KiwiSaver members’ money backing new rental properties

Thursday, 4 November 2021

The Government announced in March it was extending the bright-line test, reducing tax deductions on property investments, and would step up investment in communal infrastructure to support housing developments.

A KiwiSaver provider and a home building company have joined forces on a new build-to-rent initiative which they hope will end up as the country’s second-biggest landlord.

NZ Living announced on Thursday it would start building significant numbers of high quality, affordable homes to rent long-term with funding from Simplicity.

The build-to-rent sector was starting to take root in New Zealand, but the partnership, which was called Simplicity Living, would be using a model which was different to others.

Funds within the Simplicity KiwiSaver Scheme and the Simplicity Investment Funds would own and fund Simplicity Living through a wholesale funding arrangement.

* Interest deductibility policy is a 'tenants' tax, property investor group says

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Plans for Simplicity Living’s proposed Hinaki Street development in Auckland.

Simplicity managing director Sam Stubbs said they had billions to invest and wanted their investments to do good, while providing their members with fair and solid returns.

Investing in build-to-rent options was a well proven model overseas, he said. “Pension funds in Europe commonly invest 5 to 20 per cent of their funds this way, and achieve solid returns.

“The model is like a substitute for fixed interest rates. Rather than putting the money in the bank, members can invest in long-term rentals and get real returns of around 3 per cent.”

It was a safe, reliable investment and would be good for older people or people saving who wanted a reliable return, he said.

“But the goal of the initiative is to provide safe, healthy rental homes where people can live with dignity. We particularly want to be a good option for older people who can’t afford retirement villages and want a secure home for the rest of their lives.”

The vision was shared by the NZ Living team whose expertise and subcontractor and supplier base would be transferred to Simplicity Living, which would build the homes.

Simplicity managing director Sam Stubbs says they aim to be building and renting one home a day within 18 months.

NZ Living managing director Shane Brealey said his company had built 700 new homes which it had sold at a discount to valuation of $30 million to help first-home buyers get on the property ladder.

But he and co-owner Anna Brealey realised those homes would be sold at market price and decided to devote the next phase of their lives to building as many affordable, quality homes for renters as possible.

“Builders need capital to build though, and in Simplicity we have found our tribe. With our skill in building and managing, and their ability to fund at scale, we are well-placed to make a positive difference in the housing sector.”

Construction on the first homes, which would be fully compliant with the Government’s healthy homes standards, and Homestar 6 rated with a 100-year design life, would begin early next year.

The first development would be a 132 home apartment block in Point England. Construction would begin early next year, with the first stage of 66 apartments due to be completed in December and the second stage in March 2023.

The second development would be a 60 home apartment block in Onehunga, with construction set to start in March.

Land for further developments was being sourced now, but the plan was to start with developments in Auckland and then expand to other cities.

The Arc Onehunga build-to-rent apartment complex recently opened for viewings.

In Auckland, developments would be built in inner suburbs, in areas which were close to transport hubs, schools, and other amenities.

Once a development was completed, Simplicity members would be given the first option to rent homes. They would then be made available to the public.

Renters would be offered a one-year lease to start, and if the arrangement worked it would be extended to a long-term lease. Brealey said they hoped to eventually offer the right of occupancy to renters.

“Once a portfolio of homes has been built up, renters can move within it to suit their changing needs. So a family with children might have a three-bedroom home, and then downsize it to a one-bedroom when the children leave.”

He said this meant families, the elderly and those saving for their first home could have housing security without having to own a home.

Stubbs said they aimed to build and rent one home a day within 18 months, and in three years’ time the goal was to be building and renting three a day.

“That would work out at well over 1000 homes a year, and would make us the biggest landlord in the country after the Government. More importantly, it gives many people homes and will help to transform their lives.”

There are growing numbers of build-to-rent developers entering the market, with the ARC Onehunga apartments the latest to open its doors to renters.

But sector representatives, including the Property Council, have called for greater clarity from the Government on its legislative and tax plans for build-to-rent developments.

The Property Council estimated that, with the right policy settings, the number of build-to-rent units on the market could increase to more than 6100 units within two years, and to over 25,000 within a decade.

Build-to-rent had real potential to house more people comfortably, quickly and affordably, the council’s chief executive, Leonie Freeman, said.

“But if we want large-scale build-to-rent to be unlocked, then the Government needs to stop blocking the path to progress and accept that this could be a simple solution to help ease our housing woes.”

The Government is scheduled to make an announcement on its plans in November.