Speech on tax changes for Build-to-Rent sector
It’s my great pleasure to be able to speak with you about a really positive move for the Build-to-Rent sector.
As you know, we announced changes last year to help steer property investors way from the existing pool of housing and toward solving New Zealand’s grave housing shortage - by investing in new homes for New Zealanders.
Everybody here knows that there has just not been enough new housing built in New Zealand.
And everyone here also knows how much this Government has done to turn around this housing crisis we inherited.
We’ve changed fundamental aspects of the urban planning system with the National Policy Statement – Urban Development, so more homes can be built where people want to live.
We’re putting billions of dollars into improving critical housing infrastructure like pipes and roads; we’re helping lay the literal groundwork to get more housing built.
We also recognise the enormous role that Build-to-Rent can play in meeting the significant gaps in Aotearoa New Zealand’s rental market. Because while there are not enough affordable homes to buy, there are also not enough affordable homes to rent.
We’ve seen in Auckland and Canterbury where there has been significant new supply, that the rate of rent increases has been consistently lower than in other parts of the country.
So today I’m announcing that we are going further than giving new builds a 20 year exemption from the interest deductibility rules.
Cabinet has agreed that upcoming tax legislation will provide an exemption to new and existing build-to-rent developments from the interest limitation rules in perpetuity.
This exemption will encourage investment in long-term rental supply, and to ensure build-to-rent developments can meaningfully contribute to this supply.
To qualify for this exemption, a build-to-rent development must meet the build-to-rent asset class definition which will be formalised in upcoming tax legislation.
To align with the introduction of the interest limitation rules, this exemption will apply retrospectively from 1 October 2021. Owners of build-to-rent assets can claim interest costs relating to these assets for as long as the asset is held and operated as a build-to-rent development.
I can confirm the proposed requirements for the asset class include:
- That tenants must be offered a fixed-term tenancy of at least 10 years with the ability to give 56 days’ notice of termination, but they may agree to or request other tenancy offers.
- The developments must have at least 20 dwellings in one or more buildings that comprise a single development, on either a single parcel of land or multiple contiguous parcels;
- the dwellings and any common land or facilities for those dwellings must have a single owner;
- dwellings can be held in one or more titles;
- the buildings that a build-to-rent dwelling is in, can include other dwellings or commercial premises that do not form part of the build-to-rent development;
- and the dwellings are used or available for rent under the Residential Tenancies Act;
This proposal is one measure this Government is taking to increase the delivery of high-quality rental supply and to ensure better experiences for renters.
Build-to-rent is a different model of residential housing to that commonly seen in Aotearoa New Zealand’s current private rental market, where small scale investors own individual or small numbers of dwellings.
It has the potential to increase the supply of quality rental housing at pace and scale. Build-to-rent can also support housing construction at times when securing buyers and finance for build-to-sell developments is more challenging, as it is now.
The build-to-rent sector can attract different forms of long-term investment such as from iwi or superannuation funds. This is critical to providing new general and market affordable supply. The exemption will encourage further development of this type of rental supply and enable the full potential of this sector.
In addition to this exemption, the Overseas Investment Office also issued guidance in March this year regarding the application of the Overseas Investment Act for build-to-rent developments. We expect that it will provide the clarity and confidence needed to encourage the institutional investment needed for build-to-rent. As ever, I am interested in hearing about your practical experience of these rules.
The proposal to exempt build-to-rent developments, including the asset class definition I have just shared with you, will be included in the next omnibus tax bill – expected to be introduced by the end of this month.
I encourage you to provide any feedback to the Select Committee when the time comes.
A well-performing housing system is critical for Aotearoa New Zealand’s social, economic and environmental performance and for the health of our people and communities.
We are strongly committed to addressing the housing crisis for all New Zealanders, and we recognise that build-to-rent represents an opportunity to increase the supply of secure, affordable and quality rental developments in Aotearoa New Zealand.
Exempting build-to-rent developments in perpetuity from the interest limitation rules, complements our other work to address the housing crisis, such as our massive build of more public housing and government land development projects .
We believe that making this change will help enable the full potential of the Build to Rent sector so it can increase the availability of more new quality rental housing.
Thank you so much for taking the time to join me this afternoon. I’m really looking forward to hearing about all your new Build-to-Rent projects that will give such great opportunities for New Zealanders to secure stable, warm dry rental homes.