Are build-to-rent apartments Auckland's future? Property Council conference ponders concept

Build to rent apartments - Auckland's future? Photo / file

The concept of solving Auckland's housing shortage via the rapidly emerging international build-to-rent concept - creating tenants for life - was posed today by a Sydney specialist addressing more than 400 Property Council NZ delegates.

Chris Key, managing director of Greystar Asia Pacific in Sydney, said Australia and New Zealand had high urban population concentrations but also housing shortages and build-to-rent meant apartments were never available for sale, only leased to tenants by businesses that owned them.

The concept was called multi-family in the United States where it was more common. Greystar did not have a presence in New Zealand but the business had built thousands of apartments globally, he said.

The sharing economy drove an appetite for more rental housing, he said: "A new generation of consumers want to increasingly share vehicles, rent homes and borrow goods. I don't need a drill, I need a hole in my wall," one slide said.

Germany, England, Holland, Japan, Asia and more latterly Australia had thousands of build-to-rent places, he said, because of low levels of housing affordability in those markets.

Fostering the growth of the sector was a priority in New South Wales to tackle unaffordable housing and was encouraged by the state government, Key said.

Institutional development and ownership of the lifetime-leased build-to-rent apartments resulted in scale, more development, professional management and high levels of amenities, Key said.

To work, at least 50 self-contained apartments needed to be developed in one project, held in single ownership, often a financial institution. Six to seven times the standard of on-site management were common at build-to-rent complexes, Key said. That kept standards high.

Greg Tolley of Kiwi Property at Sylvia Park where build to rent is pondered. Photo / Brett Phibbs

Professional institutional ownership enabled higher service levels and different motivations to small-time landlords, he indicated. Professional maintenance meant on-site repairs were attended to swiftly and residents had access to an effective system to report problems, Key said.

Lease terms could be a few weeks to more than a year. Tenants were not evicted because of a change of ownership, as in most rental situations, he said. White goods could be provided and fully furnished options offered.

Swimming pools, dedicated pet exercise areas, laundry services, bike hire and free Wi-Fi could be offered to attract tenants.

Key showed images of build-to-rent places overseas "and they don't look much different to the apartments in Auckland".

He showed images of a planned South Yarra project in Melbourne by Greystar Asia Pacific and Sailmakers at the Isle of Dogs in London. Investors in the Canary Wharf Tower included Bank of America, Morgan Stanley, KPMG, HSBC Tower, Barclays, Credit Suisse and JP Morgan.

Barriers limiting build-to-rent in New Zealand included the Overseas Investment Act limiting investors, tax issues, the Residential Tenancies Act, lack of equity capital and investors and difficulties debt financing such schemes, Key said. Creating the sector would require policymakers to "collaborate to unlock the potential", Key's slide said.

Build-to-rent was "fantastic" because it smoothed out development cycles, provided more housing and resulted in job creation: "We build it, we own it, we invest in the community for the long term".

The New South Wales government had recently announced a 50 per cent land tax discount and removal of foreign surcharges for new build-to-rent housing projects, Key said.

And the scheme is highly lucrative: "Apartments have out-performed in prior periods of economic turbulence," a slide said, showing absolute returns by asset classes where apartments out-stripped retail, industrial and office real estate returns.

A United States survey of 11.4m units showed high levels of apartment rent collections allowing for better revenue management throughout various property cycles.

Build-to-rent apartments had resilient rental growth and occupancy, Key said, citing figures from Melbourne and Sydney, which had "delivered consistent rental growth and low vacancy, providing resilient income streams".

Paul Winstanley, head of research and consultancy at JLL NZ, showed the conference videos of people overseas talking about build-to-rent's popularity, security of tenure, amenities and the strong institutional investment appetite. "Horror" stories about renting in the UK were countered by more professional build-to-rent schemes, one supporter said.

Stephen Patterson, managing director of NZ Finance Partners, said build-to-rent schemes were being proposed in this country: "We want to see more housing developed and good quality housing", but he also cited barriers to investment.

Kiwi Property has long held ambitions to investigate building hundreds of apartments around its Sylvia Park mall at Mt Wellington, giving it a rising perpetual income stream with what will be tenants for life living in its new properties.

Chief executive Clive Mackenzie said of the city's tenancy scene: "More than half of Aucklanders are already renting and it's taking longer for people to save for a house deposit. Covid-19 is likely to compound these trends, reinforcing build-to-rent's attractiveness as an asset class in New Zealand."

Host Mary Lambie said more than 370 people were at today's registration-only virtual conference being run from Auckland "and it's not all Zoom and gloom".

Leonie Freeman, Property Council chief executive, said housing was one of New Zealand's biggest issues and she cited the need to solve blockages and barriers to delivering more houses.

The residential summit was scheduled for March 25 - alert level 4 lockdown's first day and further delayed by Auckland entering alert level 3. Rather than continuing to delay, the council decided to hold its first virtual conference and Freeman said 420 delegates, speakers and attendees had Zoomed in, including Auckland Council deputy mayor Bill Cashmore.