Budget 2017 promises capital gains tax discount for affordable community housing investors
Treasurer Scott Morrison’s ‘scalpel’-like approach to address housing affordability involves incentivising private investors to with tax discounts if they offer their property at below-market rents.
As part of the Budget announcement, the government will introduce a new National Housing and Homelessness agreement with the states and territories to ensure a supply of housing for those most in need. The agreement includes $375 million of government funding for housing for the homeless and those needing crisis accommodation.
Beginning next year, private investors would be offered incentives to invest in affordable housing, with a 60% discount on capital gains if they provide their property at below-market rent and to tenants on low-to-moderate incomes managed by a registered community housing provider.
The government will also establish a trust to get investors – both foreign and domestic – interested in investing in affordable housing.
“It’s a comprehensive plan, it’s not a silver bullet – nor is it intended to be,” Morrison was cited by saying in his budget lockup press conference by crikey.com.au.
Managed Investment Trusts (MITs) will be allowed to invest in affordable housing and investors who buy into these trusts will see an increase in the capital gains tax discount they receive of 60 percent up from 50 percent.
The discount, which will cost the government about $15 million over two years, helps to compensate for the lower yield on investing in social housing, according to The Australian Financial Review.
As another move to encourage investors, the government will strengthen the rent guarantee in these homes by allowing direct deductions of welfare payments from tenants. But investors must keep the property rental affordable for at least 10 years to get the discounts.
The establishment of a National Housing Finance and Investment Corporation (NHFIC) will provide $63.1 million over four years to operate a so-called “bond aggregator” that aims to provide cheaper financing for community housing providers. This is a good idea that should have a positive effect, and help address the high cost of funds that often plagues financing of housing for low-income earners, said economics professor Richard Holden.
However, the federal government's budget met with its dose of scepticism from industry players.
Sara Watts, interim CEO of City West Housing, said the budget didn't go far enough on rental affordability.
“Last night’s budget doesn’t go far enough to address affordable rental housing shortfalls in our major cities, particularly for those who may never be able to afford their own home. Nor did the government add any clarity to the discussion about the difference between affordable housing and housing affordability. As a consequence, many key workers are no closer to being able to live near their place of work," said Watts.
However, she did welcome the introduction of a National Housing Infrastructure Facility that seeks to providing long-term, low cost financing for affordable rental housing.
"This will help affordable housing developers fund the construction of high-quality affordable rental housing stock."
“For more than 20 years, City West Housing has designed, built and tenanted award-winning affordable housing for key workers in the City of Sydney area. Today, City West Housing owns and manages over 700 properties, has delivered 104 new properties into the market in 2016 and will have another 310 properties available to key workers by the end of 2019,” added Watts.
