The Federal Government tells us that housing affordability is all about supply. They also tell us that they care about rental affordability and that's why they won't deal with important reforms to negative gearing.
This makes it all the more perplexing that Treasurer Scott Morrison has chosen, without any consultation, to kill off an emerging sector in Australia which could have played a role in increasing the supply of rental accommodation.
'Build to rent' isn't a big thing in Australia. But it has potential -- $300 billion worth of residential assets, according to CBRE. Or it had potential before Scott Morrison decided to kill it.
'Build to rent' is simply corporate investment in large scale rental accommodation. It has become quite a big thing in the UK and the United States. In the UK, as of last month there were 17,000 build to rent units completed, with another 24,000 under construction and nearly 55,000 granted planning permission. In the U.S., the build to rent market is valued at US $163 billion per year.
But it is more than just the simple addition to supply. There are other advantages of having a 'build to rent' sector. Large scale rental accommodation provides economies of scale, with lower construction costs leading to potentially lower rents.
The Parliament should insist on a proper review of the 'build to rent' sector and its potential part in the Australian policy landscape.
Experience in the UK points to some high quality offerings with well-developed communal facilities, attractive to segments of the rental market which don't necessarily search for stand-alone houses. And with relative light tenant rights laws in Australia, it is worth noting that corporate or superannuation fund landlords would be highly unlikely to evict tenants to move into the property themselves or because the landlord has decided to sell -- giving good tenants peace of mind and enhanced security of tenure.
With our large pool of savings in superannuation, Australia is well placed to develop an institutional investor rental market. More and more, experts and participants in the housing industry have spoken to me about the potential for the development of a 'build to rent' sector as a potential part of the solution for housing affordability in Australia. Not a silver bullet, but part of the answer.
There are some issues to work through, like the interaction of the GST system with 'build to rent', but these are things which genuine consultation could deal with in time.
But all that potential came to an end on September 14, when the Treasurer announced he was banning Managed Investment Trusts from investing in housing, apart from narrowly defined affordable housing. The announcement was with immediate effect. Not a minute worth of warning nor a skerrick of consultation.
Just last May the Government handed down what they told us was a comprehensive housing affordability plan in the budget. This crackdown wasn't mentioned. If there is a compelling and urgent case for this policy, wouldn't it have come up as the government was going about designing their package?
The Treasurer has doubled down on his decision, claiming it is about the fairness of the tax system. I welcome his newfound interest in matters of equity in tax. But of all the elements of the Managed Investment Trust regime which could be the subject of legitimate scrutiny and debate he chooses to close down the one area that was showing potential to contribute to alleviate our housing affordability crisis.
If the Treasurer wants to initiate a debate or review of concessions that managed investment trusts receive, that's fine by me. But I will oppose clunky policy on the run with negative implications.
It's not too late. While the Government is seeking to ban the practice immediately, it requires legislation to do so. The Parliament should insist on a proper review of the 'build to rent' sector and its potential part in the Australian policy landscape. It would be a shame to see this sector get killed by policy.