Dear Residential Property – has our love died?

We Kiwis have a love affair with property. We love the idea of owning all those wonderful pieces of New Zealand land. We jump in and discover rent arrears, repairs and maintenance, interest rates, etc. For some, it’s too hard, but like relationships, a lot hang in there and reap the benefits. But every now and then something big happens. At the moment we have lots of change in the area of housing. Will the sum of these changes make many who have hung in there decide to call it a day?

What Changes are Afoot?

Private residential investors may sense a growing threat from coalition government efforts to tackle the housing crisis and free up supply by rolling out the red carpet to corporate investors through regulatory change.

Moves to kickstart the build-to-rent (BTR) housing market and open it up to offshore institutional investors are one of the shifts creating uncertainty for the ‘mum and dads’ who own more than a third of housing in New Zealand, raising fears about their long-term viability in the market alongside the corporate landlord.

In this article we explore the likely impact of BTR and whether it will eventually close out the private property investor.

But first, let’s recap the government’s recent moves to stimulate corporate investment.

Championing the corporate investor

The government knows it must act on housing. Supply has not kept pace with population growth due to the difficulty in getting bank finance, cost of land, rapidly rising construction costs, and the lack of investor confidence.  (That tide’s now turning of course as interest rate cuts start to boost sentiment).

Housing Minister Chris Bishop has wasted no time on the government’s housing growth plan, with initiatives supporting large-scale corporate developments, including:

• The Fast Track Approvals Bill, which includes 44 housing development projects that will enable up to 55,000 new homes to be consented in major growth centres.
• The Residential Development Underwrite programme announced last month to support residential construction activities by enabling approved developers to access finance they wouldn’t otherwise have obtained for developments selected by the Ministry of Housing. (Developments need a minimum of 30 houses and targeted to high-population areas).
• RMA reform taking shape.

One of the most significant moves is unlocking investment in BTR developments.

Something of a new buzzword for the property sector, BTR housing is essentially large residential (often multi-unit, high-density) developments built to provide long-term rental accommodation to tenants. Typically owned by institutional investors and managed by specialist operators, BTR models do not offer apartments for sale to individual owners.

It’s looking increasingly likely Parliament will move ahead with the law change to amend the Overseas Investment Act to streamline the consent process to make it easier for offshore corporates to invest in BTR housing in New Zealand – either by buying a BTR or buying land to build their own.

The model is in its infancy in New Zealand, with data pointing to 2094 apartments across 14 BTR projects in the pipeline during the third quarter of this year.

Kiwi Property’s almost 300-apartment complex ‘Resido’ at Auckland’s Sylvia Park is the biggest example, which opened earlier this year.

Nearby in Mt Wellington, Simplicity Living’s 297-apartment development Te Reiputa is on track for completion in 2026, with its 330-home project at Auckland’s Ellerslie Racecourse to follow in early 2027.

But will Overseas Investment Act (OIA) changes and the injection of overseas capital mean the sector will start to ramp up on a grand scale?

If we were to look to overseas markets, the answer is, yes.

BTR is well advanced in countries such as Australia, the UK, Germany, North America, and Japan where governments have looked to encourage a greater supply of homes and where the model is attractive because it brings high-quality and purpose-built products to market, backed by a professional tenancy service.

One of the world’s biggest real estate investors, Blackstone, considers BTR (also known as multifamily housing in the US) and rental housing generally as one of the best commercial property segments to invest in.  So, with our government championing BTR and institutional investors hungry to gobble up residential property worldwide, is the private investor likely to be pushed out of the market?

Is the DIY and Private investment approach under threat?

Overall, we don’t think BTR will squash out private investors, but we are on the way to corporates becoming more prevalent and investors will need to adapt to a new era for the rental market and make strategic adjustments to remain viable.

And while the full impact of BTR won’t be known for decades, we can make some calls about the changes it will bring and what it means for the private residential investor.

Let’s start with the downside:

• Competition: BTR projects can reduce availability for individual investors. Larger scale developments may also soak up the demand for smaller scale and individual projects.
• Shift in demand: As more people choose renting over buying, private investors may face pressures from larger BTR operators offering more amenities and better management services.
• Regulatory change: A greater focus on BTR might lead to regulatory changes that affect all rental properties, such as new standards for energy efficiency, requiring private investors to adapt to remain competitive.

But ultimately, we believe BTR will help lift the property investment market. Here’s why:

• Market trends: The rise of BTR may signal changing tenant preferences, pushing private investors to adapt their strategies such as investing in properties that offer unique features or are located in desirable areas.
• Raising the bar: Professional management and focus on tenant experience, along with security of tenure will lift the rental experience and raise the quality bar in the rental market.
• Maximising ROI: BTR is likely to maximise returns by keeping rents up. Kiwi Property’s Resido is an example, where five months after opening, less than 50% of the apartments are tenanted – demonstrating professional landlords will take time to achieve maximum rent, (whereas individuals would be likely to drop the rent to secure a tenancy). Additionally, professionals are likely to be tougher on tenants with rent hikes, whereas private landlords tend to take a softer approach.

BTR will also drive the trend to property investment being more professionalised.

We are seeing this already, as regulatory burdens such as “healthy homes” standards make it harder to own a property outright and add to the expense of managing a rental property.

But New Zealand is still well behind countries such as Australia, where 80 percent of private residential investors use a property manager, compared to just 40 percent here.

As market shifts present new challenges, private landlords will be driven to either sell or get a property manager.

Conclusion

BTR and legislation changes are here to stay, and an increasing number of people will choose to invest in residential property through BTR either because they can’t get finance to invest directly or because they can’t be bothered DIYing it – or both. However, it doesn’t mean that returns from investing directly will drop. Rather we believe it simply means that tenants will expect more, which will drive the industry to become more professional. And we are already on this trajectory with changes to the Residential Tenancies Act in recent years.