Today the Australian Government is likely to return its Housing Australia Future Fund (HAFF) to the Parliament.
It remains vital to increase the supply of social and affordable housing in our wealthy and land-rich nation. 30,000 federal homes and another 10,000 from states would certainly help.
Alongside the government’s recent $2 billion pledge, the HAFF will be important to the ‘one-million well-located homes by 2029’ target announced in the 2022 Budget.
Hitting this national housing supply target and improving national planning systems will put sustainable downward pressure on prices for renters, buyers and governments over time.
A shame then to realise a whole new threat is emerging to the million homes housing target and the good work of polices like the HAFF.
The government is about to perform a slow-motion own goal on housing that will hit supply in the rental market hardest.
The important but obscure Thin Capitalisation Bill currently before the Senate Economics Legislation Committee will more than undo the government’s good housing efforts to date.
The changes buried in this Bill immediately put 20,000 new homes in jeopardy across the country without delivering on the stated aims of the legislation.
In fact, if the Treasury Laws Amendment (Making Multinationals Pay Their Fair Share – Integrity and Transparency) Bill 2023 cannot be improved, it will ultimately throw into doubt the feasibility of an estimated 150,000 apartments over the next decade.
As estimated by EY, these 150,000 homes were the national supply dividend of recent government efforts to level the playing field for investment in build to rent housing.
Unamended, the government can probably wave goodbye to their ‘one million well-located homes 2024-2029’ target, as set in the October 2022 Budget.
To be clear, the Property Council supports the stated objectives of the Thin Capitalisation Bill in the government’s original policy announcement and Second Reading Speech, which were limited to integrity measures to prevent base erosion, not a problem in the institutional property space.
This latest draft of the Bill goes well beyond that aim and more than cancels out recent positive housing policy efforts.Â
Under the proposed draft legislation, the property industry would not have access to third party debt deductions, which are a pillar of the property trust financing structure.
The feasibility of projects in the property industry very often relies on the involvement of third-party capital partners into the development of our housing industry.
In one of scores of examples, a pipeline in excess of a thousand apartments, worth more than two billion dollars and commencing next year will no longer be able to go ahead because the investment assumptions no longer stack up.
In fact, all property trusts would currently fail to meet the new third-party debt test under the legislative framework, effectively making the policy unworkable for the property sector.
The changes immediately put Australian property trusts at a disadvantage to our major trading partners who carve out institutional property trusts from similar regimes, acknowledging, as our regime should continue to do, that the institutional property sector does not pose a genuine risk of profit shifting. Â
If the Bill is passed without the targeted and specific amendments we propose, it will also materially reduce the allocation of global capital into the Australian institutional property sector which, beyond housing, builds the largest productive parts of our cities from logistics hubs to our CBDs.
Like all governments that genuinely seek to encourage investment in new housing social, affordable and at-market supply, this government is to be commended for recognising the fastest paths to new housing across Australia remain setting housing targets, creating incentives for more housing supply and fixing broken state planning systems.
The government also increasingly understands the benefits of boosting helpful customer-focused service-aggregating communities like purpose-built student accommodation, retirement living communities and build-to-rent housing.Â
The Thin Cap Bill is now putting 150,000 new homes in the balance and yet there is no institutional property profit-shifting or base erosion as far as the eye can see.
The upcoming Senate review process will give the government a chance to avoid kicking this Bill into the back of their own policy net at a delicate stage in the national housing crisis.
For sake of their own housing targets, let’s hope the government pivots in time.