The Federal Government has increased rent assistance, created new tax breaks for build-to-rent projects and introduced other property initiatives in the 2023 Federal Budget.
The Australian government has also expanded the eligibility criteria for low-deposit home loan schemes and provided an extra $2 billion to lower the cost of construction of social and affordable dwellings.
The new initiatives come as the country faces a rental housing crisis, surging migration and constrained new housing supply.
Here’s a breakdown of the 2023 Federal Budget property initiatives:
Commonwealth Rent Assistance boost
The government announced a 15% increase to the maximum rate of Commonwealth Rent Assistance (CRA) from September.
At a cost of $2.7 billion, the increase is expected to equate to a $31 rise in CRA per fortnight.
CRA is the government’s largest single housing assistance program, and is paid to around 1.35 million households in the private rental market, or in community housing, who qualify for other support payments like JobSeeker, Austudy or Youth Allowance.
CoreLogic Australia Head of Research Eliza Owen said while this at least recognised challenges faced by renters, $31 per fortnight was a modest increase relative to the rise in private rent values.
CoreLogic imputed rent values suggest the national median rent has increased the equivalent of $113 per fortnight in the year to April alone.
Under the budget proposals, some households receiving CRA will also see a boost from the $40 increase for JobSeeker payments from September, continued indexation of support payments, and relief on energy bills.
However, with housing supply initiatives not scheduled until 2024, and no ceiling on rent increases for private landlords, there is a greater risk of these income supplements simply putting further upward pressure on rent values, according to Owen.
Without a meaningful increase in rental supply on the horizon, rental prices will continue to grow in the coming months.
Build-to-rent tax incentives
In this year’s budget, the government announced new tax incentives for newly constructed residential build-to-rent properties in a bid to increase rental supply.
The changes include a cut to withholding tax rate from 30% to 15% for eligible fund payments from managed investment trusts to foreign residents on income from newly constructed residential build-to-rent properties after 1 July 2024.
The depreciation rate will rise from 2.5% to 4% per year on eligible new build-to-rent projects where construction starts after May 9, increasing the after-tax returns for build-to-rent developments.
Build-to-rent dwellings must also offer a lease term of at least 3 years for each dwelling, meaning a predictable income stream for developers but also stable longer-term tenure for tenants.
While encouraging increased investment and construction of build-to-rent projects won’t help with the current pressures and low supply of rentals, advancing the build-to-rent sector could help increase rental supply in the long term, according to Proptrack Senior Economist Eleanor Creagh.
The budget states industry estimates that cutting taxes on build-to-rent developments could lead to an increase of 150,000 new rental properties over the next 10 years.
Those 150,000 additional rental properties would be a just over 6% increase to our current total rental stock over the next decade.
Andrew Purdon, the Regional Director of our Living Sectors – Capital Markets business at CBRE, said the reduction to 15% MIT withholding tax for eligible BTR projects was a very positive move from Federal Government and would undoubtedly unlock global institutional investment in the sector.
“Since the Prime Minister’s initial announcement of the tax change on 28 April, CBRE has received a notable increase in enquiries from investors across APAC, Europe and North America requesting market intelligence and guidance on how they can access the Australian BTR market,” Purdon said.
“However, some of the finer details of the new BTR policies need to carefully considered but quickly resolved by Government to provide clarity to investors and enable them to commit to new projects ASAP.”
Social and affordable housing boost
The government announced an extra $2 billion to lower the cost of construction of social and affordable dwellings.
The additional $2 billion is set to increase the National Housing Finance and Investment Corporation’s (NHFIC) liability cap from $5.5 billion to $7.5 billion from 1 July 2023.
Proptrack’s Creagh said the increased funding for social and affordable housing will help provide stable and secure housing options for those who need it, but while social housing is a good safety net for those at high risk of long-term homelessness who can’t access private housing, it is an expensive solution.
The additional billions are expected to support around 7,000 more new social and affordable dwellings, a step in the right direction, but the impending increases to rental assistance will be a better targeted measure, Creagh added.
Low-deposit home loan scheme boost
The government expanded the eligibility criteria of its First Home Guarantee, Regional Home Guarantee and Family Home Guarantee to allow more people to access them.
The changes include allowing any two applicants beyond spouses and de facto couples to apply to the programs, such as parents and children, siblings or even friends.
Non-first home buyers who have not owned a home for at least 10 years may now be eligible for the First Home Guarantee and the Regional Home Guarantee, where they already qualified for the Family Home Guarantee.
Single legal guardians of dependents may now qualify for the Family Home Guarantee, while permanent residents may now also qualify for the Home Guarantee Schemes.
CoreLogic’s Owen said the expansion of criteria made these policies fairer, but it may not make them more effective.
“The relatively high-income thresholds around the First Home Guarantee in particular may help people into housing faster, who would have achieved home ownership anyway, limiting more equitable home ownership across income distributions,” Owen said.
“If interest rates decline, these schemes will make more sense for hopeful home owners comparing the cost of taking on more mortgage debt with the ongoing costs of renting, and they will likely see more take up in the years ahead.”