"Build to Rent" has been an emerging investor asset class around the world and refers to multi-unit residential buildings owned by a single entity - often an institutional level investor. Many significant Australian investors have been looking at the opportunity and how it stacks up in our economy.
However the release last week of draft legislation for the Governments housing affordability package from the May budget may have killed it off as an investment option before it begins. The announcement from Scott Morrison was that Managed Investment Trusts (MIT's) will be prevented from investing in residential property unless is meets the affordable housing criteria - one being that the property is managed by a registered affordable housing provider.
The Build to Rent asset class is not intended as an affordable product - but does provide long term residential rental solutions - thereby addressing the supply issues and affordability generally.
In the US it's often referred to as multi-family accommodation and it has become a significant asset class with approx. 25% penetration. While the UK's Build to rent market is still in its infancy, its rapidly growing. Other parts of Europe have a well established Build to Rent markets with the Netherlands showing one of the highest with penetration rates (up to 40%).
It's popularity in the USA and Europe should certainly warrant further attention when looking at tackling the issue of affordable housing. The Government needs to recognise this and pull back on the MIT ban and let the industry innovate to make the Rent to Build proposition workable here.
Treasurer Scott Morrison says the draft legislation “clarifies that, from today, MITs cannot acquire investments in residential property, except where it is affordable housing. This will prevent MITs from investing in houses, units and apartments to hold for long term rent other than affordable housing.” Until last week, property groups could apply for a tax ruling to confirm that build to rent satisfies MIT arrangements, which are the typical vehicle of choice for collective investment in shares, property or other fixed interest assets. The unintended consequences of the draft legislation will be to “completely close down the capacity for managed investment trusts to invest in build to rent accommodation”. Morrison says build to rent – which refers to multi-unit residential buildings owned by a single entity – is a “potential game changer” in resolving Australia’s housing affordability challenge.