Land tax has been put in the firing line by experts wanting to revive Perth’s anaemic build-to-rent sector, projects they say are key to fixing the state’s nightmarishly low vacancy rate.
According to the Property Council of Australia, Perth pioneered build-to-rent in 2019, when an American company unveiled Subiaco’s Element 27 development.
Last month, the same company got the go-ahead to deliver another build-to-rent development in Scarborough, slated to be a 21-storey tower with 175 apartments.
Despite recent movement, the council said WA had lagged behind the eastern states in attracting investor interest, leaving the total number of purpose-built rentals low.
Property Council of Australia WA Executive Director Sandra Brewer said Perth’s rental crisis highlighted the need to reinvigorate the dormant sector, which she said could save a market crying out for property.
“With a current rental vacancy rate of less than one per cent, we need innovative responses to our housing affordability challenge,” she said.
“Because build-to-rent projects don’t require pre-sales, they get off the ground quickly, meaning projects deliver housing quickly, and in places where people want to live.
“It’s important to emphasise the role build-to-rent projects play in delivering quality housing for renters.
“Because build-to-rent projects are held for the long-term, projects are purpose-built for a renter market – with good daylight, well-proportioned spaces, character and amenity.”
Ms Brewer said Property Council research revealed 60 per cent of all new dwellings built over the next decade would need to be available for rent if the State Government was going to meet its 130,000 target of new private rentals by 2030.
But this figure was looking more like a pipe dream, with research by consultant Urbis finding investor finance had been diving in WA, falling to just 17 per cent last September.
It’s a different story Australia-wide, where the build-to-rent pipeline expanded by 68 per cent over the 12 months to February 2021, with 40 projects and unit totals approaching 15,000.
Roughly half of all projects were in Victoria, while Sydney had also reshaped tax to attract investors and was now home to 25 per cent of national build-to-rent numbers.
Ms Brewer said it was clear tax reform was key to unlocking the fledgling market in WA.
“Under current tax arrangements many developers find it difficult to justify developing build-to-rent assets in WA,” she said.
“Build-to-rent developers cannot offset their holding costs with early cash flows through off-the-plan sales, unlike their build-to-sell counterparts, which is why tax equalisation is vital in getting projects off the ground.
“The Property Council has proposed build-to-rent projects have land tax applied as if each unit were individually owned, equalising the land tax burden with build-to-sell projects.
“Applying this change would encourage investment in the sector and bring WA in line with other states now offering more favourable tax treatments.”
The Property Council’s opinion was shared by Ray White City Residential Selling Principal Brent Compton, who said any effort to boost Perth’s dying rental numbers was welcome.
He said his office was wearing a zero per cent vacancy rate, which was particularly thought-provoking because he had seen dozens of people palm off their properties.
“I know about two people a year for the past 20 years of my career choose to sell purely because they’re sick of paying land tax,” Mr Compton said.
“With bills like these, it eats into their rental yields and defeats the purpose – it’s just not worth it.
“Building costs are going up and products are becoming harder to find, so a build-to-rent sector needs to be very enticing for developers to take risks.
“So, I absolutely support a land tax concession.”
With Perth’s population size swelling, Mr Compton said even more inner-city apartments were likely to be soaked up, making the need for a strong build-to-rent sector even greater.
Aside from easing the city’s housing pressures, the Property Council reported that every $1 million pipelined into residential development created nine full-time jobs, with 10,000 build-to-rent units projected to support 2200 positions during the construction phase alone.