Coalition Senators' Dissenting Report

Introduction

1.1The Treasury Laws Amendment (Build to Rent) Bill 2024 and Capital Works (Build to Rent Misuse Tax) Bill 2024 (‘the Bill’) demonstrates that the Albanese Government has given up on home ownership.

1.2The Coalition understands that home ownership is essential to the Australian dream. Owning your own home provides economic stability and security and is proven to improve personal wellbeing.

1.3Instead of supporting home ownership, this Government is pursuing a ‘rent forever’ agenda which undermines the Australian dream.

1.4This Bill seeks to entrench tax advantage for institutional investors, in a thinly veiled attempt to corporatise the Australian housing market.

1.5Coalition senators have serious reservations about the aim of the Bill. Coalition senators are also concerned that the Bill does not even achieve its purported aim because it is riddled with drafting and technical issues.

1.6Never has it been more apparent that Australians can have no confidence in this Government to tackle the housing crisis.

The corporatisation of Australia’s housing sector

1.7Labor’s Build to Rent tax concessions for institutional investors represents a fundamental shift in Australian housing policy towards corporatisation.

1.8Independent economist, Dr Cameron Murray, explained the design of Australia’s housing market to the Committee:

Almost all are owned by Australian residents directly. Sixty-seven per cent are owned by homeowners and about 30 per cent by private individuals directly, and then there's a few per cent in public housing.[1]

1.9Build to Rent developments are constructed to be rented long-term to guarantee institutional investors a predictable rental income stream.[2] In the Australian market, Build to Rent has not been widely adopted. It supplies less than 1% of rental housing stock, typically in the form of high end apartment buildings with high rents.[3]

1.10Build to Rent has had minimal cut-through in Australia because our tax settings are designed to favour individual, ‘mum and dad’ investors, not institutions. That is appropriate.

1.11This legislation seeks to tip the scales in favour of institutions through tax concessions, in order to make Build to Rent projects profitable for industry super funds and foreign fund managers. Labor thinks that institutions need a leg up over Australian first home buyers.

1.12Dr Murray was critical of the Bill’s attempted perversion of our tax arrangements:

It's not clear to me why local investors shouldn't be advantaged over foreign investors in Australian housing. I don't see that there's a good argument … for levelling the playing field there. It's not clear to me, if the intention is to attract super funds into this, why owning your own home via your super fund and renting your own home from your super fund is better than owning your own home and using that money to buy what is the best asset to own in retirement.[4]

1.13At the public hearing, the Association of Superannuation Funds of Australia (‘ASFA’) suggested that Australians would prefer Black Rock and Cbus be the nation’s landlords, and described mum and dad investors as undertaking a ‘hobby activity’:

Senator BRAGG: Do you think the Australian people want to rent their house from a super fund?

Mr Clare: I think that they would be very happy with institutionally owned residential property where there is an option of having longer-term tenancies rather than the more-typical-in-the-market situation where there is a lack of assurance of continuity of tenancy because it's a small-scale, hobby activity for individual landlords.[5]

1.14This is the view of a vested interest. Most Australians would not agree with this proposal.

1.15Other witnesses did not share ASFA’s view. Grounded Community Land Trust Advocacy told the Committee:

Senator BRAGG: Are you concerned that we are seeing a corporatisation of housing in Australia?

Mr Fitzgerald: Absolutely. This is delivering horrifying results in the Northern Hemisphere, and this legislation makes no account of that. It perplexes me that this government, which purports to be in support of labour, is allowing rent-maximisation strategies to come through unabated. Yes, I agree: pushing mum-and-dad investors out of the housing market will result in less competition. What we're seeing in the Northern Hemisphere is a horrific new software program called YieldStar, which in Atlanta coordinates rental increases for 81 per cent of rental properties. The board of supervisors in San Francisco has now banned this as a monopolistic practice. There's just nothing in this legislation that even prepares us for what's coming.[6]

1.16The Housing Industry Association pointed to the importance of Australia’s housing market maintaining a focus on individual ownership:

Senator BRAGG: But isn't it the case that the character of the housing market in Australia is largely focused on individuals? … Do you think that's a good or a bad design feature?

Mr Reardon: I think that is a very positive outcome, with the association and connection with home and with location, and a sense of place and purpose—all of those dynamics. All the evidence shows that people who own their own home are far less likely to be incarcerated and more likely to be gainfully employed. All of the evidence shows positive economic, social and cultural outcomes.[7]

1.17Australians are not interested in subsidising institutional investors. When asked what organisations would be the key beneficiaries of Build to Rent tax concessions, Treasury confirmed that foreign fund managers would be at the centre:

There are a lot of foreign investors using the MITs because of the withholding tax concessions and other benefits from using that structure, but there can also be domestic investors using the MITs; they just get a different tax regime. Those investors will be working in partnership with commercial developers to develop these buildings.[8]

1.18Cbus Super has previously committed to scaling up in the Build to Rent sector, announcing a plan to scale up its portfolio to approximately $2 billion in apartments.[9]

1.19Some of the most alarming evidence from the public hearing was that the passing of this Bill could see Australian taxpayers subsidising foreign governments in their investment in our housing market. Dr Murray warned:

I find it interesting because we've already even got foreign investment funds doing build to rent. What's even funnier is that the largest one is a foreign government. We've got the Abu Dhabi Investment Council, who owns the Smith Collective on the Gold Coast, which is 1,251 build-to-rent dwellings, and we're now proposing to offer them a better tax treatment for something they're already doing—through a foreign government. I find that a bizarre outcome of this proposed bill.[10]

1.20Approaches like Build to Rent endeavour to emulate the corporate housing model which has seen a downturn in the United States housing market.

1.21Fund managers have become the predominant landlords in the US. According to the US Government Accountability Office (‘the GAO’), large institutional investors emerged following the global financial crisis, purchasing foreclosed homes at auction in bulk and converting them into rental housing.[11]

1.22In 2023, corporate housing funds held $1 trillion USD in assets. In Atlanta, Charlotte and Jacksonville, institutional investors own 25, 18 and 21 per cent of the rental stock respectively.

1.23This corporate housing model, in order to generate a return on investment for institutional investors, relies on individuals being locked into a cycle of perpetual renting.

1.24There is a growing consensus in the US that this model has failed and is hurting prospective first home buyers. Lawmakers from both sides of politics are introducing legislation to limit institutional investment accordingly.

1.25While the US is moving away from corporate housing, the Australian Labor Party is forcing Australians into it.

A ‘rent forever’ agenda

1.26The legislation as drafted specifically prohibits any form of individual unit ownership. It cements Labor’s ‘rent forever’ agenda.

1.27The UNSW City Futures Research Centre noted that the Government’s focus on Build to Rent seems illogical:

More broadly, it seems illogical that a policy seeking to generate (sub-market) affordable housing provision in the course of market housing development is restricted to only a very small niche within overall residential development industry output. Under the current proposals it would apply to neither domestically-funded BTR projects, nor – far more importantly – to build to sell projects.[12]

1.28Australians do not want to rent in perpetuity. They want to own their own home, as their parents and the generations before them did.

1.29There is also a deep cost to the Budget as a result of Labor’s ‘rent forever’ agenda. The Parliamentary Budget Office (PBO) has found that if 35-45 year olds were able to use their superannuation to purchase their first home, this would save the budget $690 million in Commonwealth Rent Assistance over the forward estimates, and $1.8 billion over the medium term.[13] The saving arises from getting Australians into home-ownership, rather than persistent renting.

1.30The Strata Community Association of Queensland expressed a deep concern about the ‘social impact of prioritising and emphasising rental stock as a method of occupation, rather than encouraging as many Australians as possible to own their own home’:

Home ownership is demonstrated by research to have meaningful positive effects on feelings of inclusion and community. Homeowners have stronger social networks, are more likely to see friends and relatives and are more likely to be active members of clubs and associations. All these activities help ameliorate loneliness, build social connection and cohesion and ensure that people have positive human interactions. These benefits are believed to come through feelings of greater stability and security which is associated with home ownership.

Emphasising rental stock over stock for sale may have a social impact which undermines social and economic stability for a host of Australians. We would urge the Government to consider prioritising housing investment into stock which can be owned by Australians rather than allowing large corporate landlords to have a greater role in the housing mix of the country.[14]

1.31The Government wants to pass the advantages of being a homeowner that Australians have enjoyed for generations onto institutional investors:

Australians are renting a little bit longer in life, but, typically, by retirement, home ownership is still very high, and that is because of the long-term advantages to being a home owner. Of course, this is the very advantage long term that investors in build-to-rent are looking for—being a long-term owner of a home and getting those future rents.[15]

A Bill undermining its own aim

1.32Not only is the aim of the Bill fundamentally flawed, the proposed Bill will not even achieve this end. A number of witnesses told the Committee that the Bill will not increase Build to Rent stock. According to the Property Council:

In their current state, the Bills will undermine the government’s stated intention of encouraging desperately needed rental housing.[16]

1.33Mirvac offered a similar assessment:

[W]e believe the Bills in their current form will drive capital away from the housing sector in Australia. In addition, this will undo the work of State Governments who in recent years developed a suite of reforms to facilitate the roll out of BTR.[17]

1.34The Urban Development Institute told the Committee that the Bill would erode project viability, complicate investment risk, create risks of downstream ineligibility, and create punitive clawbacks and penalties.[18]

1.35Ashurst pointed to the exclusion of operational assets and assets under construction as at 9 May 2023 from the full concession, stating that it ‘creates an unlevel playing field between taxpayers, and adversely impacts investor sentiment as tax settings are capitalised into the value of existing assets.’[19]

1.36The Bill is riddled with inconsistent and unclear eligibility requirements and compliance rules.

1.37To make matters worse, the Bill will do nothing to address the supply crisis.

1.38The UNSW City Futures Research Centre told the Committee:

[T]he measures will make little or no contribution to easing unmet housing need experienced by low income Australians.[20]

1.39Labor’s new Housing Minister, Clare O’Neil, recently falsely claimed on ABC RN Breakfast that ‘the Treasury modelling for this bill tells us that we are going to have an additional 160,000 rental units online in a period of a decade.’[21]

1.40This was a major blunder by the new Housing Minister, and the claim was obviously false.[22]

1.41At the public hearing, the Treasury said they had not conducted any modelling on how many houses this scheme would allegedly deliver.

All of this goes to say Treasury have not taken a position in our modelling in our budget estimates on the additionality of housing.[23]

1.42On the claims by the former Minister, Ms Julie Collins, that the proposal could add 150,000 extra rental homes over the decade, Treasury said this was not based on any Treasury modelling:

No, that was not Treasury modelling. When something's difficult to model and there is just so little data for a nascent industry, we have to take a fairly conservative position or consider and balance the risks of to what extent we can take a stab at, as you might say, how many houses will be built. …. As I said before, Treasury hasn't been able to model additionality of housing because it's such a nascent sector, so that's not something we have.[24]

1.43Minister O’Neil subsequently apologised for the error, and said she had mistaken the Property Council’s figures for the Government’s.[25]

1.44Despite this, the Property Council has said that ‘drafted as it is, this legislation won't produce much bump at all to that supply,’ noting that their 160,000 figure is based on how the legislation ‘should have been’ rather than what is proposed by the Government.[26]

1.45This is a shocking example of Labor’s mismanagement of housing policy.

1.46Build to Rent is a priority for Labor because it aligns with their ideological agenda and vested interests. It is not a priority for those at the forefront of the housing crisis, and those Australians trying desperately to break into the market.

1.47The Housing Industry Association confirmed this reality at the public hearing:

Senator BRAGG: In terms of where this sits in the priorities for the HIA, would this be in your top 10 issues?

Mr Reardon: No.

Senator BRAGG: So you don't think this is an important issue in solving the housing challenge in Australia?

Mr Reardon: It is a component to it, but lowering the taxes, costs, charges and fees associated with the 97 per cent of homes that are built across the country is the No. 1 priority for us.[27]

1.48That the Bills not be passed.

Footnotes

[1]Dr Cameron Murray, Private Capacity, Committee Hansard, 7 August 2024, p. 16.

[2]UNSW City Futures Research Centre, Submission 2, p. 6.

[3]Australian Housing and Urban Research Institute, Submission 3, p. 1.

[4]Dr Cameron Murray, Private Capacity, Committee Hansard, 7 August 2024, p. 17.

[5]Mr Ross Clare, Director of Research, Association of Superannuation Funds of Australia, Committee Hansard, 7 August 2024, p. 12.

[6]Mr Karl Fitzgerald, Managing Director, Grounded Community Land Trust Advocacy, Committee Hansard, 7 August 2024, p. 12.

[7]Mr Tim Reardon, Chief Economist, Housing Industry Association, Committee Hansard, 7August2024, p. 21.

[8]Ms Susan Bultitude, Assistant Secretary, Corporate and International tax Division, Department of the Treasury, Committee Hansard, 7 August 2024, p. 25.

[9]Turi Condon, ‘Super fund Cbus plans to enter ‘build to rent’ sector’, The Australian, 29 November 2018, https://www.theaustralian.com.au/business/property/super-fund-cbus-plans-to-enter-build-to-rent-sector/news-story/9719c3a504c227c2a9a2593d90fa5084.

[10]Dr Cameron Murray, Private Capacity, Committee Hansard, 7 August 2024, p. 16.

[11]United States Government Accountability Office, ‘Rental Housing: Information on Institutional Investment in Single-Family Homes’, Report to Congressional Committees, May 2024.

[12]UNSW City Futures Research Centre, Submission 2, p. 4.

[13]PBO, Impact of super for housing on Commonwealth rent assistance, Costings, 2 August 2024, https://www.pbo.gov.au/publications-and-data/publications/costings/impact-super-housing-commonwealth-rent-assistance-for-35-45-age-cohort (accessed 2 September 2024).

[14]Strata Community Association (Qld), Submission 15, p. 4.

[15]Dr Cameron Murray, Private Capacity, Committee Hansard, 7 August 2024, p. 17.

[16]Property Council, Submission 6, p. 2.

[17]Mirvac, Submission 13, p. 1.

[18]Urban Development Institute, Submission 14, p. 1.

[19]Ashurst, Submission 12, p. 3.

[20]UNSW City Futures Research Centre, Submission 2, p. 10.

[21]The Hon Clare O’Neil MP, Minister for Housing, Minister for Homelessness, Interview with Steve Cannane, RN Breakfast, ABC, 12 August 2024, Interview with Steve Cannane, RN Breakfast, ABC | Treasury Ministers.

[22]Sarah Ison, ‘New minister Clare O’Neil urged to ‘reset housing agenda’’, The Australian, 12 August 2024, https://www.theaustralian.com.au/nation/politics/new-minister-clare-oneil-urged-to-reset-housing-agenda/news-story/0ec10503b8b90773d7f29d0942193409.

[23]Ms Susan Bultitude, Assistant Secretary, Corporate and International tax Division, Department of the Treasury, Committee Hansard, 7 August 2024, p. 28.

[24]Ms Susan Bultitude, Assistant Secretary, Corporate and International tax Division, Department of the Treasury, Committee Hansard, 7 August 2024, p. 28.

[25]Peter van Onselen, ‘Blundering minister Clare O'Neil is left red-faced during car crash Question Time days after starting her new job: Here's how her word salads failed to save her from an embarrassing error’, Daily Mail Australia, 13 August 2024, https://www.dailymail.co.uk/news/article-13737889/Blundering-minister-Clare-ONeil-left-red-faced-car-crash-Question-Time-days-starting-new-job-Heres-word-salads-failed-save-embarrassing-error-writes-PETER-VAN-ONSELEN.html.

[26]Mr Mike Zorbas, Chief Executive, Property Council of Australia, Committee Hansard, 7 August 2024, p. 3.

[27]Mr Tim Reardon, Chief Economist, Housing Industry Association, Committee Hansard, 7 August 2024, p. 21.