Here at Oxygen, we take an active interest in anything that affects our sector – like the Taxation (Annual Rates for 2022-23, Platform Economy, and Remedial Matters) Bill, which had its first reading on 21 September 2022.
Clause 98 of the Bill introduces the definition of Build-to-Rent land into section YA 1 of the Income Tax Act 2007, which would exempt it from interest limitation rules in perpetuity. The Build-to-Rent property must meet the ‘asset class definition’ as detailed in the clause.
We support this exemption because it will increase rental stock.
However, we strongly believe the threshold of 20+ dwellings to qualify as Build-to-Rent is too high, and that there are issues around the definition of ‘tenant personalisation’ as well as the one-time-only opportunity for landlords to meet the Build-to-Rent requirements.
Oxygen submitted the following to the Select Committee in this respect:
Taxation (Annual Rates for 2022-23, Platform Economy, and Remedial Matters) Bill (No 2)
If the Taxation Bill 2 excludes purpose-built buildings under 20 units, small sites and small investors that would be ideal for purpose-built units will be excluded.
The National Policy Statement on Urban Development (NPS-UD) and Resource Management (Enabling Housing Supply and Other Matters) Amendment Act 2021 (the Housing Supply Act) are intended to encourage higher density and intensification. It makes sense the Bill complements the NPS-UD and the Housing Supply Act.
Practically it is very hard to amalgamate sites large enough for 20 units. The topology, services and town planning rules for many sites will not allow such large scale developments, yet there are many sites that would otherwise be ideal for purpose-built rentals because of their location to amenities and for other good reasons.
Smaller, purpose-built blocks can be better living environments for tenants and sometimes more affordable and better returns for landlords than 20+ unit developments.
Anything to encourage landlords to build new rental properties is worth capturing in this Bill. It would be better to allow a purpose-built block of two units than not have the units at all, and New Zealand needs to encourage both large and small investors into the residential rental sector. A mix of both is important for tenants and they both provide lessons and standards for both types of landlords to improve outcomes.
Some existing commercial buildings ideally suited for conversion to rental properties are not large enough for 20 units but should be allowed the benefits of this Bill’s taxation initiatives. Converting a small commercial building to residential rental units has a better carbon equation than demolishing it and replacing with new.
Our recommendations
- There be no minimum number of units required to qualify as a purpose built rental for both new-built and converted commercial buildings.
- Purpose-built units must be managed by licensed property managers as a means of maintaining the integrity of the intention of the Bill.
