You may have caught our interview with Newshub on Friday where Head of Advocacy Denise Lee spoke about the opportunity of Build-to-Rent (BTR) and existing hurdles holding up this type of large-scale development.
Specifically, the Government’s recent announcement axing interest deductibility and uncertainty around the Overseas Investment Act, which could discourage the large foreign institutional investment the sector requires to build at scale.
While the interest deductibility changes don’t apply to new builds, the issue is still relevant to on-selling a property 10 or 15 years down the track.
We believe that the most sensible option to fuel BTR development is to reclassify BTR as a new asset class, similar to other large-scale housing such as retirement villages and student accommodation. This would make it easy for investors to understand the regulations and invest in confidence.
What is the Government saying?
Housing Minister Megan Woods has already publicly and privately acknowledged the potential of BTR in housing New Zealanders, but as yet there have been no formal announcements to support the emerging sector.
Property Council has brought together a working group of BTR experts who have been in conversation with the Minister and officials for some months, resulting in a presence on the small reference group tasked with reviewing the BTR opportunity.
What are the barriers?
The reference group is covering a wide array of BTR topics across the spectrum, from the affordable end of the market to the more commercial end, but we know from our development community that there are two primary barriers to BTR at this stage:
- A lack of clarity in the Overseas Investment Act that could disincentivise large foreign institutional investment in Build-to-Rent in New Zealand.
- Recent announcements around the axing of interest deductibility. While the government (Inland Revenue specifically) has made it clear these announcements don’t apply to new builds, the issue for Build-to-Rent is the on-selling of the asset. Build-to-Rent is a long-term, patient capital game, but at some point an asset may sell (be it 10 or 15 years down the track). We need clarity on whether interest deductibility will apply and what the policy will be in that scenario.
Where to next?
If we want large scale BTR to be unlocked – and it is the obvious missing piece to the housing puzzle here in New Zealand – then these matters need to be cleared up by the Government.
“Our members are keen to see this new class of accommodation rolled out in large numbers and in quick succession”, says Property Council Head of Advocacy Denise Lee.
“We can do this with the Government’s help to address a few challenges and conversations with them remain constructive.”
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For further information or to be part of Property Council’s Build-to-Rent Working Group, please contact Senior Advocacy Advisor, Natalia Tropotova.
