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

A property developer who specialises in affordable housing has slammed Prime Minister Anthony Albanese’s plan to give sweeteners to construction companies that build homes just for rent.

Renters in Australia’s big 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 on Monday announced new affordability standards for its build-to-rent program, which would require leases to be 25 per cent below market price.

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

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

‘The affordability standards will support front line workers on moderate incomes and other hard-working Australians to find secure, 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 with the price of an asset.

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

‘The cost of everything’s too high which makes the rental yields so much lower.’ 

A decade ago, Mr Assabgy set up an Australian build-to-rent fund for the U.S. market, where rental yields on ‘multi-family’ projects are much higher at 16 per cent because real estate is so much cheaper.

By comparison, Australian rental income yields are at 4.5 per cent, or at a level well below the 6 per cent variable mortgage interest rates developers would be borrowing money at.

‘You’re already behind – it’s not making positive cashflow and that’s before you take into account all the other costs,’ Mr Assabgy said. 

On top of council fees and development contribution costs, Mr Assabgy said developers would be likely to be making losses on build-to-rent projects without having adequate cashflow – meaning the policy would be unlikely to meaningfully boost housing supply.

‘I love the idea of buying an asset and renting it out but I don’t think that model works in Australia,’ he said.

‘For developers want to do it in Australia, they’re relying solely and purely on capital growth because they can’t be relying on cashflow.’ 

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

Renters are now paying almost $1,600 a year more than they were in 2023 (pictured is a Bondi rent queue in Sydney)

‘With new builds in Sydney being of shockingly poor quality, this program will enable already greedy developers to line their pockets further,’ she told Daily Mail Australia.

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

Parliament last month passed legislation to give tax breaks to construction companies to build 80,000 new build-to-rent dwellings during the coming decade in complexes with at least 50 apartments.

Build-to-rent housing providers would be required to offer five-year tenancies. 

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

Labor won the 2022 after repealing a previous plan to scrap negative gearing investor tax breaks for existing homes and halve the 50 per cent capital gains tax discount to 25 per cent. 

Housing advocacy group Everybody’s Home calculated house rents have soared by $1,593.28 in 2024 as weekly house leasing costs climbed by $30.64. 

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

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

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

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

‘More people are being pushed into severe housing stress and homelessness, and sacrificing the basics like cooling on hot summer days just to make the rent.’

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

‘That margin has to be passed on to the customer – if they want to release 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.