Housing Minister Phil Twyford is exploring the idea of government involvement in build-to-rent developments in a bid to boost the supply of high-quality, affordable rental properties.

A scheme that could allow large commercial investors to build apartments, which would be used as private rentals on Crown land was a promising idea, he told a Select Committee recently.

Twyford says he is seeking advice from officials and talking to developers about the possibilities but there are no further details available yet.

While the Minister believes a build-torent scheme would provide more housing choice, there are some staunch critics of the idea. Stop the War on Tenancies spokesman Mike Butler says the proposal would require substantial government financial support and guarantees to get off the ground.

For example, total annual upper-quartile rent on a 600m2 development of six two-bedroom flats in Hastings would be $109,200, according to Tenancy Services market rent data, he says.

“The cost to build at a national average of $2,000 per square metre would be $1.2 million, while the cost of land may be $700,000 for 1,000m2. Interest payments BUILD-TO-RENT WILL COST on a $1.2 million loan at 5% are $60,000 a year, which leaves $35,397 to pay for land.

“Then there’s fees and permits, administration costs, ground work, a BRANZ levy, and development contributions, as well as annual running costs of $8,654 for rates and $5,149 for insurance, plus repairs, plus costs of changing any tenancy.”

This is all before any payments towards reducing the substantial debt, without any margin for an increase in interest rates – which means the proposal is not viable without substantial top-ups with taxpayer money, Butler says.

“The Minister has acknowledged the need for more rental property but, apparently, does not want the mum and dad taxpayers who own most of New Zealand’s 588,700 rental properties to do it.

“Smaller rental property owners are adding more stock by way of infill housing, but the high cost of land makes larger developments not viable.”

Meanwhile, National’s housing spokesperson, Judith Collins, has said the proposal suggests the Minister has given up on the Kiwi dream of home ownership.

She also believes the scheme would be a slap in the face for mum and dad landlords.

That’s because the proposal involves Crown land being given to big corporates on a deferred payment basis so they can build rental properties to collect rent from, she says.

Yet both Collins and Butler say that the government is being hard on mum and dad investors and landlords.

“That’s due to the introduction of expensive rental property standards, tinkering with tenancy law, ring-fencing of rental property losses, and the end of letting fees,” Butler says.

“These changes have already reduced rental property supply and hiked rents. Now it appears the Minister wants to replace a low-cost fully functioning model with a high-cost new model that relies on financial support from the Government.”

Build-to-rent schemes are being successfully employed in the UK where they are seen as contributing to a national construction boom.

But in the UK tax settings were changed to encourage investors to build rental properties and to discourage buying existing stock with a view to renting it.

The build-to-rent idea put forward by Twyford would not work in such a way, particularly as such tax changes would be unlikely.