If Housing Minister Phil Twyford could do a few basic calculations, he would know that the “build-to-rent” proposal he is looking at would require substantial Government financial support and guarantees to get off the ground, Tenancies War spokesman Mike Butler said today.
Mr Twyford on Wednesday proposed encouraging more build-to-rent developments, involving Crown land, to be run as private rentals, and to serve as high-quality longer-term rental stock.
He has acknowledged the need for more rental property but apparently does not want the Mum-and-Dad taxpayers who own most of New Zealand’s 588,700 rental properties to do it, Mr Butler said.
Smaller rental property owners are adding more stock by way of infill housing but the high cost of land makes larger developments unviable, he said.
For instance, total annual upper-quartile rent on a 600-square-metre development of six two-bedroom flats in Hastings would be $109,200, according to market rent data lodged with Tenancy Services.
The cost to build at a national average of $2000 per square metre would be $1.2-million. The cost of land may be $700,000 for 1000 square metres.
Interest payments on a $1.2-million loan at 5 percent are $60,000 a year, which leaves $35,397 to pay for land, as well as fees and permits, administration costs, ground work, a BRANZ levy, and development contributions, as well as annual running costs of $8654 for rates and $5149 for insurance, plus repairs, plus costs of changing any tenancy.
This is all before any payments towards reducing the substantial debt without any margin for an increase in interest rates.
In other words, Mr Twyford’s proposal is not viable without substantial top-ups with taxpayer money, Mr Butler said.
Expensive rental property standards, tinkering with tenancy law, ring-fencing of rental property losses, and the end of letting fees have reduced rental property supply and hiked rents, he said.
Mr Twyford’s government has damaged a rental property system that operates largely without cost to the government and with a benefit to the government of tax revenue, Mr Butler said.
Irrationally, Mr Twyford appears to want to replace that low-cost fully functioning model with a high-cost new model that relies on financial support for the government, Mr Butler said.
Stop the War on Tenancies is a group that since last October has been highlighting the evidence that successive governments have ignored while creating rental property policy.