Home Australia Dire warning Albo’s radical plan to solve the rental crisis could spectacularly backfire – and leave tenants worse off

Dire warning Albo’s radical plan to solve the rental crisis could spectacularly backfire – and leave tenants worse off

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A specialist affordable housing developer has criticized Prime Minister Anthony Albanese's (pictured) plan to subsidize construction companies to build rental-only homes.

A property developer specializing in affordable housing has criticized Prime Minister Anthony Albanese’s plan to give incentives to construction companies that build rental-only homes.

Renters in Australia’s big cities now pay almost $1,600 a year more than they did 12 months ago.

Treasurer Jim Chalmers and Housing Minister Clare O’Neil on Monday announced new affordability standards for their build-to-rent programme, which would require rents to be 25 per cent below market rate.

This would apply to single adults who earn up to $92,408 a year, couples who earn up to $100,109, and parents who earn $107,810.

“These rules will open the door to more affordable rental housing for more Australians,” the couple said.

“The affordability standards will help frontline workers on moderate incomes and other working Australians find safe, long-term rental accommodation in eligible build-to-rent developments.”

But Hudson Homes chief executive Danny Assabgy said low rental yields in Australia made the idea unprofitable for developers, based on annual rental income minus operating expenses compared to the price of a asset.

“I really struggle to see how that model works successfully for a developer in Australia,” he told Daily Mail Australia.

A developer specializing in affordable housing has criticized Prime Minister Anthony Albanese’s (pictured) plan to subsidize construction companies to build rental-only homes.

“The cost of everything is too high, making rental yields much lower.”

A decade ago, Assabgy set up an Australian build-to-rent fund for the US market, where rental yields on “multifamily” projects are much higher, at 16 per cent, because real estate is so much cheaper.

By comparison, rental income yields in Australia are at 4.5 per cent, or well below the 6 per cent variable mortgage interest rates at which developers would borrow money.

“We are already behind: we are not generating positive cash flow and that is without taking into account all the other costs,” Assabgy said.

In addition to council rates and development contribution costs, Assabgy said developers would likely suffer losses on build-to-rent projects without adequate cash flow, meaning the policy is unlikely to significantly boost supply. of housing.

“I love the idea of ​​buying an asset and renting it out, but I don’t think that model will work in Australia,” he said.

“Developers who want to do it in Australia depend solely on capital growth because they can’t depend on cash flow.”

Kitty Parker, director of buyers’ agent Kitty & Miles, said the build-to-rent policy would lead to even more poor quality apartments in Sydney.

Renters now pay almost $1,600 a year more than in 2023 (pictured, a Bondi rental queue in Sydney)

Renters now pay almost $1,600 a year more than in 2023 (pictured, a Bondi rental queue in Sydney)

“Given that new construction in Sydney is of surprisingly poor quality, this program will allow already greedy developers to line their pockets even further,” he told Daily Mail Australia.

“This will be done under the pretext of “helping solve the real estate crisis.”

Last month, Parliament passed legislation to give tax breaks to construction companies to build 80,000 new rental homes over the next decade in complexes with at least 50 apartments.

Providers of build-to-rent housing would be required to offer five-year leases.

It is part of a $32 billion Homes for Australia plan to build more social and affordable housing, as Labor aims to build 1.2 million homes over five years.

Labor won the 2022 election after repealing an earlier plan to remove negative tax breaks for investors in existing homes and halve the 50 per cent capital gains tax discount to 25 per cent.

Housing advocacy group Everybody’s Home estimated that home rents have soared by $1,593.28 in 2024, as weekly home rental costs increased by $30.64.

But in Perth, Australia’s tightest rental market, annual costs had risen by $2,985.84 or $57.42 a week, and SQM Research data showed a vacancy rate of just 0.6 per cent.

Hudson Homes chief executive Danny Assabgy (pictured) said low rental yields in Australia made build-to-rent unprofitable for developers.

Hudson Homes chief executive Danny Assabgy (pictured) said low rental yields in Australia made build-to-rent unprofitable for developers.

Spokesperson Maiy Azize, who is also deputy director of Anglicare Australia, attributed the crisis to a shortage of affordable social housing.

“This Christmas, too many families will be forced to choose between paying rent and putting food on the table or presents under the tree,” he said.

“More and more people are being pushed into severe housing stress and homelessness, and are sacrificing basic things like cooling off on hot summer days just to be able to pay rent.”

Assabgy argued that reducing developer costs would do more to boost affordable housing supply.

“That margin has to be passed on to the customer: if they want to offer more affordable housing, they need more efficient planning approvals with less red tape and they need to reduce the taxes that developers pay,” he said.

House rents rise across Australia

SYDNEY: Up to $21.30 per week or $1,107.60 per year

MELBOURNE: Up to $33 per week or $1,716 per year

BRISBANE: Up to $24.63 per week or $1,280.76 per year

PERTH: Up to $57.42 per week or $2,985.84 per year

ADELAIDE: Up to $50.94 per week or $2,648.98 per year

HOBART: Up to $13.33 per week or $693.16 per year

DARWIN: Up to $37.39 per week or $1,944.28 per year

CANBERRA: Up to $49.38 per week or $2,567.76 per year

CAPITAL AVERAGE: Up to $30.64 per week or $1,593.28 per year

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