Govt urged to support build-to-rent development more

Despite growing momentum for build-to-rent developments, often heralded as part of the solution to the housing crisis, the government has been urged to make more policy changes for the sector.

Read more: Build-to-rent scheme is "not a silver bullet" for housing issues

Housing Minister Megan Woods announced in August that build-to-rent investors would be exempted from interest deductibility rules provided they made certain conditions – a move that has given the industry a boost.

According to commercial real estate firm JLL, there were currently around 700 build-to-rent units under construction and a further 1,000-plus units in the pipeline, Stuff reported.

Chris Farhi, Bayleys head of insights and data, said the sector could potentially address the nation’s housing shortage and affordability issues, and fitted well with the transition to more intensive housing.

Some believed, however, that a lack of clarity around how the Overseas Investment Act (OIA) applied has hampered investment, Farhi said.

“The industry would like the government to go further, particularly when it comes to attracting foreign investment,” he said.

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Woods said the guidance issued by the Overseas Investment Office around OIA in March was expected to provide the clarity needed to encourage the required institutional investment.

Property Council CEO Leonie Freeman said, however, that more clarity was needed and that the fact a guidance note was released showed a problem existed.

Freeman said the council members were quite clear that a guidance note was not legally binding.

“We know large institutional investment is poised ready at the country’s gates for build-to-rent,” she told Stuff. “The recent announcement of an asset class is an excellent start by the government, but we’d like to see next steps, too.”

The council was advocating for access to depreciation for the sector, Freeman said, adding that it should be simple to link OIA elements into the asset class, along with the introduction of depreciation.

“Build-to-rent is like a ‘commercial’ type of living and commercial assets already enjoy depreciation benefits, so why not build-to-rent, too?” she said.

David Hill, JLL senior director alternative investments, believed the sector would follow the evolution of the sector in Australia, and said that while the recent government announcement would play a role in larger market interest and traction, it would not necessarily be a catalyst on its own to immediate market growth for the New Zealand sector.

“In Australia, we saw a surge in interest when tax benefits in Victoria and New South Wales were announced for both reductions in annual land tax and the Absentee Owner Surcharge exemption,” Hill told Stuff. “We believe New Zealand can take lessons from the Australian market in this regard. Formalising build-to-rent as an asset class, and changes to the OIA will also be a crucial step to furthering the sector.”

Hill said the market drivers for the sector were strong as rising demand and housing supply pressure could not be satisfied by traditional housing stock alone.

“Larger-scale investors in this space will play a vital role in filling the rental market gap,” Hill told Stuff. “The foundations are now set for build-to-rent to be successful in New Zealand, and momentum has certainly begun.”