Build-to-Rent to give up to 2 million Kiwi renters better options
Build-to-Rent to give up to two million Kiwi renters better options
| 18 June 2019
Research: Build-to-Rent properties offer renters more, and reduce the risks of rent increases and owners selling up
The emerging trend of Build-to-Rent - building multi-unit residential developments specifically to provide long-term rental housing - could be the key to helping Kiwis locked out of the housing market to find better places to live, according to new research released today by CBRE New Zealand.
CBRE’s latest Build-to-Rent: Who, What Where? research report examines the shortcomings of the region’s current rental market, highlights who the early adopters of Build-to-Rent product might be and where projects may be built across the Pacific region.
The report says that a growing Pacific rental pool of more than three million households will be a key driver of the region’s nascent Build-to-Rent sector if developers can provide high-quality product with the right mix.
Build-to-Rent enables growth in housing stock to accommodate a growing number of people who are unable to purchase residential property. The trend has gained traction over recent years as housing has become increasingly unaffordable and more people rent their home for longer, says CBRE Senior Research Analyst, Tamba Carleton.
“Over the past decade, the number of renter households in Australia and New Zealand has increased by 500,000 and 120,000 respectively, increasing the proportion of renters from 27% to 31% in Australia and from 30% to 34% in New Zealand. People are increasingly renting into their 40s.
“In New Zealand, 64.8% of households own their dwelling, down from 66.9% in 2006 and 67.8% in 2001. Declining home ownership rates mean that the size of the renter market has been increasing above the rate of general population growth, putting more demand pressure on existing rental stock and increasing competition amongst renters.”
A key driver of Build-to-Rent has been runaway house price growth, which has left few alternative options for locked-out households other than long-term renting, says Carleton. “Even now, with several major markets experiencing price corrections, getting onto the property ladder will still prove unattainable for many, which is driving interest in more attractive, long-term rental options.”
CBRE’s report also highlights that the Australian and New Zealand residential rental markets are now essentially run as cottage industries. In New Zealand, 53% of landlords own just one rental property, and a further 22% own two properties. In Australia, the figures are even more dramatic, with 71% of landlords owning just one rental property and 19% own two, often leading to renter issues.
“The most recent NZ Housing Satisfaction survey has showed that 18% of renter households were either very dissatisfied or dissatisfied with their dwelling, compared to just 5% of owner-occupier households, while 50% of renters reported major problems with their dwelling,” says Carleton.
Carleton says these issues, which typically related to older properties, coupled with unpredictable rent increases and owners selling up, had the potential to be alleviated by Build-to-Rent developments.
“A key driver of Build-to-Rent take-up in Pacific would be professional management, akin to student accommodation or a hotel, where the tenant is the customer and the focus of the operator is to increase retention. This could include provisions such as having a storage facility on site with spare parts for appliances to reduce the time a tenant must wait for a replacement, or having staff onsite to attend to breakdowns.
“Amenity provision is another point of difference to the traditional mum-and-dad model, where no auxiliary services are offered. Gyms are commonplace in many Build-to-Rent facilities overseas, as are BBQ areas, lounges and cinemas, and they aren’t token gestures as the residents use them and mingle.”
“Additionally, the operational structure of professional Build-to-Rent landlords means they are more likely to act in tenant-friendly ways than small-scale investors and provide longer tenure terms. Average NZ leases are probably around 12 months on a renewable basis,” she said. “But with Build-to-Rent, you've got a long-term owner who is going to want to keep tenants in the long term as well. People are signing up for up to seven-year leases. And there's no financial penalty if you want to break early.”
In New Zealand, it is considered to have growth potential as an alternative asset class. The local market is still in its infancy, with a pipeline of 543 units in 12 Build-to-Rent projects in New Zealand, 85% of which are in Auckland, says Carleton.
“Given the factors underpinning occupier demand and what from some aspects is a compelling investment rationale, we do expect Build-to-Rent to become a growth sector in New Zealand. It is a product New Zealand tenants have been crying out for as property prices see many investors looking to cash up and sell their assets as vacant, negatively impacting on security of tenure for rental occupiers.”
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