Housing affordability was a central theme for the real estate and construction sector in this year’s budget.
The Government have sought to introduce a number of measures to increase the supply of affordable housing and put downward pressure on prices. What was obvious from the budget announcements is how few levers the Commonwealth Government has available to address housing affordability.
That said, the new measures may present opportunities for innovative developers and investors, particularly on the supply side.
The changes to Managed Investment Trusts (MIT) appear attractive on first reading. Investors will now have access to the tax concessions for MIT’s that invest in residential property so long as 80 per cent of the income of the trust is derived from affordable housing and the assets are held for at least 10 years. For foreign investors who reside in countries that have Exchange of Information agreements with Australia, MIT’s offer a 15 per cent final tax.
The eligibility criteria for these MIT’s will be stringent and it begs the question as to whether the numbers can stack up to attract investors, even with the tax concessions available. This is where the innovation from developers comes in. If they can structure an MIT with the right mix of assets to meet both the conditions for concessional tax treatment and generate yields that will attract investors, this could assist their development pipeline.
Whether this is possible remains to be seen, but it will require clarification of how “affordable” housing will be defined and how compliance with the threshold will be monitored by the Government.
"What was obvious from the budget announcements is how few levers the Commonwealth Government has available to address housing affordability."
- Sian Sinclair, Partner & Global Head of Real Estate & Construction
Another welcome measure is the $1 billion National Housing Infrastructure Facility that will be made available to local councils to target infrastructure roadblocks that are holding up new housing developments. No doubt developers will be very interested in the details of how applications will be assessed and whether it will be effective in stimulating stalled developments.
While keeping their promise to leave negative gearing alone, the Government has tinkered with some existing rules, including limiting certain rental deductions, capping the level of overseas buyers for residential developments and following Victoria’s lead on taxing foreign owned properties that are left vacant long-term. The most of telling thing about most of these changes is how limited the Commonwealth Government’s options are in tackling affordability.
The States and Territories, along with local governments have far more ability to influence the cost of housing and level of supply through reforming the likes of stamp duty, reviewing infrastructure charges and implementing more workable planning frameworks.
The suite of policies introduced in this year’s federal budget seem more about Turnbull and Morrison sending a signal that housing affordability is a priority for this Government and leading the charge for others to follow. The question now is whether the States, Territories and local councils will come to the party and give housing affordability the same level of priority.