Scott Morrison hoses build-to-rent

By Leith van Onselen

Treasurer Scott Morrison has hosed a proposal to give tax breaks to managed investment trusts (MITs) that build homes for rent, claiming that it would be unfair to other investors. From The AFR:

Mr Morrison staunchly defended the government’s surprise decision last week to block managed investment trusts from buying residential property except for affordable housing.

“You cannot currently put residential properties in a MIT,” Mr Morrison told The Australian Financial Review.

“The sector is asking for a tax concession not available for Australian investors”…

[The property industry] say the move to limit the reach of managed investment trusts risks killing off build-to-rent development before it even starts, and will hamper the industry’s ability to deliver more low-cost rental accommodation…

Shadow treasury spokesman Chris Bowen on Friday slammed the move, saying the Treasurer’s announcement had ambushed the property and construction sector over a potential billion dollar addition to the real estate market.

The treasurer hit back over the weekend by lampooning Labor’s approach to housing affordability, which he said amounted to increasing taxes “on mum and dads investing in real estate while giving foreign investors a new 50 per cent tax cut.”

Major players are already gearing up to roll out build-to-rent projects, which aim to service long-term renters through an institutional landlord, a model that is well established in the US and Europe.

While the model promises to help address one of the greatest complaints of renters – the lack of stable long-term professional landlords and too many “cottage-industry” players – the economics of building-to-rent is not without challenge, given the collapse in rental yields in cities around the nation, but in Sydney in particular.

While so-called ‘build-to-rent’ sounds attractive, the practical application has been less than perfect in the United States, where hedge funds and private equity groups have been replacing individuals and small businesses in the rental market.

Here’s some of the results via the Huffington Post:

There’s no escaping the stench of raw sewage in Mindy Culpepper’s Atlanta-area rental home. The odor greets her before she turns into her driveway each evening as she returns from work. It’s there when she prepares dinner, and only diminishes when she and her husband hunker down in their bedroom, where they now eat their meals.

For the $1,225 a month she pays for the three-bedroom house in the quiet suburb of Lilburn, Culpepper thinks it isn’t too much to expect that her landlord, Colony American Homes, make the necessary plumbing repairs to eliminate the smell. But her complaints have gone unanswered, she said. Short of buying a plane ticket to visit the company’s office in Scottsdale, Ariz., she is out of ideas.

“You can not get in touch with them, you can’t get them on the phone, you can’t get them to respond to an email,” said Culpepper, whose family has lived with the problem since the day they moved in five months ago. “My certified letters, they don’t get answered.”

Most rental houses in the U.S. are owned by individuals, or small, local businesses. Culpepper’s landlord is part of a new breed: a Wall Street-backed investment company with billions of dollars at its disposal. Over the past two years, Colony American and its two biggest competitors, Invitation Homes and American Homes 4 Rent, have spent more than $12 billion buying and renovating at least 75,000 homes in order to rent them out.

This new incursion by hedge funds and private equity groups into the American single-family home rental market is unprecedented, and is proving disastrous for many of the tens of thousands of families who are moving into these newly converted rental homes. In recent weeks, HuffPost spoke with more than a dozen current tenants, along with former employees who recently left the real estate companies. Though it’s not uncommon for tenants to complain about their landlords, many who had rented before described their current experience as the worst they’ve ever had.

“I’ve been renting homes for 15 years and I’ve never had a landlord be this ridiculous about getting stuff repaired,” said Henry Cecil, who moved into a four-bedroom house in Winter Haven, Fla., owned by Invitation Homes in March. Invitation Homes is an arm of Blackstone, the largest private equity firm in the world. The firm booked more than $4 billion in revenue in 2012.

There are some legitimate questions that need to be asked before launching into build-to-rent. First, will corporatising the rental market actually result in lower rents? Second, would a listed corporation charge any less than a regular landlord, especially so when its pricing power will obviously be higher? Third, would they be more or less accountable for maintenance and costs?

The jury is out on all these questions.

Moreover, are we supposed to believe that adding such a cabal of capital gains-dependent corporations to the housing “market” will reduce its already monsterous lobbying power?

More likely, this is yet another policy favoured by the rent-seekers for the rent-seekers and aimed at sucking more lifeblood from the catastrophic market failure of Australian housing (read Australia’s youth).

If our policy makers genuinely want to ‘fix’ the housing market, they should instead tackle the following demand and supply-side distortions:

  • Normalise Australia’s immigration program by returning the permanent intake back to the level that existed before John Howard ramped-up it up in the early-2000s – i.e. below 100,000 from 200,000 currently [reduces demand];
  • Undertake tax reforms like unwinding negative gearing and the CGT discount [reduces speculative demand];
  • Tighten rules and enforcement on foreign ownership [reduces foreign demand];
  • Extend anti-money laundering rules to real estate gatekeepers [reduces foreign demand]; and
  • Provide the states with incentive payments to:
    • undertake land-use and planning reforms [boosts supply];
    • swap stamp duties for land taxes [boosts effective supply]; and
    • reform rental tenancy laws to give greater security of tenure [reduces demand for home ownership and reduces rental turnover].

These are genuine policy solutions, not policy band aids designed as a new profit centre for the property industry.

[email protected]

Leith van Onselen


  1. The best policy is one that allows most people to own their own dwellings without turning them into debt serfs.

    It is simply bull-poop of the highest order that in a country as rich and as large as Australia that there is any reason for anyone, including those on very modest incomes, who wants to own their own home, not to be able to do so.

    The so called “housing affordability” crisis is a completely manufactured state of affairs.

    We could be churning out very low cost new housing at a rate of knots but our bone headed policy makers have preferred an economic, banking and monetary model that is built around inflating the price of existing residential housing assets.

    Low cost new housing would simply destroy their model so they block it.

    It certainly does not help that a bunch of useful idiots in the ‘progressive’ middle classes are generating lots of ideas that do little but drive up the cost of developing new housing where people want to live. Policies that don’t affect the middle classes as they just commandeer the worker’s housing of the 19th century and swan around sipping kale latte’s congratulating themselves at how THEIR assets just keep going up and up and up.

    The government traditionally would buy up large tracts of farm land and service it and then sell it off at cost to young home buyers who wanted to raise a family.

    It should do so again – right up and down the coast.

    Building transport corridors out from regional towns is a lot less expensive than spending billions digging subterranean road ways across Sydney.

    At the same it can relax building restrictions for 2km around every railway station so that all those folk who hate mowing lawns and letting the kids run around can enjoy their walk up latte lifestyles as nature intended.

    “Build to Let” is nothing more than a solution to a problem that should not exist.

    • “The best policy is one that allows most people to own their own dwellings without turning them into debt serfs”
      Best for who? Our current policy is best for the people that run this joint. It’s also the best policy for transitioning to our new Chinese owners.

      • I think it best for everyone that individuals Australian are able to own their own homes if possible.

        Whether foreigners should be allowed to acquire interests in residential housing is a separate question. I don’t see why a country as wealthy as Australia requires foreign capital to build shelter so I don’t see any compelling arguments for allowing foreign investment or speculation in residential housing.

        When the proposed solution to debt driven ponzinomics is to turn the population into renters who rent from corporations who are only entering the market induced by tax incentives we losing our marbles.

      • Jumping jack flash

        Agree mal. It is a matter of perspective.
        The winners are able to con a rube into taking on a debt mountain to hand to them, and get instantly and insanely rich with no effort.
        The losers are liable for repaying every cent of the debt mountains, plus interest, and must work like slaves to repay it.

        until they can “pass it on”.

        And it will be this way for at least 40 years.

  2. there is much simpler and more effective policy that would solve affordability issue quickly:

    limit mortgages to 3 times regular income, limit repayments to 30% of contingency income and make 20% deposit from genuine savings mandatory

    what do you think median price in sydney would be after this?

  3. truthisfashionable

    I am glad he came out and clarified. It sounded dangerously close to a policy that might in some way benefit those who the liberal party might deem ‘poor’. And that would be wholly unacceptable for the donors.

    • Not sure how tying MIT’s withholding tax break to the creation of long term affordable housing product as opposed letting them chase short term capital gains amounts to shutting down something that would have helped “the poor”.

      Property spivs will claim build to rent will result in more affordable housing but unless those dwellings are part of a formally regulated (read: subsidised) affordable housing program and managed by a CHP, all you will get is a bunch of apartments being offered at market rent, owned and managed by corporate entities with all the potential pitfalls set out by UE above.

      Thank god the property industry has Chris Bowen to stick up for them though.

  4. Chris Bowen is a F’ing disgrace. Attracting large amounts of foreign money into affordable housing makes sense. Letting it loose on the broader market is not a good idea.

    Remember it was Fwit Bowen who (while assistant Treasurer under Rudd) junked the foreign buyer restrictions in 2009 which set off the first wave of Chinese buying.

    He truly is a cancer on Labor.