In 2019 I wrote an article for NZ Property Investor on this very topic.

My focus then was on the rapid rise of build to rent in the UK and how, while it may not be a silver bullet for our housing crisis, it can still play a significant role in making inroads. So a whole two years wiser, what
has changed?

Well, according to the British Property Federation, 40,000 additional BTR units have been added to the UK
pipeline. This represents nearly 30% growth to around 180,000 homes, which is phenomenal considering in 2013 there were none.

The signs have been promising here in New Zealand too.

So What Is BTR?

To define what BTR is, it is easier to first look at what it is not. The traditional rental market in New
Zealand is characterised by homes, or small portfolios of homes, that are not purpose-built for renting and are owned by individual investors.

While we are seeing more multi-unitsupply coming into the pipeline, much of this is earmarked for new homeowners rather than additional homes for renters. Further, the traditional relationship between the landlord and tenant, as defined by the terms of the RTA, continues to be potentially adversarial – more often than not influenced by emotion or personality.

These are two key areas where BTR differs, and it is important that the industry keeps emphasising that we are trying to provide a different, modern and customer-focused rental product that is currently missing in the market.

BTR is not just more residential property available for rent. It is a standalone housing sector that features rental homes under the collective ownership of an investment entity for the long term. The BTR relationship for residents is built on a premise of service provider and customer; a much more consistent, professional and predictable experience for all.

What Can BTR Offer For NZ?

House prices have risen substantially in recent years. So much of our housing stock is standalone homes (large in floor area by international home standards) with a comparatively small proportion
of terraces and apartments. This is not going to change any time soon as it is, in effect, now structural.

BTR’s meteoric growth in the UK has been fuelled by two major factors. The obvious one being the need to address chronic housing shortages in urban centres, but also the shifts in social and economic norms and the increasing demand for a high quality and wellmanaged rental product.

These dynamics are very much in play in New Zealand. With the added benefit of being able to continue to learn from the UK, we should be able to act efficiently to introduce a focused BTR asset class as part of the solution to our own housing crisis.

Developments in the UK continue to demonstrate that BTR will likely raise the bar of customer expectations from rental property here – provided we can get the development viability numbers to work. By this, I don’t mean simply providing more quality rental homes but rather encouraging investors to purposefully exceed baseline property maintenance requirements and offer something different to that currently available in the rental market.

Traditional residential investors now need to be increasingly prepared for BTR to arrive in New Zealand at scale in the next two to three years. I suspect that availability of more product that shifts the focus of those who rent towards being customers rather than tenants may immediately affect the expectations of current renters.

There is no one-size-fits-all solution to housing. The polarised solution of focusing on owner-occupation or traditional private rented sector housing cannot practically provide enough homes, so a mixed tenure approach is the only viable long-term strategy. As a new source of housing supply to the market, BTR has a very important role to play.

Momentum Is Building

There has been significant progress in New Zealand over the last two years. We are working with a growing number of investors and developers seriously investigating how to make BTR work practically and financially with preparations advancing. However, viability is still complicated and Government support would make a real and tangible difference.

To that end, it is crucial that there is widespread collaboration as early as possible in the progress as well
as commitment and a clear line of communication with Government to influence policy and re-frame the
housing debate to include BTR as part of a solution to the housing crisis. It took the best part of 10 years for BTR to become established in the UK. The goal for New Zealand is to take the lessons learnt and avoid inefficiencies during the journey wherever possible.

Although we have not seen any legislative change to the residential investment environment to encourage BTR investment as yet, positive noises about looking into the BTR opportunity with interest from the Labour Party majority Government and National Party opposition are very welcome.

The main focus of the property industry is to bring the rules in line with other large-scale commercially run
assets to improve BTR’s viability. This includes increasing the liquidity of the sector through tweaks to the Overseas Investment Act as well as depreciation and the timing of GST

Impacts For Residential Investors

I began work on this sector in New Zealand two years ago and I continue to believe BTR’s implementation will be a blessing rather than a curse for traditional small property investors.

We need to promote a better renting experience to New Zealanders. Landlords as a group often get criticised for inconsistency with renters – in many cases it’s the landlords offering a great product that get tarred with the same brush.

BTR will help to legitimise renting as a viable long-term option within New Zealand – rather than a steppingstone – making it hugely beneficial to long-term landlords and those who seize the opportunity to offer quality products to their customers on an individual basis.

At the end of the day, we still need so much housing in the country that there is room for both BTR and traditional residential investors to operate in harmony.

Is 2021 The Year For BTR?

Despite all of the understandable negativity surrounding the potential impact of Covid-19 on property markets across New Zealand, 2020 was a notable year of opportunity for BTR to move further towards being established.

Investor demand globally for practically located, high quality, well managed and thoughtfully designed schemes has been growing in recent years. New Zealand is now very much on the radar.

This year I foresee schemes being submitted for planning with continued education for Government, developers, investors and residents about the benefits that BTR can bring to the New Zealand housing market.

The priority for current investors really is to rise to the challenge and take the game to the BTR investors, which with greater returns for landlords and higher quality for tenants will result in a better rental sector for everyone.

Correction

Last month we published an article written by JLL NZ’s Nilesh Patel in our Commercial Property section. JLL is a world leader in real estate services, buying, building, occupying and investing in multiple sectors including industrial, commercial, retail, residential and hotels. JLL NZ has no affiliation to our Commercial Property sector sponsors, Property Brokers NZ.