The Government is considering whether to use public money to underwrite private housing developments built to be rented out.
Housing Minister Megan Woods, said in a June Cabinet paper, that the $350 million set aside a year ago to underwrite housing developments at risk of not going ahead would be repurposed to “focus on supporting the sector to deliver affordable housing for purchase and rent on private land”.
This Residential Development Response Fund was initially designed due to concerns COVID-19 would bring building activity to a stand-still. However, the problem didn’t materialise.
Woods’ office told interest.co.nz she’d have more to say on how the fund would be repurposed in “coming months”.
Eaqub's case for an underwrite
In the meantime, those involved in the property sector are angling for regulatory - if not financial - support for the build-to-rent sector.
Sense Partners economist, Shamubeel Eaqub, who’s part of a group that has been advising the Government on the matter, wants some of that $350 million to be used to underwrite build-to-rent developments.
This would see the Government cover rent costs if the purpose-built rental couldn’t be tenanted.
To qualify for the underwrite, Eaqub suggests owners are required to either set rents at a certain percentage below market value, or restrict them from going up by more than consumer inflation.
Properties should also meet a certain quality standard to qualify.
Eaqub said build-to-rent properties would service low-income earners - a large portion of whom receive government support to cover their living costs.
Asked whether it was prudent for public money and limited building resource to be directed towards this cohort when there are 24,000 people with more acute needs on the public housing waitlist, Eaqub said having more stable and affordable rentals would prevent people from requiring public housing.
Build-to-rent would simply service a different part of the market.
Is there enough of a financial incentive?
Eaqub believed the reduced risk offered by the underwrite would provide enough of an incentive for developers/investors, even though yields would be lower than would otherwise be the case.
Already, rental yields have been suppressed as property prices (particularly at the lower end of the market) have increased at a faster rate than rents.
The number of towns/cities with indicative rental yields of 5% or more fell from 23 over the six months to December 2020, to 14 in the six months to March 2021, according to interest.co.nz’s Rental Yield Indicator.
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Meanwhile, the number of locations with yields under 4% increased from six to 13 over the same period.
Crockers chief executive Helen O’Sullivan didn’t specifically call for a government underwrite for build-to-rent properties, but said the appeal for investors was that they could secure long-term tenants.
While demand for rentals is through the roof in the likes of Wellington, O’Sullivan said the same couldn’t be said for parts of the Auckland market, for example, so security of tenure was attractive.
What’s more, she said these sorts of properties would also only make up a part of an investor’s portfolio, providing lower yields, but posing lower risk.
Request for build-to-rent to receive special tax treatment
Eaqub maintained there were a number of hurdles that would need to be crossed before build-to-rent could gain traction in New Zealand.
Firstly, he said it needed a legal definition.
From this point, it would need to be exempt from the new interest deductibility rules. The Government has proposed new builds be exempt, meaning the owner of a “new build” could continue deducting interest as an expense when paying tax.
The Government is still figuring out how to define a “new build”. Even if a property is classed a new build for 20 years, the likes of the Property Council believe this isn’t enough and wants a complete exemption.
The Property Council is also calling for the Overseas Investment Act to be changed to make it easier for foreigners to invest in build-to-rent developments.
However, Environment Minister David Parker said he wouldn’t make the change, as there are already provisions in the Act for foreign investment, provided it’s adding to the housing stock.
He said requests for rules to be loosened would simply make way for overseas speculators. See this story for more on this issue.
64 Comments
With council fees levies, rma and often iwi consultation and other compliance costs on top, houses will never be affordable and will never be built quickly.
Would be really interested to establish what those charges total for a new build. They will be extensive though.
Add in agents fees its all mind-blowing.
... to be fair to this government , it's not solely housing that they've F'd up so badly ... across the board , pretty much everything they've touched has become many times worse ...
Luckily , they've recently found a new ally in the form of a group of expert financial controllers & enhanced chemical engineers with a nation wide distribution network to sort it all out for them : the Mongrel Mob ...
The bad part is not that they F'ed it up, the bad part is they are not ready to accept that they F'ed it up.
If you are a genuine champion of human wellbeing than you should accept your mistakes so that you can take action to fix it till some extent.
Sometimes, the mistake is not the problem; the lack of remorse is the real mistake.
... we need a range of housing options ... in the past we've focused too much on standalone 3 brm houses in a green leafy suburb .... but , there is a demand for inner city apartment living ... it needn't be high rise or crummy ; good quality units in 4-5 storey buildings dominate much of European cities ...
The problem is we need a range of QUALITY housing options. I'm sticking with my 3 brm house in a green leafy suburb because I know we can barely build those properly. Apartments are a total nightmare, they are way to small because the per sqm cost is just insane and then they are complete crap because when your upstairs neighbor takes a shower it comes down your wall. You cannot live in a shoebox with a view out into the high rise next door just meters away you end up with mental issues from what is essentially life in a cage.
There is a demand but it is a small demand. You meet few immigrants saying they came to NZ for the lovely apartments. My friend Ms Tang says having been brought up in poverty in a Hong Kong apartment she will never move into one and she can easily afford the best. However unplanned population growth has led to unanticipated congestion and will force many into apartments. My daughter moved into a CBD apartment recently and is happy. If she starts a family she will almost certainly move out to the suburbs.
Jeez. Build costs for decent quality warm apartments / houses including infrastructure, land, labour, materials, etc are TOO HIGH for any business to build and let affordable rentals (using any sensible definition of affordable). This basic mathematical fact keeps getting ignored. The State has to either subsidise development, rents, or wages.
I think you’re confusing rights with a basic human need. Sure historically there have been many successful revolutions however they will always come with significant human collateral damage. I’m not sure we are at that point yet but I think it’ll happen in my lifetime
No, No, No.....fill up the rentals again until we have no more Covid people to infect us and keep paying the Landlords until we Taxpayers are Broke...then we can live in Poverty, but no Covid......Better Poor than Dead..with no Tourists.... The nutters of the World think the Olympics do not Matter....but that is all Temporary accomodation....and bringing a Mix of Nations to an infectious melting point.
Like the UK....and other idiot Nations...close quarters, dire straits...Injections do not work 100%.
Who cares WHO can jump the Highest for one day......Covid can jump forever, it seems...or is it just a WHO problem. ....for only a year or two....or 3 or4 or 5 or 6 at this rate, we will have enough accommodation....if we let the spreaders in.>>Will we not.????
RBNZ is in disarray. !
https://i.stuff.co.nz/business/opinion-analysis/300363065/the-reserve-b…
What is new to the headline. Many have been commenting since long that Mr Orr has lost it and is now on personal ego trip to fulfill his biased vested interest - fulfilling his fantasy / experiment all under the excuse provided by covid 19 and supported by Jacinda Arden.
Is FED, RBNZ....following Argentina ....or will be forced to follow Argentina, if do not act sooner like Russia.
https://www.bloomberg.com/news/articles/2021-07-23/not-even-50-inflatio…
Mr Orr knows that have to raise OCR and now as is forced is taking a posture. but will he ????
Maybe if FED otherwise will choose from the list of excuses.
Request to that drumhead, if economics is not his forte and by managing/fooling politicians he reached at this position.
Than ignore charts and graphs because it will be out of league for him to understand, even don't visit open home because he will justify the price of property by some idiotic logic.
Just visit the supermarket to buy basic household stuff to gauge the seriousness of the inflation, surely he will be able to buy 1 capsicum for $5. If that is not out sheer sign of inflation than nothing will be.
capsicum inflation is pretty seasonal to be fair! https://figure.nz/chart/WNZOpEoBKRyz4hBh-CYOOHxSmvKK0if3J
Anyone would be forgiven for questioning Orr's ethics, maybe he has a stash of property sitting in a trust somewhere ready to sell? The man on $1 million a year, who you would expect was hired based on his level of financial nous, would almost certainly have interests in such a well performing investment vehicle. Otherwise that in itself casts doubt on his acumen.
Er no, the job of the government is to provide consumer protection legislation and then get out of the way of markets. The reason for the current mess is because governments around the world cant help meddling and haven't allowed creative destruction to follow its natural and vital evolutionary path.
All these solutions are just treating the symptoms rather than addressing the underlying cause.
We have completely bastardized the definition of what affordable housing means to the point that house prices can increase by over 20% per year, every multiple is getting worse, interest rates are increasing, we are now expecting Govt. to subsidize the cost, and still, we say housing is affordable.
Take away all the well-meaning intent, the 'kind' words, the number of houses consented or built, and ask yourself this, 'On a like for like comparison, without needing Govt. subsidy, has housing been getting more or less affordable?
If the answer is less affordable, then what you have been doing and the ideologies they represent, are not working, so stop doing it and do things that do truly make housing more affordable - like remove supply restrictions, the biggest and most important one being land and consenting costs and time.
Currently Renters comprise 40% of dwellings and Owner Occupied plus investment dwellings comprise 60%
15 Years ago non-rentals were 74% and rentals were 64%
Rentals cannot go above 50% and be profitable. They can go up, but rents will stop going up
Another 10 Years should do it at 50%
I think underwriting housing is "late stage" neo-liberal thinking. The "free" market is failing so it must be supported all costs as it's always the solution. It's a moral hazard.
What underwriting does is enable developers to pay a higher price as risk is removed. This is supporting higher housing costs. I'm sure there is differing opinions on this but bad developers becoming insolvent so others can continue the development will lower land values and discounted forced sales.
https://www.stuff.co.nz/national/politics/300357291/the-houses-of-parli…
I don't see much chance of change with these conditions in play!
Don't Panic ! ... the Reverse Bwank are gonna be forced to ratchet up the OCR as inflation ticks higher over the next year or 3 .... as highly leveraged property investors/homeowners low rate mortgages expire , they'll be forced to renew at elevated interest rates ... the property ponzi is poised to pop .... Foreclosure City , here we come !
Remember it's not about you or me.
But it is about young kiwis whose future is pushed to dead end, where they cannot see themselves to be able to live in NZ.
There is still room and there always will be for house price to go up, if not than open foreign investment & this story will never end. But the main point is the real kiwi's will be suffered till the extent they leave the land and the demography will be changed completely. Thanks to Cindy, Robo and Orr.
Exactly. Various vested interests including consultants promoting it have been talking up build to rent for at least 3-4 years.
Well the proof is in the pudding - hardly any of it has been delivered and that's because it's a marginal undertaking in many cases.
And hence why incentives are being sought.
Talk of underwrites for properties that can't be tenanted makes this sound like KiwiRent. The last thing we need is subsidies for developers to build rentals in areas without rental demand. How about a subsidy to the developer for each dwelling that does get rented?
Government don't have enough capacity or capability to build at that kind of scale and they're the worst landlord in the country by some distance.
If they wanted to put this money to better use they would be funding infrastructure so that the private market could get properties built. The accomodation supplement will be killed off when there's an oversupply of rentals that forces rents down.
The Government will need to ramp up trades training. Catch the school leavers, offer them apprenticeships with respectable pay i.e. $25 per hour. Get them on the tools building these new houses supervised by current, semi-retired or retired builders.
Shouldn't be any issue with costs, we found $100 billion for FLP. Equivalent of 600k 3 year apprenticeships @ $52k p.a. Call it 50k apprenticeships + admin costs. Run a ballot system on recently finished houses, first right of refusal etc. Only issue now is where do you build 100k houses?
I'm sure hard-working Kiwis whom are renting hovels would LOVE to subsidizes the socially dysfunctional and state-dependent into brand-new-homes. Homes which will never hit the 'open market'.
Like how the government competes with FHB's to purchase private homes for these aforementioned Kiwis.
It would seem our government, regarding housing; views us in one of two ways:
1. Those whom are home-owners or have 'achieved' [lol] effective home ownership through state housing
2. Those whom are homeless and need their socialism
FHB's don't exist, renters don't exist.
KiwiRent indeed.
Nothing will change whilst Central Bank policy remains as is, in particular ridiculously low interest rates fueling a grossly over indebted housing market and a government to frightened to tax the un-earned increment in rising rental values / capital values which flows to the banks where it is absorbed by mortgage interest.
Good afternoon all. Today I had a conversation with someone close to me. The conversation was about the housing affordability crisis. The person close to me is in his middle 60s. He owns several properties. I'm not actually certain how many but it could be in the double figures. Here is what he said to me:
"If I get cancer I will burn my houses and salt the ground under them rather than let anyone else have them."
Many people in this mans situation seem to feel the same. They want all the property they can get and they don't want anyone else to have it. In fact they don't seem to want anyone other than them to have anything at all, not even their children.
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