The housing crisis in New Zealand has been a topic of heated debate, with various solutions proposed to address the ever-growing demand for affordable housing. One such proposed solution is the build-to-rent model, which is gaining significant traction, thanks to the recent passing of the Overseas Investment (Build-to-Rent and Similar Rental Developments) Amendment Bill. This legislation has made it easier for foreign investors to enter the build-to-rent market, a move that has sparked both optimism and concern among stakeholders. This article delves into the various aspects of build-to-rent housing, weighing its potential benefits against the criticisms, and exploring whether it can truly be a viable solution to New Zealand’s housing woes.
Understanding Build-to-Rent Housing
What is Build-to-Rent?
Build-to-rent housing is distinct from rent-to-buy or buy-to-rent models. It refers to medium- or high-density housing developments, typically comprising at least 20 units, which are constructed exclusively for the private rental sector. Unlike traditional housing, these units are not sold to individual buyers but are owned by a single entity, usually institutional investors like sovereign wealth funds or iwi, and are managed professionally. This unique characteristic of build-to-rent housing enables a different approach to property management, aimed at providing long-term rental solutions rather than focusing on short-term gains through property sales.
In New Zealand, the build-to-rent model has been gaining momentum, especially after it was classified as a separate asset class in 2022. This classification has allowed for the implementation of specific laws and regulations tailored to govern these developments. Among these regulations, a notable one mandates that build-to-rent landlords offer tenants leases of up to 10 years. Moreover, landlords can claim interest costs from their taxes indefinitely, provided they adhere to this long-term leasing requirement. This regulatory framework aims to create a more stable and secure rental market for tenants while encouraging investment in new housing developments.
Classification and Regulations
The classification of build-to-rent as a separate asset class in New Zealand in 2022 was a significant milestone for this housing model. It allowed for targeted laws and regulations that cater specifically to the unique characteristics of build-to-rent developments. One of the key regulations is the requirement for landlords to offer tenants leases of up to 10 years, which is significantly longer than the typical lease terms offered by traditional landlords. This long-term lease provision is designed to provide renters with greater stability and security, addressing one of the significant concerns in the rental market.
In addition to long-term leases, build-to-rent landlords can also benefit from tax exemptions, such as the ability to deduct interest costs indefinitely, provided they manage developments of at least 20 dwellings. This tax benefit is intended to incentivize the construction of new rental properties, thereby increasing the overall housing supply. However, this provision has also been a point of contention, with critics arguing that it creates an uneven playing field for traditional “mom and pop” landlords who do not enjoy the same tax advantages. Despite these criticisms, the regulatory framework for build-to-rent aims to balance the interests of investors and tenants, promoting a more stable and secure rental market.
Potential Benefits of Build-to-Rent
Increasing Housing Supply
One of the primary arguments in favor of build-to-rent housing is its potential to alleviate New Zealand’s housing crisis by significantly increasing the supply of homes. Unlike smaller landlords who may purchase existing properties, build-to-rent investors generally focus on constructing new developments. This approach not only adds to the overall housing stock but also ensures that the new units are specifically designed for the rental market, meeting the needs and preferences of modern renters. By increasing the housing supply, build-to-rent developments can help put downward pressure on rents and house prices, making housing more affordable for a broader segment of the population.
David White, a property expert, has pointed out that the introduction of more rental units of better quality can be beneficial for the market as a whole. Build-to-rent housing tends to offer longer-term tenancies, which provide renters with more stability and certainty regarding their living situations. This stability is particularly important in a housing market where renters often face uncertainties related to landlord decisions, such as selling the property or moving in replacements. By offering secure long-term housing options, build-to-rent developments can contribute to a more stable rental market, benefiting both renters and the broader housing ecosystem.
Quality and Stability for Renters
Build-to-rent housing tends to offer modern, high-quality units designed specifically for the rental market. Unlike traditional rental properties, which often cycle through owner-occupiers before reaching the rental market, build-to-rent units are built with renters in mind. This means that they often come with amenities such as gyms, pools, and communal spaces, providing renters with a higher quality of living than typically found in older, converted rental properties. Additionally, these units are professionally managed, ensuring that maintenance and repairs are handled promptly and efficiently, further enhancing the rental experience.
The longer-term tenancies offered by build-to-rent developments also contribute to the stability and quality of life for renters. Tenants in these developments are less likely to be displaced by landlords selling the property or moving in replacements, making it a more secure long-term housing option. This stability allows renters to establish roots and become part of the community, fostering a sense of belonging and well-being. The Green Party’s Julie Anne Genter has expressed support for the build-to-rent model, highlighting that homeownership should not be the only pathway to secure and affordable housing. By providing high-quality, stable rental housing, build-to-rent developments can play a crucial role in addressing the housing needs of New Zealand’s growing population.
Lifestyle Enhancements and Community Benefits
Modern Amenities
Build-to-rent housing developments typically include modern, high-quality units that come with a range of amenities designed to enhance the lifestyle of tenants. These amenities often include gyms, pools, communal spaces, and sometimes even coworking areas, providing renters with facilities that might otherwise be out of reach in traditional rental properties. By offering these features, build-to-rent developments cater to the needs and preferences of modern renters, who are increasingly looking for more than just a place to live—they seek a community and lifestyle.
These units are designed specifically for renters, which means they are often better suited to the needs of tenants compared to traditional housing stock. In traditional settings, new housing often goes through owner-occupiers before eventually reaching the rental market, by which time the properties may have become worn and outdated. With build-to-rent developments, renters can enjoy high-quality living spaces right from the start, without the wear-and-tear associated with older properties. This focus on quality and modernity ensures that renters have access to better living conditions, contributing to their overall well-being and satisfaction.
Convenient Locations
Build-to-rent developments are often strategically located in convenient areas, close to transport corridors and essential amenities. This strategic placement not only enhances the quality of life for residents but also promotes a more sustainable and connected lifestyle. With easy access to public transport, residents can commute more efficiently, reducing their reliance on private vehicles and lowering their carbon footprint. Proximity to local amenities such as shops, restaurants, and healthcare services further adds to the convenience, making daily living more manageable and enjoyable.
The larger scale of build-to-rent developments often prompts the establishment of additional nearby amenities, creating a more vibrant and cohesive community. This can include everything from parks and recreational facilities to schools and community centers, contributing to the overall quality of the neighborhood. Furthermore, large institutional landlords who manage these developments tend to have more stable and predictable financial practices compared to small-time landlords, who may face financial pressures leading to sudden rent increases. This stability can provide tenants with more predictable and manageable housing costs, further enhancing their quality of life.
Criticisms and Concerns
Concerns have been raised about the SEC’s cautious approach. Critics argue that the ongoing delays undermine confidence in the regulatory body and hinder innovation in the cryptocurrency industry. They contend that a clear and decisive regulatory framework is crucial for market stability and growth. Others worry about the potential impact on investors and market participants who seek clarity on the status of Ethereum-based ETFs. As the SEC continues to deliberate, the industry remains in a state of uncertainty, awaiting a concrete decision.
Profit Over Tenant Wellbeing
Despite the potential benefits of build-to-rent housing, there are several criticisms and concerns that need to be addressed. Critics argue that institutional investors driving these developments are primarily motivated by profit maximization, which can compromise the well-being of tenants. This concern is not unfounded, as experiences from countries like the United States have shown that corporate landlords often prioritize short-term profits over tenant happiness and safety. Issues such as insufficient maintenance, passing repair responsibilities to tenants, and a lack of responsive management have been highlighted as significant concerns.
Tenants in such situations often find themselves dealing with distant landlords who are more focused on cost-cutting measures rather than providing quality living conditions. This can lead to a sense of neglect and frustration among tenants, who may struggle to have their needs and concerns addressed promptly. The emphasis on profitability can also result in rent increases and stricter tenancy rules, further exacerbating the challenges faced by renters. While build-to-rent developments have the potential to offer high-quality living spaces, ensuring that tenant well-being is prioritized remains a critical challenge.
Risk to Public Housing
Another significant concern is the potential risk to public housing. Critics argue that the move towards build-to-rent developments could divert land and resources intended for social housing to private, profit-driven projects. This shift could undermine efforts to provide affordable housing for low-income families, exacerbating the housing crisis rather than alleviating it. Vanessa Cole, a campaigner for Public Housing Futures and ActionStation, has voiced worries that sell-offs to international investors would lead to more rentals tailored for the profit of a few, rather than addressing the housing needs of those most in need.
The focus on build-to-rent could result in a reduction of land available for public and social housing projects, limiting the options for low-income families who rely on government-supported housing. The Green Party, while supportive of the build-to-rent model in theory, has also expressed concerns that more public housing would have a greater impact on alleviating the housing crisis than private, profit-driven developments. Ensuring that build-to-rent developments do not come at the expense of public housing is essential for creating a balanced and equitable housing market.
Evictions and Tax Exemptions
Increased Evictions
The potential for increased evictions is another significant concern associated with build-to-rent developments. Studies from the United States have suggested that corporate landlords are more inclined to evict tenants compared to smaller, individual landlords. This trend persisted even when accounting for various neighborhood factors, raising alarms about the stability and security of tenancies in build-to-rent developments. Given that no-cause evictions were reinstated in New Zealand in January, there are fears that eviction rates among build-to-rent tenants could rise, leading to greater housing instability.
The risk of eviction can have far-reaching consequences for tenants, causing disruptions to their lives, employment, and children’s education. The possibility of facing eviction can also create a constant sense of insecurity and stress for tenants, affecting their overall well-being. Addressing these concerns requires robust tenant protection measures and regulations that ensure build-to-rent landlords cannot exploit loopholes to evict tenants unjustly. Ensuring that tenants have recourse to fair treatment and protections against arbitrary evictions is crucial for creating a stable and secure rental market.
Tax Exemptions and Economic Impact
Build-to-rent landlords in New Zealand benefit from several tax exemptions, which have been a point of contention. Specifically, they can deduct interest costs indefinitely as long as they offer long-term leases and manage developments of at least 20 dwellings. While this provision is intended to incentivize the construction of new rental properties, critics argue that it creates an unfair advantage for build-to-rent landlords over traditional “mom and pop” landlords. The latter group, which comprises smaller, individual landlords, does not enjoy the same tax benefits and may find it challenging to compete in the rental market.
There is also concern that profit from foreign-owned build-to-rent developments would flow overseas, ultimately benefiting international investors rather than the local economy. Critics like Lawrence Xu-nan from the Green Party have noted that while the government might view these developments as a success, the real gains are accruing to foreign investors. This raises questions about the long-term economic impact and whether build-to-rent developments truly serve the best interests of New Zealand’s housing market and economy. Ensuring that the benefits of build-to-rent housing are aligned with the broader goals of affordable and sustainable housing remains a critical challenge.
Alternative Solutions
Public Sector Leadership
While build-to-rent housing presents several potential benefits, some experts and housing advocates propose alternative solutions that emphasize public sector leadership. These alternatives include the establishment of a ministry of public works, a green investment bank, a state lending agency, and other mechanisms that encourage government-led initiatives in housing policy. By taking a more active role in addressing the housing crisis, the public sector can implement policies that prioritize affordable and sustainable housing for all segments of the population.
Supporting tino rangatiratanga in housing policy, which refers to Maori self-determination, is another proposed measure to address the housing crisis. This approach emphasizes the importance of incorporating indigenous perspectives and solutions in housing policies, ensuring that the needs and aspirations of Maori communities are met. Fair taxation of housing, expanding state and community housing, enhancing renters’ rights, and tackling homelessness are other critical components of a comprehensive housing strategy. These measures, when implemented collectively, can create a more balanced and equitable housing market that serves the diverse needs of New Zealand’s population.
Comprehensive Strategy
The housing crisis in New Zealand continues to ignite passionate debates, with numerous solutions put forth to meet the urgent need for affordable homes. One promising solution being discussed is the build-to-rent model, which has recently gained significant momentum. This surge in interest follows the passage of the Overseas Investment (Build-to-Rent and Similar Rental Developments) Amendment Bill. The new law facilitates easier access for foreign investors to the build-to-rent sector, a change met with both enthusiasm and skepticism.
Proponents argue that the build-to-rent model addresses many issues by creating a sustainable supply of rental properties, potentially stabilizing the rental market and providing long-term housing options for residents. Additionally, foreign investment could lead to faster development of housing projects, injecting much-needed funds into the market and fostering economic growth.
However, critics are wary of the model, raising concerns about the potential for foreign investors to prioritize profit over tenant welfare and community interests. They argue that this could lead to higher rents and a lack of focus on affordability, which is crucial for alleviating the housing crisis.
This article examines the various elements of build-to-rent housing, considering both its advantages and the criticisms it faces. By analyzing whether this model can effectively serve as a long-term solution to New Zealand’s housing challenges, we aim to provide a comprehensive look at its potential impact on the housing market and explore if it can genuinely offer relief to those in need of affordable housing.
