An inquiry into Government Taxation Policies to Finance Affordable Housing

Abstract

This Dissertation inquiries into the history, cause, and potential solutions for housing affordability in Australia through the lens of tax policy and investment structuring. Through first determining affordability from first principles, and assessing academia into affordability, current investment conditions are assessed. Given the recent growth in Private Rental Sector investment in Australia and globally, and the focus of State and Federal governments in supporting this limb of increased housing supply, the Dissertation seeks to analyse the investment setting which justify investment into the sector in Australia. This is done to better understand the paradox of limited domestic growth of the asset class funds under management, despite significant tax reform and public discourse.

The research conducted within the Dissertation utilises a DCF Model to assess the projected returns from the Miranda Meridian project. This is done to assess both the underlying project profitability, and subsequently the key drivers of investment returns. All data is obtained from publicly available sources, providing an empirical case study of investment returns.

The model creation and utilisation offers a novel approach of assessing investments from a private investors' perspective, thereby offering an overview of the reasons for limited investment in the sector. The research demonstrates that investment is not currently justified, as noted by investment managers. It determines that the drivers of low returns are tax, investment risk and leverage. This is predominantly driven by the low yielding nature of the asset class.

The results strongly support the case for more significant tax and investment reform to achieve a justified marketplace for affordable rental projects in Australia. The current tax policies are supportive of investment, but fail to generate the required rates of return which are expressly sought by superannuation funds, and empirically proven within this paper.