Greens Senators' Dissenting Report
1.1In its current form, the Build to Rent legislation will not do a thing to fix the housing crisis.
1.2In fact, according to expert evidence at the inquiry, the Build to Rent legislation will see tax breaks go to corporations to build expensive apartments they already planned to build. It will not see the construction of a single affordable rental.
1.3The Government will not fix the housing crisis by giving out tax handouts to property developers and foreign investors to build luxury apartments that almost no-one will be able to afford, with no protections against unlimited rent increases.
1.4Nor will they fix the housing crisis by creating a powerful class of corporate landlords likely to charge premium rents, exploit tenant data, strategically keep homes vacant to drive up rents and dodge providing genuinely affordable rentals - all while pocketing tax handouts.
1.5During this inquiry, Treasury officials admitted that the Build to Rent scheme may not actually build any affordable homes for low income families, while other experts highlighted Australian build to rent projects that have jacked up rents by 50 per cent in the last two years.
1.6Even the property industry doesn't think this plan will work. While the government has claimed that their plan could result in 150 000 more homes, according to both the Property Council and the Housing Industry Association themselves, Labor’s bill will do little to nothing to add to housing supply in its current form.
1.7In the midst of a historic housing and rental crisis, the government is tinkering around the edges, leaving millions of renters to suffer while saying the best they can do is offer tax handouts to developers to build expensive apartments they already planned to build.
1.8If the government was serious about providing affordable housing, it would phase out negative gearing and the capital gains tax discount, the massive tax handouts for property investors that drive up house prices and deny millions of renters the chance to buy a home, end unlimited rent increases by freezing and capping rents, and invest in a mass build of public housing.
1.9If the Federal Government wished to provide rentals people could actually afford, it could establish a government owned developer to build hundreds of thousands of good quality rentals, with rents capped at 25 per cent of income or 70 per cent of market rent, whichever is lower. The government could ensure the criteria was effectively universal, allowing teachers, nurses or any worker to access an affordable rental. This is modelled off successful European style public housing, for instance in Vienna.
1.10The inquiry heard evidence from multiple witnesses that the build to rent sector, both internationally and in Australia so far, has provided a “premium” rental product, focused on inner-city professionals happy to pay high rents and amenity fees:
Most build-to-rent operators openly concede that there will be a rental premium on their rental products of some 10 per cent to 20 per cent, which they justify on the basis of extra tenancy inclusions such as greater amenity and better service provision than a standard private rental. The build-to-rent model is also designed around securing increasing rents.[1]
—
The experience, for example, at the Smith Collective on the Gold Coast, which is the largest build-to-rent project in Australia is that rents there have increased 50 percent in two years, just like the rest of the coast and that most tenants take up 12- month leases rather than three-year leases.[2]
Senator McKIM: ... the Mirvac Olympic Park project, where an analysis has shown that rents were 19 to 27 per cent higher than for equivalent units even before any additional amenity fees. So I guess my question is: isn't it the fact that, for BTR projects to stack up, premium rents have to be charged?
Ms Buckeley: When we look at the headline rent, we acknowledge absolutely that it is higher than the median rents in that location, but the customer really sees it from a value perspective.[3]
We are concerned that this legislation rolls out the welcome mat for rent maximisation strategies and takes market outcomes as an article of faith over and above the monopoly power that this legislation enhances. We are also concerned that proptech allows build-to-rent to engage in surveillance pricing but we see no oversight from government in terms of requirements for developers to provide the sort of data that would reflect public-interest outcomes…This is the perfect opportunity for this to occur, and government should be ensuring that competitive supply levels are maintained, that eviction rates are monitored and that rental prices as well are investigated so that there is some public-interest return for the millions and billions of dollars of discounts handed to this new industry.[4]
1.11Concerningly, there is no reason to believe that housing built under this scheme will be any different, meaning that under this scheme the government is likely to be offering tax concessions to developers to build luxury apartments:
Senator McKIM: Are there any mechanisms in the legislation to limit above-market rent increases or to prevent or limit withholding of supply or charging premium rents?
Dr Murray: No.[5]
1.12Treasury admitted that build to rent has thus far been a “luxury proposition”, and that they had not done any modelling of what rentals prices for subsidised developments might be.[6]
1.13The build to rent bills include a provision that to be eligible for the concession, 10% of the dwellings must be “affordable”. However in the legislation, affordable is defined as under 75% of market rent for the other dwellings in the development. Overwhelming evidence was presented that under this definition, none of these so-called “affordable” dwellings would actually be affordable to low or middle income renters:
Rents in this range would be beyond the means of any household receiving a gross weekly income below the range $2,035-$2,334. Thus, the so-called affordable rent dwellings will be beyond the means of even median income households.[7]
A 74.9 per cent threshold in inner Sydney or Melbourne is not going to be affordable for anyone on social security or anyone earning under $60,000, so really this is more greenwashing…We know these are going to be one-bedroom dog boxes where minimisation is prioritised. There's really no quality of tenure to be provided in this arrangement. So it does concern me that the minimum build-to-rent is 50 and we're going to get five affordable units. It should be limited to 30 per cent of median income for the city so that it washes out some of the higher incomes in those inner-city locations.[8]
I share the view that affordability needs to be based on actual affordability—that is, affordability for those households in the lower two quintiles of income distribution. That would obviously be less than the proposed 75 per cent or so of market rents.[9]
The actual net change is not very much because you're comparing with a different apartment in the same building which is already a premium product. People have mentioned that before—that offering premium products maximises the returns to build-to-rent. If you're benchmarking the discount to the premium rate, the question is, 'What are you actually achieving here?'[10]
1.14Questioning of Treasury revealed that no modelling has been undertaking of how many affordable homes would be delivered by the bills, with their view being that it may not be financially viable for rents to be sufficiently low to be affordable by low-income households:
Senator McKim: To be clear, Treasury has done no modelling about how many of the units delivered through this proposal will be available to low-income households, so it could be none
Ms Bultitude: No, we haven't, I think within the affordable housing tenancies we haven't done any modelling as to which cohort might be part of that, and that is right, technically it could be none at that really low end. [...] One reason for that is the more that you lower the bar for the rent for those affordable housing tenancies, that does impact on the return to the project and so it may impact on whether the project is commercially viable or not.[11]
1.15Concerns were also raised that developers may seek to maximise their profits by exploiting loopholes in the affordability requirements, such as by providing low-quality, “dogbox” units where affordable tenants are forced to use separate entrances:
We know these are going to be one-bedroom dog boxes where minimisation is prioritised. There's really no quality of tenure to be provided in this arrangement.[12]
We are going to fit out those studios in the lowest quality fit-outs…In a lot of places that do inclusionary zoning like this you end up with second entrances for the poor people. You end up with the studios being the ones next to the garbage-loading facility…there [are] many margins to game the legislation by getting included but changing the composition and style of dwellings in a project to minimise the cost of the subsidy given to tenants and maximise the tax advantages given by the legislation across the whole project and beyond the 15 years.[13]
1.16Likewise, witnesses raised concerns that there are no provisions to ensure units will remain affordable after the initial 15-year period, potentially resulting in another NRAS-style rental affordability disaster:
Senator McKIM: Are there any protections in this legislation for retaining the affordable rents that the legislation provides for but after the 15-year holding period or for maintaining high-quality dwellings given the implied 15-year depreciation period?
Mr Fitzgerald: I'm really concerned about that short window and what happens between the 10- and 15-year marks. We've seen in New York a lot of private capital zeroing in on these sorts of investment opportunities in the last 10 years to really turn these into penthouse developments, so I think the 15 years should be expanded to 25, if not 40, years. Getting 44 per cent depreciation is a serious subsidy, and we need a longer window. We can't have another NRAS outcome of 15 years coming through. We know that build-to-rent will locate these dwellings, these apartments, in inner-city areas where the capital growth is higher and where at that for 15-year mark a penthouse development will be extremely lucrative, and we'll have lost supply again.
Senator McKIM: Just to be clear: there are no protections in place for retaining affordable rents after the 15- year period? Is that right?
Mr Fitzgerald: There's no incentive.[14]
1.17In addition to the Greens concern that Build to Rent housing will not be affordable, this inquiry also raised doubts about whether this scheme would incentivise the construction of any new housing at all, regardless of its affordability.
1.18While the Government has previously claimed that the bills could lead to the provision of 150 000[15] or 160 000[16] rental homes over the next decade, witnesses from the Property Council testified that in their view the bills were unlikely to lead to any new housing supply:
Unamended, it is clear that this BTR legislation is really just a sad bookmark about a type of housing supply that should—and does, overseas—attract a pool of large-scale patient capital, but won't as it stands.
Drafted as it is, this legislation won't produce much bump at all to that supply.
As the bill stands and unamended, I think it would have very significant challenges bringing in that foreign capital.[17]
So, based on the way the bill is drafted at the moment, we don't think any additional build-to-rent apartments would be produced over and above business as usual unless those technical provisions are addressed.[18]
1.19Ms Muskovic also clarified that the Property Council’s modelling which the government has referred to (of 150 000–160 000 new homes), was not of the government’s legislation as drafted, and does not include any affordable housing component, and that to incorporate affordable housing would require a higher level of tax concession.[19]
1.20According to Housing Industry Association Chief Economist Tim Reardon, this Build to Rent package was not in the HIA’s top 10 housing priorities, would not fundamentally change housing dynamics in Australia and may at best encourage ‘a small number of small scale build to rent projects’.[20]
1.21Concerningly, Treasury stated during this inquiry that they have not modelled how many additional homes may be built due to this measure[21] or what the cost may be if this sector ramps up. According to the Explanatory Memorandum,[22] the concessions are forecast to cost $10 to $20 million per year in the initial phase, which would equate to a subsidy of approximately $100 per home per year if the Government’s claims of 150 000 were to eventuate. This raises serious questions about whether the concessions are too small to be an effective stimulus, or could end up costing many times more than forecast if not.
1.22The Greens do not believe providing tax concessions to private developers and investors to be an effective way to provide affordable housing, a view which was supported by a number of experts.
1.23According to Dr Liam Davies:
When you create incentives to the private market they'll try to exploit them and try to generate more income from those subsidies than what they provide back to the tenants… NRAS, the National Rental Affordability Scheme, is a great example of this. It ran from just after the GFC and it's now winding down. It provides a flat, even concession to every investor in it, and those concessions are incredibly generous—well over $10,000 per year. If you're going to discount your rent by only 20 per cent, you make sure you put a dwelling into the scheme where the discount in rent is less than the concession you get. What do people do? They did exactly what Dr Murray suggested; they built studio apartments and one-bedroom apartments when the discount was much less. We had some universities engaging in student dwellings, and they made massive windfalls from this. I am concerned that any scheme that says it's just 10 per cent of all dwellings—it's not 10 per cent of an even cross-section of dwellings, and it's got no base for comparator to market rent—is open to similar levels of exploitation.[23]
1.24Dr Davies shared concerns that “what we've overwhelming seen over the last 20 years is a loss of government subsidy towards private capital”, and that these bills provide insufficient protection to ensure that dwellings are genuinely affordable, tenants’ rights are protected or that value for money in terms of affordability outcomes will be provided by this expenditure of public money on the build to rent sector.[24]
1.25Dr Cameron Murray made the point that Australian housing already attracts a huge amount of investment, including into build to rent housing, and that the sector is already growing without these proposed tax concessions:
We're now proposing to offer them a better tax treatment for something they're already doing….We've seen build-to-rent projects that already exist, and [which] won't change the supply of homes, want to get these tax advantages because, clearly, the tax benefit, in terms of its financial value, is much, much higher than the reduction in rent required by the inclusion of affordable housing.
It's not clear to me, as I said in my opening remarks, what the objective of the bill is. Is it to build more houses or is it to get below-market housing? If we're trying to get more houses, we've heard from many people that build-to-rent is already growing; people are already doing it without this tax change. If we want below-market housing, it's not clear why we're not just building it and avoiding managing a third party delivering the outcome we want.[25]
1.26In their submission, the Strata Community Association Queensland made the important point that institutional investors have obligations to their shareholders to maximise returns, therefore casting doubt on the ability of build to rent to provide genuinely affordable housing.[26]
1.27Further concerns were raised during the inquiry about the risks of exploitation of tenants by large corporate landlords if the build to rent sector were to gain ground in Australia, based on international experiences. Witnesses shared concerns about the use of algorithmic “rent maximisation strategies”, investors strategically keeping units vacant to drive up rents, and exploitation of tenant data. Concerningly, no protections are in place in legislation that would prevent these abuses occurring in Australia:
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 percent 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….
A tenant can receive a notification at any time of the day that their rent has just increased. As numerous interviews with property managers have revealed, doing this removes the moral consideration of that interpersonal relationship and dehumanises the process, delivering much higher rents. Because we have such poor measurements of vacancy rates, which only look at advertised vacancies and do not look at speculative vacancies held empty, this consolidation of market power as we are seeing in San Francisco, Atlanta, Spain and other places—many properties are held vacant and only released to the market at higher rents when tenants are desperate for property. That's the sort of future that this bill brings through without concern. I really think it should be brought back to the table and these sort of data privacy issues be brought to the fore, because really the only way this model works is if this data can be agglomerated and then on-sold to marketers. They're even measuring the weight of tenants' pets. They're getting down to such levels that are recorded on their databases so that they can maximise returns, whether it be dog-walking services or whatnot. Everything comes with a price now. There's no community value to it.
Senator McKIM: Just to be clear: are there any protections in the legislation, as currently drafted, for that kind of behaviour?
Mr Fitzgerald: None at all.[27]
I would agree that corporate landlords in Australia have at their fingertips a wide range of data technologies which they have expressed every intention of using to help maximise the operational efficiencies of their build-to-rent developments. I think it opens up significant questions about tenant data, tenant data security and data protection. Whether there is enough protection for renters at the moment, I am highly doubtful. There is the Residential Tenancies Act; there is very little in that and beyond that that would allow them to put up a fight against a corporate landlord behemoth that has obtained a lot of their data throughout the course of their tenancy. There have been cases in the US about rentsetting monopolies and tenant data breaches. There is no reason to believe Australia will be immune to these under our current data protection settings.[28]
1.28Australia’s housing system is broken. Countless Australians are in housing stress, with rents are increasing many times faster than wages[29] and house prices are severely or impossibly unaffordable around much of the country,[30] while government services are deeply inadequate to the scale of the crisis. Last year there were 57 519 unassisted requests for accommodation from homelessness services[31] and there are currently over 180 000 households on the public housing waitlist.[32] While home ownership rates are dropping, and for workers in most common occupations savings for a deposit or servicing a mortgage is impossibly out of reach,[33] the government is set to spend $165 billion over the next decade on tax concessions to property investors[34] that encourage speculative investment in housing, advantaging investors over first-home buyers and driving high house prices.
1.29At the same time public housing is in long term decline, falling from 16 per cent of total national residential construction between 1945-1970 to just 3 per cent from the mid-1990s onward,[35] forcing low-income households into the deeply unaffordable private rental market. Compared to the 1980s, the federal government spends five times less on public and community housing in real terms, despite our population growth.[36]
1.30The Build to Rent scheme will have no impact on these structural issues, nor is it likely to lead to any genuinely affordable housing. If the government is serious about providing affordable housing to renters, they could have an immediate impact by working with states and territories to freeze and cap rent increases, protecting renters nationwide from unlimited rent increases. While the federal government has previously claimed that tenancy conditions are exclusively a state and territory responsibility, it should be noted that this bill mandates that eligible build to rent units must offer 3-year leases, demonstrating that the government can make interventions into tenancy conditions.
1.31Alongside capping rent increases and scrapping investor tax handouts, the government could provide genuinely affordable housing by investing directly in building housing, such as by investing in more public housing stock, or via the Greens proposal to establish a public developer to build homes to be sold at cost to first-home buyers or rented at below-market rates.
1.32A number of witnesses affirmed that it would be more effective for the government to build public housing stock than try and provide affordable housing via build to rent tax concessions:
If what you're trying to do is build public housing stock or subsidised housing stock, the government should do that… We do need more public housing; we do need more public housing stock, and this is the right time to be building public housing stock, because we are at the bottom of the cycle for home building—the government will get a better return on their investment in public housing at this stage. However, public housing has a public good and should be paid for by the public.[37]
If we take this as a sum of money we're going to invest for affordable housing outcomes, what else could we get for that money? We know that giving money, granting money or lending money to registered agencies or housing providers for Australia is a very effective way of creating affordable housing that can be targeted at those who need it most.[38]
1.33The government’s Build to Rent scheme in its current form will not provide any affordable rental housing, and does nothing to address the underlying causes of Australia’s housing and rental crises.
1.34Right now millions of Australians are in financial stress due to skyrocketing rents and mortgage payments and homelessness services are being stretched to breaking point, yet the best this Government has to offer is tax handouts to property developers and investors to build luxury apartments they were going to build anyway.
1.35Instead of tinkering around the edges and dooming renters to unlimited rent increases and being forever locked out of buying a home, the Government has the chance to work with the Greens and the crossbench to genuinely tackle the housing crisis by freezing and capping rents, phasing out investor tax handouts that keep house prices high and investing in a mass build of publicly owned housing to be rented and sold at prices people could actually afford.
Recommendation 1
1.36That the Bills should not be passed unless the Federal Government makes changes towards phasing out negative gearing and the capital gains tax discount for property investors, coordinates a national freeze and cap on increases, and increases investment in public housing.
Recommendation 2
1.37That the Bills should not be passed unless they are amended to ensure that 100 per cent of the apartments are genuinely affordable, and that to access the tax concession, developers must:
Recommendation 3
1.38That increased tenancy protections, covering rent increases, tenant privacy, use of data, evictions, use of algorithms to coordinate rents, vacancy levels and affordability provisions, are essential before the government invites big corporate landlords to increase their presence in the Australian rental market.
Senator Nick McKim
Member
Greens Senator for Tasmania
Footnotes
[1]Dr Megan Nethercote, Senior Research Fellow, RMIT, Proof Committee Hansard, 7 August 2024, pp.15–16.
[2]Dr Cameron Murray, Proof Committee Hansard, 7 August 2024, p. 15.
[3]Proof Committee Hansard, 7 August 2024, p. 7.
[4]Karl Fitzgerald, Proof Committee Hansard, 7 August 2024, p. 12.
[5]Dr Murray, Proof Committee Hansard, 7 August 2024, p. 17.
[6]Ms Bultitude, Proof Committee Hansard, 7 August 2024, p. 27.
[7]Hal Pawson, UNSW, Submission 2.
[8]Mr Fitzgerald, Proof Committee Hansard, 7 August 2024, p. 13.
[9]Dr Megan Nethercote, Senior Research Fellow, RMIT, Proof Committee Hansard, 7 August 2024, p.15.
[10]Dr Murray, Proof Committee Hansard, 7 August 2024, p. 17.
[11]Proof Committee Hansard, 7 August 2024, p. 28.
[12]Karl Fitzgerald, Proof Committee Hansard, 7 August 2024, p. 13.
[13]Mr Fitzgerald, Proof Committee Hansard, 7 August 2024, p. 13.
[14]Dr Murray, Proof Committee Hansard, 7 August 2024, pp. 15-17.
[15]https://ministers.treasury.gov.au/ministers/julie-collins-2022/media-releases/building-more-affordable-rental-homes .
[16]Clare O’Neill, ABC Radio National interview, 12 August 2024.
[17]Mr Zorbas, Proof Committee Hansard, 7 August 2024, pp. 2–3, 6.
[18]Ms Muskovic, Proof Committee Hansard, 7 August 2024, p. 8.
[19]Ms Muskovic, Proof Committee Hansard, 7 August 2024, p. 8.
[20]Mr Reardon, Proof Committee Hansard, 7 August 2024, pp. 21–22.
[21]Ms Bultitude, Treasury, Proof Committee Hansard, 7 August 2024, p. 28
[22]Capital Works (Build to Rent Misuse Tax) Bill 2024, Explanatory Memorandum.
[23]Dr Davies, RMIT, Proof Committee Hansard, 7 August 2024, p. 18.
[24]Dr Davies, RMIT, Proof Committee Hansard, 7 August 2024, p. 15.
[25]Dr Murray, Proof Committee Hansard, 7 August 2024, pp. 16–17.
[26]SCAQ, Submission 15, [p. 2].
[27]Mr Karl Fitzgerald, Grounded, Proof Committee Hansard, 7 August 2024, pp. 12–13.
[28]Dr Megan Nethercote, Proof Committee Hansard, 7 August 2024, p. 18.
[29]https://www.nine.com.au/property/rentals/unit-rent-prices-rising-more-than-seven-times-as-fast-as-wages-its-a-disaster/de4c2ba2-a8a2-42bb-b936-79800f6288dc.
[30]2024 Demographia International Housing Affordability report.
[31]Productivity Commission, ‘Report on Government Services 2024: Housing and Homelessness’, 22 January 2024.
[32]Australian Institute of Health and Welfare, ‘Housing assistance in Australia’ 14 July 2023 (accessed 12 April 2024).
[33]https://www.theguardian.com/australia-news/article/2024/aug/19/australians-in-most-common-jobs-cant-afford-to-save-for-deposit-without-housing-stress-report-finds.
[34]https://www.pbo.gov.au/sites/default/files/2024-07/Cost%20of%20Negative%20Gearing%20and%20Capital%20Gains%20Tax%20Discount_0.pdf.
[35]https://australiainstitute.org.au/post/for-more-affordable-housing-we-need-more-public-housing/.
[36]https://everybodyshome.com.au/resources/written-off/.
[37]Tim Reardon, HIA, Proof Committee Hansard, 7 August 2024, pp. 20, 22.
[38]Dr Davies, RMIT, Proof Committee Hansard, 7 August 2024, p. 18.
An inquiry into the provisions of the Treasury Laws Amendment (Build to Rent) Bill 2024 and Capital Works (Build to Rent Misuse Tax) Bill 2024
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