Investors and property developers are calling for Government and councils to back build-to-rent schemes to help address the housing crisis.
Build- to-rent is a new sector in housing investment that builds accommodation for the rental market. Unlike traditional renting, it typically provides more security for tenants because it doesn’t work on the capital growth model. Instead it provides longer-term tenancies with less uncertainty for tenants.
Build-to-rent schemes in the United Kingdom have proliferated since their advent as an asset class in 2013.
JLL head of research and consultancy, Paul Winstanley was an “active participant” in the sector as it emerged in the UK, and said this form of housing investment changes the relationship between tenant and landlord to one much more akin to customer and service provider.
“That change from tenant to customer is bigger than it sounds, it’s about the ethos, and it’s about building a community. It’s in the landlord’s interest that you stay as long as possible,” he said.
Rent reviews were typically made against the Consumer Price Index, a yearly adjusted measure of the cost of goods and services, under this model and only at the end of a three-year tenancy would it be reviewed against market prices.
Winstanley said it had gained popularity over time as investors became comfortable with it.
“As of January this year, there were close to 140,000 build to rent properties either completed or in the process of being built in the UK. In 2013, the asset class didn’t even exist,” he said.
The same set of dynamics that drove the explosion of build to rent in the UK, namely a shortage of housing and affordability, existed here. If the country acted quickly to introduce build to rent schemes, it could help solve the housing crisis, Winstanley said.
Since coming to New Zealand he has been “amazed” at how many investors and developers have approached him to see how something similar could work here.
Haven Funds have been doing work in the area, said director Kerry Hitchcock, and would look to have a fund together by the end of the year that would own a large-scale residential property which would give tenants a “decent experience”, sadly lacking in New Zealand.
Haven was working with the Financial Markets Authority to put a licensed operation together, he said.
Winstanley said build-to-rent was about providing a better experience for the “customer” than traditional arrangements could provide.
Paula Ormandy of Kensington Swan, Paul Winstanley of JLL and Peter Felstead of Deloitte at a panel to discuss build-to-rent held recently.
“The tenant has got the comfort of knowing that the landlord doesn’t want to sell,” Winstanley said.
Real Estate Institute of New Zealand chief executive Bindi Norwell said it supported calls for increased build-to-rent opportunities to support housing affordability and deal with shortages.
With a current deficit of 46,000 houses in Auckland alone the country needed to look to a wide range of solutions, including build-to-rent, she said.
“Generally speaking, build to rent property developments can offer renters increased security of tenure and higher consistency of standards than you see in traditional apartment buildings, which are ‘build to sell’.”
Property Institute president and board chairman Luke Van Der Broek said that the country should be looking at every avenue to solve the housing crisis.
‘We have too many people sleeping on the street and not enough accommodation that’s fit for purpose.”
However, he said that it required a coordinated approach from industry and local and central Government, or it would not succeed.
Winstanley said the most difficult part of the UK experience was getting councils to accept the schemes through the planning process.
However, some councils, notably Manchester, had got behind it and led the way.
“It’s no surprise that there are a good number of schemes in Manchester, it shows the power of a council getting behind the sector.”
Regulation was currently a potential barrier to getting schemes up and running easily, however.
Hitchcock said that the longer-term, large-scale nature of the investments needed a sensible and thought through legislation.
“We can all work with it at the moment, its not the end of the world. But I think strategically, long term we can put some better thinking together,” he said.
Winstanley said the Government’s involvement in the UK had been “massively important” to getting things moving and said recognition by Government would be crucial in New Zealand too.
After gaining recognition, tweaks to the Overseas Investment Act and the Residential Tenancies Act would probably be required, particularly to suit a professionally managed landlord sector, he said.
Government also needed to recognise the commercial investment that was being made, so schemes weren’t “trapped” by efforts to stop speculation on individual houses.
“We don’t need major legislative change, it just needs some common sense,” he said.