So far, 92% of development has been focused on Auckland suburbs where the housing need is the most acute; renter population growth the strongest; and rents the highest.

However, there are also challenges specific to these areas, particularly high land values; lack of suitable sites; alternate uses; and strong competition among developers for prime sites, the BTR in the Regions report says.

The Property Council is lobbying the Government for BTR to be carved out as a sector in its own right.

It is also requesting BTR be excluded from the proposed tax changes stopping landlords from using mortgage payments as a deductible tax expense and extending the bight-line test to 10 years.

The report says Auckland’s suburbs are a comfortable middle ground for property investors and developers that reduces land cost without compromising on the size of the demand base or potential achievable rents.

As the sector grows and evolves, the dominance of the Auckland suburban market will diminish.

Eventually BTR development will be occurring right throughout the country.

And while it is likely to always be focused on major cities, there is significant potential for regional development of property investor-led institutionalised rental housing that is yet to be explored.

Lower costs

In the regions, lower land costs and lower density typologies reducing the overall construction cost can mitigate some of the issues city centre property investors and developers are facing – materials and labour shortages being the most pressing. 

The data on established BTR markets internationally shows that while the largest volume of stock is in core urban centres, demand also exists in more regional locations.

When the two are combined they make up a significant component of the total potential tenancy market.

Given that population growth is a key investment decision, this will boost BTR in the regions, the report says.

The country’s population has risen by 1.2 million people over the past 20 years. Auckland had the most growth at 43%.

Northland, Waikato and Bay of Plenty also had high rates of long-term population expansion, mainly due to people moving from Auckland to these regions for work and cheaper housing.

In addition there has been a population influx into the Tasman and Queenstown Lakes District regions, where a BTR development was recently completed.

Renters

Even though BTR pricing in the regions is likely to be cheaper than in the main centres, it will be more expensive than existing rental stock.

This means that most renting households will require two or more incomes to afford the rent.

While higher-income singles and solo parent households are part of the renting demand, tenants are more likely to be sourced from households with multiple income sources.

The report used household type as a proxy to give an indication of the proportion of larger renter households that are likely to have more than one income earner.

The region with the biggest proportion of these households is Auckland, where about two thirds of renter households have two or more adults.

Next was Otago, which has large numbers of students flatting in Dunedin.

Coming in behind are Canterbury and Wellington, indicating a decent demand base in these areas for BTR.