On 9 May 2023, the Federal Government delivered its 2023-24 Budget (Budget).
For the Australian property industry, the Budget includes several measures which aim to improve housing affordability and encourage investment in Australia's property market. These measures include:
new tax incentives for build-to-rent projects;
an increase in Commonwealth Rent Assistance;
investments in social and affordable housing; and
investments in urban development.
We outline these measures briefly below.
New tax incentives for build-to-rent projects
The Budget commits to new tax incentives for build-to-rent properties where construction commences after 9 May 2023. The Federal Government has said that it will:
- reduce the managed investment trust withholding tax rate on eligible fund payments to foreign residents from 30 per cent to 15 per cent, where those payments are attributed to newly constructed build-to-rent developments; and
- increase the depreciation rate for the capital works tax deduction from 2.5 per cent to 4 per cent per year.
These measures aim to attract investment in Australia's housing sector by increasing returns and improving post-tax cashflows on eligible build-to-rent developments.
Increase in Commonwealth Rent Assistance
The Budget pledges an investment of $2.7 billion over five years to increase the maximum rates of Commonwealth Rent Assistance by 15 per cent.
This means that individuals who receive the maximum Commonwealth Rent Assistance could be eligible to receive around an additional $800 per year in rent support.
Investments in social and affordable housing
The Budget pledges a $2 billion increase of the National Housing and Finance Investment Corporation's (NHFIC) liability cap.
This increase will enable the NHFIC to lend more funds to community housing providers for investment in social and affordable housing projects.
Investments in infrastructure
Finally, the Budget commits $687.4 million over the next six years toward urban development across Australia which it says will help create more liveable suburbs. These commitments include:
$211.7 million toward establishing the Thriving Suburbs Program to provide grants for community infrastructure; and
$159.7 million toward establishing the Urban Precincts and Partnerships Program to support investment in local urban communities.
The Budget's build-to-rent tax measures will make build-to-rent projects more viable for local and international investors alike.
The increase in the NHFIC's liability cap will likewise be welcomed by social housing providers for the ways in which it will enable greater investment in social housing supply.
While the increase to Commonwealth Rent Assistance will help recipients better manage cost-of-living pressures in the short term in the face of strong rent growth, it will take some time before the Budget initiatives that aim to boost supply in rental housing begin to have an effect on rental prices.
This is commentary published by Colin Biggers & Paisley for general information purposes only. This should not be relied on as specific advice. You should seek your own legal and other advice for any question, or for any specific situation or proposal, before making any final decision. The content also is subject to change. A person listed may not be admitted as a lawyer in all States and Territories. © Colin Biggers & Paisley, Australia 2023.