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Housing supply at risk

Property investors keen on the build-to-rent market will be sorely disappointed if the Government does not carve this niche out as another asset class, says the Property Council NZ.

Monday, July 12th 2021, 11:41AM 1 Comment

Build-to-rent (BTR) is a major focus for the Property Council NZ (the council).

In a letter to Government ministers ahead of the council’s submission on the proposed changes to tax deductibility rules, it says the proposals will be a massive barrier to BTR developments occurring at scale and pace.

If the changes go head the council says emerging asset classes like BTR are at risk of being deemed unviable by domestic developers.

“Not only is there not enough certainty regarding how interest deductibility will work in the second hand market, but without a specific exemption investors will be reticent to invest,” says the letter.

Property council chief executive Leonie Freeman says rather than disincentivise flipping and speculating, the changes will disincentivise legitimate new supply coming onto the market and will stifle the Government’s objectives of building more houses.

“The changes complicate a system which allows legitimate claims for interest deductions, and creates complex exemptions and rules which incentivise potential loopholes which do not help add supply to the market.”

She says if the Government is serious about BTR as a prospect for helping solve the housing crisis, it will adopt the council’s key recommendations which will allow BTR’s full potential to be unleashed.

Key recommendation

Property is the country’s largest industry with a direct contribution to GDP of $29.8 billion – 13% a year.

Freeman says the changes proposed in the consultation document do not provide the level of certainty developers need to build more houses in New Zealand.

The council is recommending the Government specifically carves out BTR development to ensure certainty to investors, developers and future owners.

BTR is defined by the council as an asset specifically designed, constructed or adapted for long-term residential tenancies.

It has a minimum portfolio of 50 self-contained dwellings and includes some form of shared amenity.

The units are let separately but held in unified ownership with dedicated tenancies for a minimum of eight years with professional and qualified management under a single entity.

BTR is viewed as more akin to a commercial asset or like student accommodation and retirement villages.

Most BTR developments are built on metropolitan and business mixed use zoned land.

It is viable because of its access to other commercial and retail spaces close to town centres which don’t exist in predominantly residential areas, says the council.

“In both of these regards, BTR does not fit neatly in with the traditional residential asset class.

“If BTR is not exempt then it is not participating on a level playing field with other commercial uses [which] are competing for similar metropolitan and business mixed use zoned land,” says Freeman. 

She says if BTR is not recognised as a specific asset class, and is not explicitly exempt in perpetuity from the proposed interest deductibility changes, BTR will not be feasible to grow and operate in New Zealand for either investors, developers or owners.

“To many investors, New Zealand is seen as out of step with international best practice and it has impeded the country’s ability to attract capital and expertise to build and develop at scale and pace.”

Freeman says the proposed tax deductibility changes further diminishes that, and puts at risk the Government and private industry’s ability to add supply across New Zealand and help fix the country’s housing crisis.

Tags: build to rent commercial property housing market housing shortage housing supply Property Council property investment

« Housing market ‘stronger than a month ago’Dire shortage of properties for sale »

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Comments from our readers

On 13 July 2021 at 11:04 am Michael Donovan said:
14 days.........two weeks till the 27th, remember?

Houses that have not had their lights on are going to become available as investors (not home owners) have to offload their surplus numbers of houses, when the big "bomb-out" happens soon.
Home owners are only going to have to support their mortgage-backed home loans and ride-out the "bomb-out" for a few years.
And support the wage inflation pressures to help balance up the high ration of annual earnings required to support high house prices, and their high loan ratios.

My prediction in writing just over 2 years ago was extended by a year by the blimmen unforseen C19 thingy.
The resulting money-printing of billions of dollars to help us through with a range of "remedies" such as subsidies only gave the perception of a strong economy, but most of us weren't fooled ?

Oh....and did I mention the huge other bomb-out to coincide with house prices?
But that is just too much for many to accept.

As I wrote before....time is going to tell
And the clock is ticking toward 12 o'clock

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AIA 5.95 4.85 5.35 5.65
ANZ 5.94 5.95 6.40 6.59
ANZ Blueprint to Build - - - -
ANZ Special - 5.35 5.80 5.99
ASB Bank 5.85 ▲5.35 ▲5.80 ▲5.99
Avanti Finance 5.95 - - -
Basecorp Finance 6.95 - - -
Bluestone 5.89 7.49 8.09 8.19
BNZ - Classic - 5.35 5.69 5.99
BNZ - Mortgage One 5.94 - - -
BNZ - Rapid Repay 5.94 - - -
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BNZ - Std, FlyBuys 5.94 5.95 6.29 6.59
BNZ - TotalMoney 5.94 - - -
CFML Loans 6.45 - - -
China Construction Bank 5.50 5.40 6.14 6.40
China Construction Bank Special - 4.45 5.19 5.45
Co-operative Bank - First Home Special - 4.75 - -
Co-operative Bank - Owner Occ 5.85 4.85 5.35 5.65
Co-operative Bank - Standard 5.85 5.35 5.85 6.15
Credit Union Auckland 5.95 - - -
First Credit Union Special 5.85 ▲5.35 ▲5.85 -
Heartland Bank - Online 4.10 ▲4.90 ▲5.29 ▲5.59
Lender Flt 1yr 2yr 3yr
Heretaunga Building Society 6.10 ▲5.35 ▲5.80 -
HSBC Premier 5.89 4.39 5.15 5.39
HSBC Premier LVR > 80% - - - -
HSBC Special - - - -
ICBC 5.25 4.39 5.09 5.45
Kainga Ora 5.43 4.57 5.58 5.85
Kainga Ora - First Home Buyer Special - - - -
Kiwibank 5.50 ▲6.19 ▲6.69 ▲6.79
Kiwibank - Offset 5.50 - - -
Kiwibank Special 5.00 ▲5.19 ▲5.69 ▲5.89
Liberty 4.84 - - -
Lender Flt 1yr 2yr 3yr
Nelson Building Society 6.45 5.55 6.15 -
Pepper Money 4.49 - - -
Resimac 6.19 5.60 6.16 6.29
SBS Bank 5.79 5.05 5.69 5.89
SBS Bank Special - 4.55 5.19 5.39
Select Home Loans 4.09 4.29 4.86 5.09
TSB Bank ▲6.30 ▲5.65 5.79 ▲6.45
TSB Special ▲5.50 ▲4.85 4.99 ▲5.65
Unity 5.65 4.95 5.55 -
Wairarapa Building Society 5.74 4.95 5.75 -
Westpac 5.94 ▲5.95 ▲6.29 ▲6.59
Lender Flt 1yr 2yr 3yr
Westpac - Offset 5.94 - - -
Westpac Special - ▲5.35 ▲5.69 ▲5.99
Median 5.87 5.35 5.72 5.99

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