We hear so often that there is no “silver bullet” for fixing our housing shortage – and I totally agree. But there are untapped opportunities that, if not silver, at least provide shinier prospects to make significant and more immediate inroads than other more heralded ventures. I believe Build To Rent, or BTR as I’ll refer to it, is one such opportunity.

Over the last few years, I have been directly involved in the rapid development of the sector in the UK. In fact to call the growth ‘rapid’ is to apply a more typically Kiwi understatement. Growth has been nothing short of phenomenal. Statistics from the British Property Federation show that as of January this year, there were close to 140,000 BTR properties either completed or in the process of being built in the UK. In 2013, the asset class didn’t even exist.

So What Actually Is Btr?

To answer this, it’s perhaps easiest to first look at what it’s not. The traditional rental market in New Zealand is characterized by homes, or small portfolios of homes, that are not purpose-built for renting and are owned by individual investors. Further, despite the best efforts and intentions of ‘mum and dad’ investors, the traditional landlord/tenant relationship, as defined by the terms of the RTA, can become adversarial – often influenced by emotion or personality. These are two key areas where BTR differs. BTR is not just more residential property available for rent. Rather it’s a stand-alone housing sector that features rental homes under the collective ownership of an investment entity. The BTR relationship is built on a premise
of service provider and customer, immediately framing the relationship as a uniquely professional one – for example like the relationship you may have with a car-leasing firm.

The Build To Rent sector can offer more facilities and amenities to renters, as rentals are designed with the tenant in mind.

What Can It Offer To The NZ Housing & Rental Market?

BTR’s meteoric growth in the UK has been fueled not just by the need to address chronic housing shortages in major centres, but by changing social and economic norms at both ends of the age spectrum and the increasing demand for high quality, well managed rental product.

These same dynamics are in play in New Zealand. So with the added benefit of being able to learn from the UK, we should be able to act fast to introduce this new asset class as part of the solution to our own housing crisis.

Developments in the UK have demonstrated that BTR will likely raise the bar of customer expectations from the rental property. By this, I don’t mean simply exceeding baseline property maintenance requirements, but also in terms of shared amenities and where homes are located in relationship to services.

In that sense, BTR will bring a market evolution that traditional residential investors will need to be fully across; although it will take time to build new stock, the addition of this new asset class may immediately affect the expectations of current renters.

Housing crises all around the world demonstrate that there is no one-sizefits- all solution to housing. Owner occupation or traditional renting is currently failing to meet market demand, so a mixed tenure approach is the only viable long-term strategy. I strongly believe that along with rental products provided by individuals, BTR could and should form part of the solution to our housing shortage.

‘I strongly believe that along with rental products provided by individuals, BTR could and should form part of the solution to our housing shortage’

The Roadblocks In Play

Enabling the BTR opportunity isn’t simply about identifying suitable greenfield sites or existing properties for conversion. With commercial development delivering strong

investment and social returns, a considered taxation approach will be required to attract sufficient investment to this sector. The common perception is that the inability for BTR investors to recover GST on construction and other input costs is a key disadvantage impacting returns. However, in reality, it’s not as simple as that. It makes more sense to look at depreciation as a potential means to create a level playing field with other commercial investments.

Like tax policy, the current legislative position also has some tweaks which could be made to increase the sector’s commercial viability. With offshore capital attracted by yields that might be lower for New Zealand, but stack up internationally, recent changes to the Overseas Investment Act have made things more difficult in the
residential sector.

The Residential Tenancies Act will also have an impact on the day-to-day commercials. Ideally, BTR will eventually be considered a separate product in the same manner as student accommodation or retirement villages – both of which are exempt from the RTA.

What It Means For Traditional Residential Investors

I believe BTR’s implementation in New Zealand will be a blessing rather than a curse for traditional small property investors.

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

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

Given the range of barriers including construction costs in front of BTR in New Zealand, the viability will be on a knife’s edge for a lot of schemes and therefore I don’t expect to see a flood of BTR units from the word go. It will be a gradual process and only the best schemes will get built, which will give individual investors time to prepare for the disruption in the marketplace that will see the ‘tenant’ increasingly become the ‘customer’.

The challenge for current investors really is to face the music 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.

A more detailed research paper on the Build To Rent Opportunity is available for download from the JLL website: http://jll. link/6042E7Pdm