inquiry.

The scheme would give investors extra tax incentives in a bid to build 150,000 extra rental homes.

But Karl Fitzgerald, director of community land trust advocacy group Grounded, says Build to Rent could pave the way for the corporatisation of the rental market.

“This legislation rolls out the welcome mat for rent maximisation strategies,” he told the inquiry on Wednesday.

There are no protections for tenants in the bill, which means they could still receive steep rental increases.

For tenants at the Smith Collective, Australia’s first large-scale build-to-rent project, rents have grown 50 per cent over two years.

Similar to programs in the US and UK, the proposal also aims to increase foreign corporate investment in rental housing, which could reduce competition by pushing out mum-and-dad investors and lead to mass rental hikes.

For example, a software program called YieldStar has been used by property investors to coordinate rental increases for 81 per cent of properties in Atlanta.

“There’s nothing in this legislation that prepares us for what’s coming,” Mr Fitzgerald said.

Foreign capital helps improve the housing landscape and has been used to build homes for decades, Property Council of Australia chief executive Mike Zorbas says.

He even urged the government to go further in its incentives as it is projected to fall 250,000 short of its goal to deliver 1.2 million new homes.

“We are behind the eight ball some decades against most of our competitors,” he told the inquiry.

“The best parts of Australian cities since the Second World War have been built with foreign capital investing.”

Build-to-rent was a small part of the Australian market which made foreign investors valuable, Treasury assistant secretary Susan Bultitude said.

“Getting in the foreign investors who have the experience and know-how is seen as very important in supporting that industry to develop and bring in some more domestic players and who will build their experience over time,” she said.

“Attracting foreign capital means you’re getting new capital into building housing supply, you’re not just exchanging one capital for another.”

But Liberal senator Andrew Bragg Centre said incentivising home ownership for foreign investors while Australians struggled was a “perverted approach”, and Centre for Urban Research fellow Cameron Murray emphasised it isn’t necessary.

“Australian housing already attracts a huge amount of investment, there’s no problem with a lack of money,” Dr Murray said.

“It’s not clear what outcome the bill is proposing to get.”

Under the legislation at least 10 per cent of the Build to Rent dwellings will need to become affordable rentals, meaning they must be rented out at less than 75 per cent of market value.

But Dr Murray warned investors could game the system.

In a building of 100 apartments, for example, a property mogul might offer 10 studio apartments and 90 luxury dwellings.

They could abide by the government scheme by offering below-market rent on the cheapest 10 per cent of the entire project, while retaining tax advantages on the other apartments.

“You end up with second entrances for the poor people and studios being next to the garbage loading facility,” he told the inquiry.

“You’re giving away this value for free and developers are very good at maximising on all the different design changes and margins that they have access to.”

As rocketing house prices force Australians to rent for longer, the best way to support them is stricter controls on rent increases and rights for tenants to take ownership, similar to European protections, Dr Murray said.

 

Kat Wong

(Australian Associated Press)

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