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Government support essential for growth of build-to-rent

Market insiders say better legislative support is essential for developers to tap growing interest from those off-shore investors in New Zealand’s built-to-rent (BTR) market.

BTR developers must be able to access international investment for the sector to realise its potential as both a high value asset class for investors and as a residential housing solution.

The BTR model sees large-scale investor-owned residential developments designed for long-term rental tenancies. It is an asset class already extremely popular in the US, and rapidly growing in both the UK and Australia.

Bayleys head of insights and data Chris Farhi says a return to positive net migration and disruption from extreme weather events are expected to add pressure to rental demand, particularly in Auckland, increasing the returns from residential investment.


Intensive new-builds such as BTR typically offer investors a higher rental yield than existing standalone housing, he says.

“BTR assets also benefit from more favourable tax treatment such as interest deductibility which improves their after-tax returns.”

In August 2022, the government announced new legislation that would exempt new and existing build-to-rent developments from interest limitation rules in perpetuity, but Property Council New Zealand (PCNZ) believes legislative support needs to go further.

PCNZ CEO Leonie Freeman says the interest deductibility change was an important start, as was recognising BTR as an investment asset class. “There are just a few legislative levers still to be pulled,” Freeman says.

The most important is making changes to the Overseas Investment Act 2005 (OIA) to open the sector up to international institutional investment, she says.


“If we are to get build-to-rent off the ground in large numbers to house more New Zealanders quickly, the asset class will need better, bespoke support from government.

“The government holds the key to build-to-rent’s success from a legislative perspective. Making some small changes to the OIA, along with allowing depreciation, as with other commercial assets, would see more large-scale projects swing into action.

“Until the OIA is amended to give confidence to large institutional investors, we won’t see the boom in build-to-rent homes that New Zealand renters so desperately need.”

As the country approaches the general election, Freeman says PCNZ would like to see parties not only confirm they will amend the OIA to give confidence to large investors but provide a timeline for when they will do it.

“Development is, at heart, a risky business that can take decades to come to fruition. The more certainty we can give to investors and developers, the more likely they are to choose to invest and develop in New Zealand, and the more build-to-rent homes we will see built.”

Farhi agrees that further governmental support is key to the successful future of BTR projects in New Zealand.

“The feasibility for build-to-rent projects is often tighter than build-to-sell. Improving policy support for new BTR developments will help to resolve this,” he says.

Resident Properties operates two small-scale BTR properties in Auckland's inner-city suburbs with plans to build another 60-apartment development.

Resident Properties director Greg Reidy agrees changes to overseas investment rules and incentives like depreciation and tax deductions are essential to future growth for BTR in New Zealand.

“Large-scale overseas investment is what’s needed to scale up the New Zealand market to where it needs to be. Making the entry for all investors to the build-to-rent sector more straightforward is one thing the government could fix.

“We’d like to see more benefits like depreciation, tax deductions and regulatory changes so as an asset class build-to-rent is treated, from an overseas investment perspective, like commercial property.”

Minister of Housing Megan Woods says officials at Te Tūāpapa Kura Kāinga – the Ministry of Housing and Urban Development met with PCNZ in May this year, to discuss the Overseas Investment Act 2005 for build-to-rent.

“The government is continuing work to ensure the settings are right and unnecessary hurdles are removed. We remain committed to exploring options with the sector to facilitate the growth of build-to-rent in New Zealand.”

National Party housing spokesman Chris Bishop says as well as the Overseas Investment Act 2005, the Income Tax Act 2007 and tax treatment of BTR developments act as a barrier and deterrent to the growth of BTR in New Zealand, Bishop says.

“My Boost Build-to-Rent Housing Bill would exempt BTR developments from some aspects of the Act in the same way as retirement villages, rest homes, and student hostels are exempt. National will enact this in government.

“Another solution, which National has committed to enacting, is to ensure that BTR developments are eligible for depreciation deductions. My Boost Build-to-Rent Housing Bill would ensure BTR properties are treated as commercial buildings for the purposes of the Income Tax Act.”

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