Private sector involvement in social and affordable housing:
What we heard about Build to Rent in Australia?
• There was growing interest in the potential for build-to-rent developments but seen as a nascent field with a small number of projects overall in Australia to date
• ‘Unlimited’ appetite for affordable rental housing, based on strong demand and relatively lower risk profile to private rental, and ESG outcomes
• Participants generally agreed that build-to-rent projects cannot provide affordable housing without additional subsidy – no ‘silver bullet’
• Some land tax concessions are coming into play in some jurisdictions, but not sufficient to subsidize affordable housing
• Examples of innovative investment models mainly focused on key worker affordable rental housing, rents set ‘below market rate’
• to rent model targeted at moderate-income households has also been successful, albeit on a limited number of projects
• The private not-for-profit community housing sector has been delivering build-to-rent housing for 30 years, supported by tax concessions, rental subsidies, and low-cost debt
US BTR Multi-Family Housing sector
• Low-risk stable returns have led to the established asset class, over the past ten years:
• Investment doubled to over $487 billion in 2021
• Increased to 42% of total property investment
• Supported by government-backed loans
• Avg. 300,000 new homes per year, 500,000 new homes per year in past two years, 35% of all new housing
• Approximately a quarter targeted to low and moderate-income households supported by Low Income Housing
Tax Credits
• Average 70,000 new homes per year
• Over 3.5 million homes since 1987
• 15 to 55-year affordability term, typically 30 years
• Income-restricted, rent-restricted, housing standards
UK BTR private rental sector
• Target of 300,000 new homes per year, mostly delivered by the private sector
• Tax concessions and debt guarantees for all private BTR developments
• Mandatory inclusionary zoning requiring affordable housing contributions in private residential developments
• City of London accelerated planning assessment for BTR with affordable
• By the end of 2021: 70,785 BTR units built, 42,119 in construction, and 99,273 in planning
• Around 30,000 affordable rent/London affordable rent units completed in 2022
Key ingredients for social and affordable BTR
• Cross subsidy through mixed tenure projects
• Scale and certainty of ‘gap’ subsidy, particularly to support housing for low-income households
• Right return relative to risk profile and social benefits
• Tax concessions e.g. GST, withholding tax, land tax
• Access to land either outright or through a ground lease
• Planning controls and incentives e.g. inclusionary zoning, density bonus, planning concessions
• Partnering between the for-profit sector and CHOs: regulated sector, reduced risk of rental arrears, vacancies= and maintenance, GST and land tax exemptions
• Strong policy setting, effective regulation, and efficient procurement processes
Planning frameworks for affordable BTR
• Inclusionary planning requirements
• Planning concessions/flexibility & or incentives
• Special BTR provisions
• Process: certainty, timeliness
Inclusionary planning requirements
• Requirement that % of development include affordable housing Lowers land costs & or delivers sites / enables partnerships
• Examples: South Australia, England (44% / 27,000 units overall & 13,000/31,140 affordable/intermediate rental = inclusionary ‘nil grant’ affordable)
Inclusionary planning requirements
“I think it’s just got to be mandatory and it’s just got to happen”. – Development panel participant
“I personally am very enticed by the idea of mandatory inclusionary zoning…. We have mandatory contributions for libraries and maybe healthcare clinics and indeed car parking. Why can’t we have a mandatory contribution for affordable and social housing?”. – Development panel participant
Planning concessions/flexibility/incentives
NSW Affordable Rental Housing SEPP
• Density bonus for projects including at least 20% affordable rental housing ~ 3,000 units 2009-2021 (20% discount rent; 10 years [now 15])
• Planning concessions for ‘boarding houses’ / ‘cohousing’ ~2,750 boarding house rooms
BTR planning provisions
• Permits BTR 50 units + anywhere permitting RFBs + commercial & mixed-use zones
• Can’t refuse grounds (height, FSR, parking)
• Flexible design criteria (Subsequent subdivision = apartment design guide)
• 15 years; 60% of CIV = BTR
Risks and unintended consequences of BTR
• ‘leaking’ of public assets and subsidies
• poorly built and/or maintained projects
• focus on moderate-income households, not low and very low-income
• community opposition
• tenant disruption
• the diversion of resources and opportunities from the community housing sector, and
• reputational, operational, and financial risks to government.
• Mitigation of these risks requires carefully designed programs, strong due diligence, and effective regulation and oversight by the government