Australia: Budget initiatives on housing supply to be outpaced by demand

We believe the most significant policy measures to come through in the budget for residential building are the announced tax tweaks for build-to-rent (BTR) development.

Developers and owners of eligible BTR developments with construction commencing after budget night will be able to access both a reduced rate of withholding tax on managed investment trusts (lowered from 30% to 15% and applicable from 1 July 2024), and an increased rate of capital works tax deduction (lifted to 4% from 2.5%). Budget papers indicate that these policy changes will result in an estimated $30 million reduction in related tax receipts over the next five years.

Key points:

• Beyond announcements in the weeks leading up to the budget release, there were few surprises for the building sector on budget night.
  
• On the demand front, the budget puts a notably higher trajectory for net overseas migration on the table, with a cumulative 320,000 uplift over the five years to FY2027 compared to the October 2022 budget update.
  
• While measures aiming to boost supply have been announced, the magnitude of support is set to be marginal medium term, taking until the tail end of the decade to have a more meaningful impact.