Push for subsidised housing to ease construction slump

The weakness caused by higher interest rates and construction costs that reduce what consumers can borrow even as it costs more to build a new home is likely to keep new home approvals subdued this year as existing activity slows, according to Morgan Stanley economist Chris Read.

“We still see some further modest downside to both completions and activity levels that have yet to fully adjust lower, even accounting for the large pipeline of work under construction,” analysts led by Mr Read said in a research note.

The private and community housing sectors are now lobbying the government on ways to increase public funding that would allow more lower-priced rental housing to be developed than the 40,000 social and affordable homes planned over the next five years.

The Property Council of Australia says the country could create an extra 10,000 affordable rental homes over 10 years if the federal government cut the rate of withholding tax charged on commercial build-to-rent investments from the promised 15 per cent to 10 per cent.

The extra units would come on top of the 150,000 market-rate BTR units already likely over the next decade, EY modelling for the lobby group shows.

“When you take that down to 10 per cent, you then incentivise the affordable housing component at no cost to government,” Property Council chief executive Mike Zorbas said.

“You’re bringing on 10,000 additional dwellings over that period of time.”

Affordable housing refers to rental stock leased to qualifying key worker tenants such as childcare workers or teachers at a fixed discount – 25 per cent under the council’s proposal – to below market rates.

Social housing is leased to low-income tenants, mostly reliant on social security, who pay a fixed portion of their income, and requires a larger subsidy.

The federal government said in last year’s budget it would cut the 30 per cent rate of withholding tax offshore investors pay on BTR projects to 15 per cent, putting it in line with other sectors such as student accommodation and hotels, but has yet to make clear if that would require an affordable housing component.

The council warned that without a lower tax rate available to local and offshore investors, developers would be unable to include any reduced-rate rental housing in projects.

The proposal, one of a number of arguments the council will make in its submission to the federal government ahead of the May budget, is modelled on a requirement for a 5 per cent affordable housing component. Any higher requirement would not be feasible, Mr Zorbas said.

“You start to erode the viability of the investment, or decrease the delivery of affordable housing,” he said.

But the council is not the only group competing for the governments’ ear with proposals to increase housing stock amid the chronic shortage of homes and severe cost-of-living crisis.

The Community Housing Industry Association, an advocacy group for community housing providers, will push for a doubling of the government’s $10 billion Housing Australia Future Fund, set up to invest a minimum $500 million a year to secure 30,000 new social and affordable homes.

This would be a non-inflationary way to increase the volume of rental stock even more as delivery of the new homes would be staged over a long period, CHIA chief executive Wendy Hayhurst said.

Ms Hayhurst also said more affordable housing could be delivered if mandatory inclusionary zoning requirements were in place specifying a required volume of affordable rental stock when a new site was acquired.

This would push down the price that a developer was willing to pay for a site, as they would factor in the cost of developing that housing when bidding for a site, she said.

“The benefit of mandating inclusionary zoning is that the landowner takes the hit,” Ms Hayhurst said.