I recently did a post talking about why Labor’s “new” Affordable Rental Housing Policy will not solve the affordable housing problem in Sydney and Melbourne.  You can find that post here

In this post, I talk about what I would do to solve rental housing affordability in our key cities.

Firstly, consistent with Labor’s proposed policy, to encourage the construction of new affordable housing, we need to provide an incentive for the landlord to offer properties at below market rent.

But this is where I disagree with Labor. 

Labor’s incentive is a fixed dollar amount irrespective of property location, size or cost.  But this incentivises investors to gravitate to lower cost properties in lower cost locations.

To stop this, it is my view that the incentive should relate to the property itself.  For example, a $750,000 house in Sydney should get a higher rebate than a $395,000 one-bedroom apartment in Adelaide.   

And I feel the logical way to determine the rebate is to tie this to the amount of GST paid on each new property.  For the $750,000 Sydney house, there is $68,182 in GST paid by the purchaser.  On the $395,000 one-bedroom apartment in Adelaide, there is $35,910 in GST paid by the purchaser. 

So, for the $750,000 Sydney home, I propose that the rebate would be $68,182 spread over 10 years at $6,818.20 per annum.  For the one-bedroom apartment in Adelaide, I propose that the rebate would be $35,910 spread over 10 years at $3,591 per annum. 

In effect, the investor gets a GST rebate for renting the property as affordable housing. 

To document the GST, every new property constructed gets a GST certificate stating date of completion, sale price and amount of GST in the sale price.  Irrespective of the developer / builder.

Finding the appropriate tenant

Now the second part of providing affordable housing is to find appropriate tenants.   And this is where I believe it makes sense to use the skills and experience of community housing providers.

If the landlord wants to offer the housing at a below market rate, they approach approved community housing providers (who are not associated with the developer / builder).  These housing providers vet the potential tenant to confirm they are qualified to rent at the agreed below market rate (say 80% of market rent).  The housing provider gives a certificate confirming this and receives a one-off fee for this.  This is a bit like the let fee most landlords pay their property manager for each new tenant.

The landlord rents the property at the below market rent to the tenant.  If the tenant leaves, the landlord approaches the community housing provider again.

At tax time, the landlord signs off that they have:

• rented to an approved tenant at the agreed market rent.
• the certificate(s) from the community housing provider.

The landlord then claims each year a rebate of 1/10 of the GST detailed in the GST certificate (assuming the property is rented for a full year).  They can claim this for the first 10 years only.

If the tenant stays more than say two years, the landlord has the community housing provider re-confirm that the tenant is still eligible for the below market rent.

If the landlord sells the property, the GST certificate and the eligibility to claim the tax rebate goes to the new owner, providing they rent the property to approved tenants at the agreed below market rate.

The benefits of this proposal

The benefits of this proposed Affordable Rental Housing Plan include:

• the value of the rebate relates to the value of the housing;
• tenants for the affordable housing are vetted by approved community housing providers.
• Stops developers over pricing property as they do not know if the property will be used for affordable housing.
• Community Housing providers get access to properties without having to incur the construction costs.
• People get access to affordable housing.
• Landlords now have an incentive to rent below market

And the maximum cost of this is just effectively refunding the GST paid on the property in the first place.

PS I will declare that I am a director of a Registered Community Housing Provider

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