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

A property developer specializing in affordable housing has rejected Prime Minister Anthony Albanese’s plan to give sweeteners to construction companies that build houses just for rent.

Renters in Australia’s major cities are now paying almost $1,600 a year more than they were 12 months ago.

Treasurer Jim Chalmers and Housing Minister Clare O’Neil announced new affordability standards for the build-to-rent program on Monday, requiring leases to be 25 per cent below market price.

This would apply to adults living alone earning up to $92,408 a year, couples up to $100,109 and parents up to $107,810.

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

“The affordability standards will support frontline workers on moderate incomes and other hardworking Australians to find secure, long-term rental housing in eligible build-to-rent developments.”

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

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

‘The costs of everything are too high, which means that rental income is much lower.’

Ten years ago, Mr 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, Australian rental yields are at 4.5 percent, or at a level well below the 6 percent variable mortgage rate at which developers would borrow money.

“You’re already behind – it’s not a positive cash flow and that’s before you factor in all the other costs,” Mr Assabgy said.

On top of council fees and the cost of development contributions, Mr Assabgy said developers would likely incur losses on build-to-rent projects without having sufficient cash flow – meaning the policy is unlikely to meaningfully boost housing supply.

“I like the idea of ​​buying and renting out, but I don’t think that model works in Australia,” he said.

“Because developers want to do it in Australia, they rely solely and purely on capital growth because they can’t rely on cash flow.”

Kitty Parker, director of buyer’s agent Kitty & Miles, said the build-to-rent policy would create even more shoddy apartments in Sydney.

Renters are paying almost $1,600 more per year now than in 2023 (pictured is a rental queue at Bondi in Sydney)

“Given that Sydney’s new developments are of shockingly poor quality, this program will allow already greedy developers to line their pockets even further,” she told Daily Mail Australia.

‘This will be done under the guise of ‘helping solve the housing crisis’.’

Parliament last month passed legislation that gives tax breaks to construction companies to build 80,000 new homes in complexes with at least 50 apartments over the next ten years.

Providers of build-to-rent homes should 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 in five years.

Labor won the 2022 after withdrawing an earlier plan to abolish tax breaks on existing homes for negatively geared investors and halve the capital gains tax credit from 50 percent to 25 percent.

The housing charity Everybody’s Home calculated that house rents will rise by $1,593.28 by 2024, while weekly house rental costs will increase by $30.64.

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

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

Spokeswoman Maiy Azize, who is also deputy director at Anglicare Australia, blamed the shortage of affordable social housing.

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

‘More and more people are being pushed into severe housing stress and homelessness, sacrificing basic services such as cooling on hot summer days just to pay the rent.’

Mr Assabgy argued that reducing developer costs would do more to increase the supply of affordable housing.

“That margin needs to be passed on to the customer – if they want to release more affordable housing, they need more efficient building plan approvals with less red tape and need to reduce the taxes developers pay,” he said.