Affordable rental initiative gives landlords tax deduction for discounted rents
Melbourne renter Rebecca Shiels never expected the generosity of a landlord to help her get back on her feet.
As a newly single mother, she feared for her ability to find a suitable home for herself and her young boy, in a market in desperate need of more affordable properties.
“When I separated I had nothing and was living with family and just trying to get back on my feet and the idea of renting on my own was so appealing but on the financial side of it I couldn’t do,” she said. “I have a little boy, and rentals that were in my financial capacity were not great for him, they didn’t feel safe.”
That was until she came across a two-bedroom apartment in Ormond, in Melbourne’s south-east, advertised for $300 a week — $250 below the market rate — with HomeGround Real Estate, a not-for-profit real estate agency opened in 2014.
“It’s been life-changing for me,” said Ms Shiels, who worked at a beauty salon at the time, and took a job at a tech company just before the pandemic hit. “When I found this one it was amazing. We’ve been here for 18 months now, [my son] Ted has started school here and it’s allowed me to get back on my feet.”
HomeGround reinvests its profits back into the community through Launch Housing, and in more recent times has given landlords who rent out properties for at least 10 per cent below the market rate the option to claim the difference as a charitable tax deduction.
Similar schemes are operated by HomeGround agencies in Sydney and Canberra, operating under Bridge Housing and Community Housing Canberra, respectively, and landlords offering rent reductions may also be eligible for land tax exemptions and capital gain tax discounts under other government measures.
Claire-Anne Willis is among the growing number of landlords offering reduced rents in Melbourne
“We’re of a generation where we’ve been able to acquire and earn well and we want to make sure that we’re not making it too hard for the next generation,” Ms Willis said. “My husband works in public health and I work in welfare, we know the plight of people who face challenges with the rental crisis and housing unaffordability and want to be part of the solution.
In addition to the property rented to Ms Shiels, the pair decided to bring across two other investment properties to HomeGround during the pandemic.
“We worked out what we needed in terms of a return, what would cover our bills and we decided we would [rent one property out at a] significantly lower rate, one a bit lower and then one at market rent or just below,” Ms Willis said.
Simone Curley, principal of HomeGround in Melbourne, said 95 of almost 300 investment properties managed by the agency were leased at a below-market rate, with their portfolio growing by about 75 per cent over the past year. Discounts on properties range from 10-50 per cent, and tenants must meet income-eligibility criteria.
The group saw an uptick during the pandemic “purely because people wanted to do something good, they started to see homelessness as an issue and saw that it can affect anybody”, Ms Curley said.
Tapping into the private rental market was providing much-needed affordable housing supply, Ms Curley said, and giving people the opportunity to live in areas they otherwise couldn’t afford.
“The difference it makes in someone’s life is extraordinary and we find those tenants remain in the property for longer, they’re good tenants and appreciate the opportunity,” she said.
Ms Shiels had previously tried to rent in the area but ended up moving back in with her parents because she could not afford to do so.
“I was living off credit, I couldn’t afford to live week to week. I tried for a while in an apartment but got to breaking point and had to move back in with my mum, as I was getting swamped in debt,” Ms Shiels said. “I couldn’t afford it here now [without the discount]. It’s helped me so much.”
While reducing rent was not an option for everyone, Ms Willis said, she would strongly encourage other landlords to look into the initiative — adding they could be reassured they still got a choice when it came to asking rents and tenant selection.
It’s been tougher to get landlords on board in Sydney, the nation’s most expensive property market, but interest is growing, said Fiona Ivanusa, manager of HomeGround Real Estate Sydney, which is only in its third year. The agency manages almost 260 properties, 40 of which are privately owned rentals with eight offerings discounted rent – mostly coming on board during the pandemic with an average discount of 25 per cent.
“That’s eight families who would otherwise be struggling to pay full market rent,” said Ms Ivanusa. “We are very keen to see these numbers grow. It’s heartening to know that HomeGround is making a real contribution to delivering more affordable housing in partnership with our growing number of ethical landlords.”
She noted the tax deduction, coupled with capital gains tax exceptions for affordable housing, meant landlords could leverage their investment for good with minimal impact on the hip pocket.
The initiative would not solve the severe shortage of affordable housing, but would make a difference to the individuals it helped, said Peter Phibbs, a senior research fellow at the University of Sydney, who has rented out his own Melbourne investment property with HomeGround.
“Big picture, we’re not going to solve the affordable-housing problem with individual landlords making an ethical choice; the preferable thing would be the government confronting the problem of runaway housing price, but it doesn’t look like they’ve got appetite for that,” Professor Phibbs said. “It’s not a solution, but it can make a contribution to people’s lives by providing decent housing at a good price with an ethical real estate agent.