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Will BTR work?

An Auckland landlord responds to the build-to-rent story from the October 2021 issue of New Zealand Property Investor magazine.

By: NZ PROPERTY INVESTOR

1 November 2021

Build-to-rent proposals are being promoted as the solution to the lack of rental housing at the very same time as private investors are being forcefully expelled from the market.

However, I can see many problems with these proposals. The bottom line is that residential landlording in New Zealand, despite popular belief, is and remains a low-return high-workload activity. Over many years I have seen a number of corporates grow enthusiastic about the idea of building a large portfolio of rentals, but then they have faded quietly away once the harsh light of economic reality sets in.

As residential landlords, these buildto- rent entities will always be subject to the restrictions of the Residential Tenancies Act. It is all very well for New Ground Capital to state that “tenants are given a seven year lease” but they haven’t, really. What they have actually been given is a RTAmandated fixed term tenancy where, under recently introduced legislation, the tenant can extend indefinitely if they choose to do so and with the property owner having absolutely no say in the matter. Residential tenancies are not commercial tenancies and very different rules apply.

Sure, the concept works in some overseas jurisdictions where the laws and customs around renting are quite different from those in place here. Transferring this concept into New Zealand, how will these property ownership companies feel about:

• tenants being able to freely damage the property, and then having no responsibility for the resultant, often substantial, repair costs as long as the tenants claim that the damage was “accidental”
• handling the risk of the few tenants who, by becoming socially disruptive and obnoxious, proceed to drive out many good tenants but themselves are almost impossible to expel from their own tenancy
• being obligated to act as an unwilling guarantor and unpaid debt collector for Watercare
• being bound to keep housing their tenants until the expiry of any fixedterm tenancy and beyond, but the tenant in reality being able to leave at any time they wish
• being legally barred from imposing any financial penalty for unpaid rent
• having to give a tenant the exclusive possession and occupation of a property worth many hundreds of thousands of dollars but only being able to legally extract a security bond of a maximum of four weeks’ rent – probably somewhere around 0.003% of the property value?

These companies are already asking for changes around the taxation system to suit their own business model. And it would appear highly likely that this will be followed by requests for changes to the Residential Tenancies Act once the full impact of the current restrictions sink in. If these changes are then applied to all residential landlords this could possibly be beneficial to our industry as a whole, but I can see the danger that, once again, these changes would be set to benefit only the “big boys” while citizens who own just one or two rentals will be left out in the cold.

The reality is that these ownership companies will only enter and remain in the market if they can make and continue to make a profit. They will need to set their rents at a level to allow for the cost of professional management and administration, trade costs on all maintenance, and still have enough left over for a dividend for the shareholders. Thus, by necessity their rents will either be well above current levels or there will be demands for the substantial taxpayer subsidies that will be required to make the project fly.

So once again the dreamers and the schemers in the halls of power seem to be courting the fantasy of build-torent while at the same time ignoring any advice from those of us out there in the real world. Those of us who have survived for years in the heat and dust of the market, those of us who already own around 540,000 homes housing some 1.5 million of our fellow citizens. We could be the solution to the problem but are never asked. We are at best ignored and at worst abused, oppressed and blamed.

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