[OPINION] Budget 2022 should back build-to-rent communities

“New Zealand has a severe shortage of quality, affordable rentals. The good news is people are presenting solutions, but they need some impetus and support from the Government to deliver these large-scale developments”, says Lowe.

Renting as a customer-centred subscription service

Lowe says renting should be a positive experience.

“Currently, renting in New Zealand means frustration and uncertainty; at any time, a landlord can ask you to move out because they’re planning to move in or sell. When you’re attached to your community or your kids are zoned for the local school, this can be devastating. As a result, Kiwis have an ‘ownership or nothing’ mindset.

“If we look to other countries, renting works well – it’s more affordable than home ownership, it’s reliable and tenants have certainty. You pay a fair price and have the option of leasing for life without being financially disadvantaged because rents are affordable. These tenants also have the option of investing the money saved by not owning a home.

“By custom-building a community of renters all living in a complex where the individual units cannot be sold, tenants can have peace of mind about tenure. They can also enjoy the security that comes with having a sense of permanence in a neighbourhood of community.

“It’s like any other subscription service – almost everything else in our lives operates on a subscription model, why not housing?”

Build to rent communities need special treatment

Large-scale build-to-rent developments have the potential to provide tenants with the certainty they deserve. Some industry players are already dabbling in these developments, and Lowe sees huge potential in these types of projects.

“But to be successful, these developments need alternative rules to the wider private rental market. There’s already separate regulations for other types of communities like retirement villages and student accommodation. Because each of these are designated as a specific asset class, the Government can set sector-specific restrictions and create different tax regimes. The same approach could easily be used for large-scale build-to-rent projects.

“These communities can be more professionally run, with an onsite maintenance service making it a more liveable, pleasant experience for tenants, resulting in lower churn. This would help to keep rents down, because the complex would really be a commercial property proposition, not a residential one”.

Incentives to increase our supply of rental accommodation

“If a specific asset class were carved out for rental communities, incentives could be introduced to encourage more developments across the country,”

“These might include tax incentives such as perpetual interest deductibility, claimable depreciation, or perhaps a specific approach to establishing the rights between the tenant and landlord – something separate from the Residential Tenancies Act and bespoke to this form of accommodation.

“Whether they are subdivisions or apartment blocks, the construction of complexes like these would inject massive numbers of jobs and cash into our economy. Attracting major institutional investors would see a lot of money flow into New Zealand along with better accommodation for thousands of renters. Foreign pension schemes are always looking for solid investments, and this sort of asset class would have real appeal.

“Of course, if the Government wants to get really serious about tackling the problem, it could get large state-owned enterprises to back build-to-rent developments – an ideal way to put some money directly into solving our housing crisis”, says Lowe

Longer tenancies, more scalability

Lowe says recent tax changes are leading to a serious constraint of supply, driving up rents and making life even harder for tenants.

“Those mum-and-dad property investors are being incentivised to buy brand-new standalone houses further from the cities, creating urban sprawl which isn’t a great long-term solution for our renting woes.

“Historically, there has been an almost unnatural Kiwi fixation on owning your own home. This same mindset isn’t apparent when compared with more mature countries around the world.  Maybe we are at that tipping point where the next generation doesn’t place so much importance on this outcome, and are happy to rent and use their surplus income for alternative investments”.

“Creating a stable, positive rental environment would be an outstanding result for the future of the 35% of Kiwi households currently renting – a number that’s only likely to rise”.

Access Dan Lowe’s full article here.