The Investment Case for Auckland
Some articles and research pieces in recent months have highlighted the undoubted demand brewing from prospective tenants, particularly in Auckland, for longterm residential accommodation, which is purpose-built to rent (BTR). In essence, an unprecedented combination of factors has come together to boost demand for quality well-managed residential rental accommodation.
- Residential sale prices are static to falling but are likely to increase in the medium to long term, exacerbating the unaffordability problem.
- New Zealand’s archaic residential tenancy laws, combined with the fact that residential investment has been the retirement saving fund of choice for individuals, typically with little capital, means that the renting experience has not been a pleasant one for many tenants.
- Revisions to the Residential Tenancies Act, combined with discouragement of investors through Reserve Bank mandated changes to bank lending practices, will improve the lot of tenants, but at the same time reduce the number of private rentals available through the traditional channels.
- New supply is constrained by industry capacity, and expensive building and land costs.
- Auckland’s population has grown strongly in recent years and is likely to continue to do so.
For all these reasons, demand will continue to outweigh the supply of accommodation in Auckland in the longterm. We can’t do much about increasing the number of people who can buy, but we can do something about increasing high quality, secure supply for renters, who, even if they want to buy, will never have a 20% deposit.
For all the same reasons, it is an investment asset class whose time has come.
The BTR market in the In the UK is well ahead of us giving researchers there the opportunity to look at how BTR schemes have performed in practice. Recent research by Dataloft uses data from schemes completed within the last five years.
In the UK, around 110,000 units are in the pipeline adding to the current stock of 30,000 operational units. BTR accounts for less than 1% of the 4.5 million households in the private rented sector, so the potential for growth is huge, as it is in New Zealand.
The research demonstrates that build-to-rent properties have achieved an average rent premium of 9.3% across the UK in comparison to the private rental sector. Many of the schemes are in London, where the combination of high rents, long commutes and expensive house prices have triggered the supply of this alternative solution. The majority of market demand comes from young professionals and families. Tenants are predominantly local with 60% of London rental movers staying within an 8km radius of their previous home.