Are apartment blocks the slums of the future?
Property specialists at Massey University caution that mass rental housing like apartment blocks need to be well managed and good quality to avoid becoming slums.
Debate is building on the benefits of ‘‘build-to-rent’’ housing, often large-scale apartment blocks overseas, as a way of tackling New Zealand’s housing crisis.
New Zealand has little mass rental housing like these apartment developments which are viewed as solid and steady investments by large investors overseas. New Zealand developers build apartment developments to sell rather than rent.
Massey University property specialists Professor Graham Squires, head of the Massey business school property programme, and David White, author of Massey University’s Home Affordability Report, warn that build-to-rent is ‘‘not a silver bullet’’ for the country’s housing issues.
‘‘There are questions about tenure and quality in the private rental market, and while we have seen new regulations in this space, more work needs to be done to ensure commercial developers are able and willing to provide quality rental accommodation.
‘‘We certainly don’t want a slum landlord approach,’’ Squires said.
Build-to-rent was not a silver bullet for the housing crisis because a complex issue like housing affordability would never have a single solution.
Squires and White said the Government should cautiously encourage build-to-rent as part of a wider set of responses to housing issues.
White said providing secure tenancies, including certainty around rental costs for longer periods of time, would be important if the build-to-rent model was to be positive in New Zealand.
A lot of New Zealand’s rental housing was of inferior quality so if build-to-rent apartment developments were good quality they had an advantage for renters.
One of the issues was short tenancies, because landlords, usually small investors, decided to sell the property.
About 75 per cent of all rentals in New Zealand were owned by ‘‘mum and dad’’ investors.
Build-to-rent apartments overseas offered longer leases, like three to seven years, however the Residential Tenancies Act was not set up for longer tenancies, White said. New Zealand had little experience of managing large scale housing development, except for Housing New Zealand.
‘‘We don’t really have an established market of property managers who understand the life cycle issues and understand dealing with the community aspects of that particularly when you have got communal facilities.
‘‘We are going to have to bring it in from overseas.
‘‘It isn’t to say we can’t grow that here.’’
There were examples in the United Kingdom of large-scale social housing which were not managed well and had all sorts of social problems.
Some people in New Zealand were concerned that if large-scale rental housing was not managed well it could lead to slums, awful buildings, and concentrations of social pathology, White said.
Some questioned how well they would be managed, whether they would be good quality, and was this pushing people into renting when New Zealand should be encouraging people to own rather than be slaves to the rental market.
‘‘To my mind there is a changing demographic going on here.
‘‘There is not a lot of downside to build-to-rent if it is done well, and also if it is not done as the only solution.
‘‘You have to continue to look for home ownership options for those who aspire to it.
‘‘And we need to look for different forms of rental accommodation as well.’’
The GST regime was a problem for potential developers and investors in build-to-rent because there was no GST on residential rentals.
When a developer built an apartment block, he or she could claim the GST on the construction costs when selling the individual apartments but that could not be done when the apartments were being rented.
That immediately disadvantaged a developer of an apartment block for rent.
If the Government wanted build-to-rent in the private market to happen it could make an exemption on the GST issue, White said.
Squires and White are speaking at three events – in Auckland, Wellington and Palmerston North – on the pros and cons of build-to-rent.