Building blocks for Build to Rent in New Zealand

The board is set, and the pieces are moving for Build to Rent to emerge in New Zealand.

Residential values have historically proven to be resilient in a downturn, as owners tend to have a long-term focus on potential capital gains from their properties.

In a post-COVID New Zealand, this has been reconfirmed, as sale prices continue to trend upward. As expected, however, from 2Q19 to 2Q20, the number of transactions in the Auckland region reduced while the number of days that a property sits on the market saw a notable increase.

Figure 1: Median sale price

^{Source: REINZ, 2Q20}

Table 1: Residential sales statistics

^{Source: REINZ, 2Q20}

We expect to see a continued moderation in supply as owners who do not need to sell opt not to. This lack of sales momentum would support prices over the short term as has clearly been seen in 2Q20. Demand may also fall back over the coming months as a result of economic concerns and increased unemployment. However, this too will more likely lead to a lack of activity rather than widespread falling prices.

Of more immediate concern for the medium to the long-term housing sector in New Zealand, and Auckland more specifically, is the likely impact of an economic slow-down on future housing supply. It is already well-established that there are not enough homes for Aucklanders and the projected population growth; a factor amplified by a high percentage (~75%) of existing stand-alone homes rather than higher-density dwellings.

On the face of it, consents for new homes in Auckland remain relatively high, showing an understandable development appetite for residential property. However, a deep dive into statistics shows we are increasingly reliant on multi-unit developments, which are less likely to be financially viable today than they were pre-COVID.

Figure 2: Approved consents

^{Source: StatsNZ}

Consent numbers for new stand-alone homes have continued to track around the same level historically through to 2Q20 with slight growth. In contrast, multi-unit consent approvals have seen a much greater uptick in approvals, especially in the last two years. This underlines Auckland’s need for new housing, particularly high-density housing, to cater for the growing population. However, there are greater risks in speculatively building high-density projects.

Although the increased interest for multi-unit housing is positive, it is not practical to say that this supply will be built soon enough, and at a high enough volume to handle the ever-growing demand for more housing. In addition to traditional stand-alone homes and build to sell apartments, other avenues must be explored in the Auckland region.

Build to Rent is the next logical step to add more diversity into Auckland’s narrow housing market. With proven success internationally, Build to Rent could bring the Auckland region the volume and quality of the product that it needs.

The obvious interest in the multi-unit stock as seen through consent numbers, as well as the clear need for housing even in a post-pandemic New Zealand, shows that the foundation for success in Build to Rent is already here.