Build-to-let developments are springing up across the country, but the industry says it faces challenges that prevent it from growing to the point of making a difference.
The build-to-rent model, which involves the development of multi-unit residential buildings for long-term rental rather than sale to individual owners, has been touted as part of the solution to the housing crisis. lodging.
It has become a major part of the rental market and a sought-after investment asset class in Europe and the United States, and is currently taking off in Australia.
But progress has been slow in New Zealand, despite a growing number of build-to-let developments completed or underway.
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A recent report by commercial real estate firm JLL identified government regulation and policy holding back investors as the reason.
Real Estate Council chief executive Leonie Freeman said there are two main constraints to the growth of the build-to-let market.
“One is the lack of clarity in the foreign investment law which discourages the investment needed to keep the sector humming. The other is the removal of interest deductibility which, although it does not apply to new builds, will potentially apply to build-to-let developments.
Building-to-rent won’t thrive in the market without government support, but the only thing stopping immediate large-scale construction is some tweaks to government legislation, she says.
“No government subsidy or investment is required, just a clear signal from cabinet that quality, long-term rental accommodation in large numbers is needed at this time.”
If the conditions were right, developers estimated they could deliver at least 25,000 rental units within 10 years, she said. “If allowed, build-to-let could transform the rental sector with quality homes offering security of tenure, and a professionalism that New Zealand has yet to discover.”
Many developers are waiting to see what happens to government policy before committing to a build-to-let project. But New Ground Capital managing director Roy Thompson says momentum is building in the sector, with new players entering the market.
His company was the first to bring a build-to-let development to market. In 2018, it built 49 townhouses and walk-up units in Whenuapai and leased them to the New Zealand Defense Force for 10 years.
Since then he has completed developments in Hobsonville and Queenstown, which are a mix of apartments and townhouses, and offer long-term rent of three to seven years.
It now has over 50 unit developments in Glen Innes, Mangere and Mt Albert under construction, while projects in Panmure and Tauranga are moving forward but are at an early stage in the process.
Thompson says their rentals are in high demand. They have no vacancies in their portfolio and over 900 families are on the waiting list for upcoming offers.
“Tenants tell us how much they appreciate having security of tenure in a modern, high standard home with a professional landlord. We look after them to the best of our abilities and they feel like they are treated like respected customers rather than short-term tenants.
“This is a victory for everyone, because our ambition is to improve the lives of tenants in this country. But the challenges ahead are many.”
As Freeman pointed out, the government’s decision to limit overseas investment in housing means that property developers are 100% dependent on New Zealand funding, unlike developers of pensioner or student housing who can access foreign investment, he said.
“These are just different forms of housing, so it’s ridiculous that our sector isn’t also able to get foreign capital to build. The government doesn’t see the problem, but that’s what’s stopping more developers from getting into this business. »
ARC Residential and Simplicity Living are two of the new players in the neighborhood. ARC is currently leasing its recently completed $30 million 48-apartment building in Onehunga, while Simplicity has 500 homes under development with construction underway on its first blocks in Point England and Onehunga.
Both companies want to improve the lot of tenants and ease the pressure on the market, and have other developments underway. Simplicity, which has a different funding model, has some particularly big plans.
Simplicity chief executive Sam Stubbs said he plans to start by building 250 building units for rent per year, which will grow to 1,000 per year.
“Our ultimate goal is to have 10,000 units filled across the country. If we achieve this, we would be the second largest landlord in the country after the government. We will also provide very sustainable and reliable returns to our investors. »
There’s no tradition of large institutional rental properties here, so it’s important to get it right for everyone involved, he says.
“Tenant relations have long been unequal. We want to provide people with good quality homes that they can live in safely for the rest of their lives if they choose.
The tragedy is that even if Simplicity did meet its targets, it would only supply about 5% of the rental housing demand because so many people are looking for reliable rental solutions, Stubbs says.
The demand for rental housing is huge, with more than 600,000 tenant households and this figure is expected to increase over the next few years. But there is a shortage of supply, with recent data from Trade Me showing options dwindling.
National Housing Party spokeswoman Nicola Willis said the situation was desperate and the country was crying out for new ideas on housing supply.
Building for rent is one that could make a difference, she says. “If the Minister acts quickly on this, it could make a big difference and deliver many new high quality rentals, and the investment in these would be welcomed by everyone.”
She has drafted a Boost Build-to-Rent housing bill, which addresses two of the main concerns raised by potential investors in the sector.
This would exempt build-to-let developments from certain aspects of the Foreign Investment Act in the same way as retirement villages and homes and student hostels. It would also treat the properties as commercial property under the Income Tax Act.
Willis wrote to Housing Minister Megan Woods last year asking her to support the bill, but other than the acknowledgment she heard nothing more. At a select committee meeting on Wednesday, she asked HUD officials about it and they were told it was being considered.
“But this government has been talking about build-to-let for years, and now is the time to act. National is ready to do what it can to help with that.
In response to Things Asked what the government’s plans are for build-to-let, Woods says that in addition to established rules on interest deductibility, where exemptions for new construction apply to purpose-built rentals, there are more policy work underway on other potential incentives.
But the Property Council’s Freeman says a healthy dose of political will is needed before the industry can scale to meet demand.
“We need the government to create an asset class specifically for build-to-let to make it clear to investors that New Zealand is open to investing in build-to-let and make it a more development and investment opportunity. viable.”
While past assurances from the minister that decisions would be made were encouraging, at the moment the industry was waiting, she said.
“There has been a lot of positive reassurance and whispering, but we have yet to see any real traction from the government. The ball is in their court.”