Over 4200 build-to-rent homes are on the way

Thursday, 21 March 2024

The Arc Onehunga build-to-rent apartment complex in Auckland.

There are 850 build-to-rent homes under construction and a further 3395 in the development pipeline, the Property Council says.

The build-to-rent model, which involves the development of multi-unit residential buildings for long-term rentals rather than sales to individual owners, has been slow to get off the ground in New Zealand.

But the council has launched a tracker to record the progress of build-to-rent projects, and it showed development in the sector was picking up pace.

At the end of December, there had been 1307 build-to-rent homes built, while 4245 were on the way, with 850 currently being built, the tracker showed.

Most of the development was in Auckland, with 1096 homes built, 724 under construction, and 3350 in the pipeline.

In Wellington, Waikato, Canterbury and Otago, 41, 69, 59, and 42 homes had been built, but only Wellington had more coming with work on 108 underway. There was also 45 planned for Bay of Plenty.

But Property Council chief executive Leonie Freeman said there was huge opportunity for projects to help alleviate the pressure on rental markets in places like Queenstown, Wellington and Tauranga.

Greater certainty for build-to-rent investors will lead to more housing options for renters, the Property Council’s Leonie Freeman says.

Not only could it deliver significant new housing supply in cities, but it had the potential to transform smaller centres where tight rental markets had made finding a home very difficult for renters, she said.

“The tracker data reveals build-to-rent momentum is building as work done by successive governments on legislative changes beds in.”

Housing Minister Chris Bishop recently announced amendments to the Overseas Investment Act to better support developments by streamlining consent pathways.

The previous government established a build-to-rent asset class, and restored interest deductibility to it.

Freeman said the last of the big legislative issues the sector wanted to see addressed was depreciation settings.

If it gained access to depreciation, the combination of legislative levers would generate significant interest from local and overseas investors and unlock the sector’s potential, she said.

“It’s all about certainty. The more certainty we can give potential investors, both overseas investors and Kiwis whose KiwiSaver funds are invested in the sector, the more likely they are to invest in build-to-rent here, and the more housing options renters will have.”

An artist’s impression of Simplicity Living's planned build-to-rent development in Ellerslie, Auckland.

Research from Australia, where build-to-rent was more advanced, showed that as the sector became more accessible and investor interest grew, developments spread across the housing continuum.

“They start at market level, but affordable options will start to come onboard as the range of investors grows. We are seeing a bit of that already with Simplicity’s developments which stand in that space.

'I’m keen to see more community housing projects, but impact investors will start to get involved, and will provide more opportunities for growth in that space, which we desperately need.”

She was heartened to see the growth that was taking place already, and by the interest expressed by council members. Previous modelling by the council suggested members could deliver up to 25,000 new homes over a decade.

Built-to-rent would not solve the housing crisis, but it was a part of the solution, and a lever that could be used to improve the situation, Freeman said.

“Mum and dad investors do a great job, but we have a big shortage of rental stock, and especially stock with guaranteed long-term tenure. Build-to-rent can open up those options more.

“One thing people get wrong are the concerns about foreign ownership. Even with strong local investor support that would not deliver 100% of the stock we need. We simply don’t have enough big institutional investors to do it on our own.

“Overseas investors won’t take over the market. Rather, it will be a proportion of overseas investor money coming in to support the sector.”

The end result would be a big increase in the supply of rentals with permanent long-term tenure, and that shift would have a positive impact for tenants, she said.

“But the next step is probably more education directed at the general public about what build-to-rent is, how it works and the opportunities it offers.”

Housing Minister Chris Bishop said the Government did not have plans to amend depreciation setting for build-to-rent developments at this stage.

The Government’s focus was on making it easier for overseas investment in to build-to-rent, he said.

“The feedback we’ve had from the market is that’s the fundamental change that is required. There’s a lot of potential offshore capital that wants to come in and get engaged in build-to-rent.”

That was the reason behind the amendments to the Overseas Investment Act announced a couple of weeks ago which would make it easier, he said.

The council’s tracker would be updated quarterly, and would keep tabs on what was being developed, and how the sector was evolving. It was produced in collaboration with real estate firms JLL, Colliers, Savills, CBRE and Bayleys.