Housing Minister: Policy advice sought on build to rent sector

Paul Majurey, Megan Woods and Mark Todd. Photo / Alex Burton

Housing Minister Megan Woods says the Government has sought new policy advice on build-to-rent projects which she sees as one of the solutions to getting more housing.

In her keynote address to the Property Council's two-day national conference which opened today, Woods talked extensively about the concept where new developments are built specifically for long-term rental, particularly by corporate and institutional investors.

That is a big change in New Zealand because most rental property is older housing, not purpose-built, owned by mum-and-dad investor landlords who have on average one to three rental properties.

Under a more corporate structure, thousands of purpose-built apartments are rising and planned, developed by professional entities for permanent rental, often with amenities not provided to tenants elsewhere.

Kiwi Property's plans for Sylvia Park, beside the Pak'nSave. Photo / Supplied

Asked today what incentives were being considered to encourage more build-to-rent developments in New Zealand, Woods said policy advice was coming soon.

In March, Te Tuāpapa Kura Kāinga the Ministry of Housing and Urban Development established a purpose-built rental reference group to explore issues and test ideas related to the build-to-rent sector, she said.

That group is made up of various sector representatives including the private sector, the community housing sector and iwi, she said.

"I have asked my officials at HUD to report back to me on issues raised by the group and the broader build-to-rent sector. These issues include constraints within the Residential Tenancies Act and the Overseas Investment Act and concerns relating to the recently announced changes to interest limitation settings," she told Property Council delegates.

Conference delegates asked Woods about possible law changes to encourage more build-to-rent schemes, particularly amendments to the Residential Tenancies Act, building depreciation policy and mortgage interest deductibility on new builds.

The Government certainly saw build-to-rent as providing advantages, she said.

"All of this advice is being gathered together. It will be coming soon," she said.

Build-to-rent developments could bring more institutional capital to encourage the expansion of new housing supply, she said, as well as providing more choice for tenants, she said.

Her comments follow Kiwi Property's announcement this week that it planned 540 new build-to-rent apartments at Sylvia Park and LynnMall, which would cost about $442 million to develop.

Woods said BTR was "a far more stable form of rental accommodation". She referred to people being able to put down roots and school attendance.

She is talking to officials about ways the Government could encourage this form of investment.

A lack of rental supply to meet growing demand was a key problem for the housing sector, she said.

"I know a number of investors and developers are interested or have begun to develop build-to-rent. This type of rental development has the potential to increase the supply of housing serving the intermediate housing market – broadly the large group of people who do not qualify for public housing, but who may not be able to afford to purchase or may not want to own a home.

Build-to-rent in this planned tower at LynnMall. Photo / Supplied

"It also provides an opportunity to attract more institutional capital towards the construction of new housing supply and redirect investment away from the trading of existing investment properties.

The shortage of a good supply of high-quality, well-located and well-managed rental properties offering secure tenure at affordable rents helps explain many of the poor outcomes many New Zealanders who rent continue to experience, she said.

"This Government has made positive steps in this area, for example, recent amendments to the Residential Tenancies Act and removal of land constraints under the National Policy Statement Urban Development," she said.

While build-to-rent properties had been delivered already, "including by some of you here today", the New Zealand market was small and there are some barriers to its further development, she noted.

"Many of these constraints are common across all forms of residential property development and this Government is committed to supporting more affordable housing supply across all forms of housing, including build-to-rent," she said.

Du Val Group has also put out an offer for $17.5m, those funds going into build-to-rent.

The Du Val Build-to-Rent Fund LP forecast returns of more than 8 per cent annually. That fund closed on January 31.

Du Val says it has a $750m pipeline of new work and cites CBRE research last year to claim to be New Zealand's largest private suburban apartment developer.

Du Val says BTR properties are large residential developments purpose-built for occupants seeking long-term rental accommodation.

The fund now owns two purpose-built sites with a total of 171 units.

Colliers has also produced research on BTR.

"New Zealand's archaic residential tenancy laws, combined with the fact that residential investment has been the retirement saving fund of choice for individuals, typically with little capital, means that the renting experience has not been a pleasant one for many tenants," it said.

But BTR could change that and result in well-managed residential rental accommodation, it said. BTR was an active sector in Britain where around 110,000 new residential units were planned to add to the current stock of about 30,000 such operational residential units, Colliers said.