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How do you solve a problem like housing?

By 16 October 2023Lifestyle


Photo: Shutterstock

How do you solve a problem like housing?

In the perpetual housing-crisis debate, the “German model” continually crops up as something worth emulating. What might this model offer to New Zealand?


By Theo Macdonald

This February, Trade Me Property sales director Gavin Lloyd reported that the median weekly rent had reached a record high of $600. Like the neverending statistics of climate-change-induced heat records, this announcement arrived with the limp splat of an overcooked spaghetti noodle. We all know the New Zealand rental market is a disaster.

The core of the rental crisis has been described — including in Auckland Council’s Auckland Plan 2050 — as the long-term result of the wrong types of housing being built in the wrong places, and built at not even close to sufficient quantities to match population growth.

Writing for Newsroom in 2017, journalist Bernard Hickey argued that 1989 was year zero for the New Zealand housing boom. The remorseless rise in house prices over the next 30 years was, as Hickey unpacked, a result of government changes to tax law, which incentivised investing in land and existing housing, as well as the introduction of the Resource Management Act, which discouraged the building of new houses. These factors, coupled with high net migration in the decade before Covid, delivered a three-decade-long housing shortage that has benefited homeowners and produced consecutive generations of struggling renters.

As much as the crisis is a consequence of economic policy and decades of poorly built homes in decay, there is also a crisis in the national attitude towards home ownership. In Aotearoa, home ownership has long been a rite of passage, as intrinsic to the norms of adult life as marriage and children. Renting was typically seen as a preliminary stage before buying a house, or for that minority of people unlucky enough never able to aff ord a house.

This was not just a matter of individual choice. It was part of a system that was (and still is) oriented towards home ownership. Our welfare system, the absence of taxes on capital gains, plus limited tenancy regulations and tenure protections make home ownership the obvious preferred choice for most. Hickey’s argument is that while this may have worked well for the baby-boomer generation, it has broken down over the last 30-plus years.

Nationally, solutions that make good quality housing affordable for renters and buyers alike will obviously require some big changes by government — a government, what’s more, that is willing to face a potential homeowner backlash. In the meantime, however, there is space for developing collective living and rent-for-life approaches that move away from ownership as the end goal. This alternative approach to housing is sometimes called “the German model”. But what is the German model? And what might it offer us in New Zealand?

The idea of a “German housing model” generally refers to two different approaches to housing which operate throughout Germany. One model is collectively owned co-housing initiatives, or “baugruppen”, a leading New Zealand example of which is the 20-unit development Cohaus in Grey Lynn, Auckland. These apartments are initiated and funded by their residents, and often involve shared amenities to enable community development.

The second model is that of rent-for-life apartment complexes, built upon a foundation of rent control and tenants’ rights. After World War II, Germany’s government and financial institutions had to rapidly build to recover lost housing stock. These apartments were built to last, and, because of their government and corporate ownership, established renting as a national habit, although nowadays private and corporate landlords own the majority of German rental stock. Private home ownership is still common, but so too is long-term
renting. It’s not seen as a stepping stone or a disadvantaged situation, but as a viable, sensible choice.

Unlike in New Zealand, most German rentals are let entirely unfurnished, with renters often responsible for installing kitchens, curtains, cabinets and so forth. And the tenant can paint and redecorate as they please. When a German moves out of a rental, after, perhaps, eight years, they must restore the property to its original white-walled state. In a small way, this difference suggests the vast gap between how the two nations perceive rental housing — one as a housing choice worth investing time, energy and finances into, the other as a holding pattern on the journey to somewhere else and with limited rights to make your home your own.

In Germany, the rental market is largely owned by corporations — particularly pension funds — who are looking for stable investments that’ll run beyond an individual’s lifetime. When German pension funds invest, they look for very long-term asset classes. In this case, a long-term renter can be better business, due to low management costs and reliable income, than short-term speculation.

Sam Stubbs, the founding director of non-profi t fund manager Simplicity, says the German pension funds’ approach to investing into rental properties inspired Simplicity Living’s housing developments. As Simplicity is using KiwiSaver funds, it is responsible for investing on behalf of savers, and Stubbs emphasises that his company has no intention of innovating new models in anything they do. Instead, Simplicity studies initiatives with proven track records and investigates how they might be applied in a new context. German rent-forlife housing is one such initiative.

The government seems to agree. Build-to-rent is identified as a specific category of development, and build-to-rent developers are entitled to preferential tax treatment. In particular, interest payments can be deducted from rental income before calculating tax. This is probably part of the incentive for companies such as Simplicity, who have fully leased apartment developments in Onehunga and Point England, with two more on the way in Mount Albert and Mount Wellington.

Private home ownership is still common, but so too is long-term renting. It’s not seen as a stepping stone or a disadvantaged situation, but as a viable, sensible choice.

To Stubbs’ knowledge, they are the only game in town so closely following the German model. “Our mentality is not to change the way people think about property in New Zealand. Our intention here is to provide another option, and it’s an option which is very common overseas and should be common here in New Zealand.”

The basic tenancy agreement arrangements in Simplicity Living apartments are similar to other private-sector rentals, with a few key differences. They offer a one-year fixed-term agreement to begin with. At the culmination of this year, the renter has the option of signing a 10-year lease (if you quit one of these build-to-rent leases, you need to give 56 days’ notice). The rent for these 10 years will remain unchanged for the first 24 months, after which rents will be increased by a maximum of the increase in the Consumers Price Index.

Beyond these contractual differences, a critical distinction is that tenants know that the landlord is a KiwiSaver fund, which, like a German pension fund, is in it for the long haul, the steady return on investment from rents, not the short-term capital gain from on-selling. Stubbs sees it as a win-win — long-term tenancies reduce the costs of constantly finding new tenants, and security of tenure in a well maintained apartment complex provides greater certainty and good housing for the tenants.

Introducing a more German housing model to New Zealand means recognising that there is no one-size-fits-all solution. The dinner party won’t go well if you serve only strudel; you also need currywurst, schnitzel, sauerkraut and a plate of New Zealand lamb. Reining this metaphor in a little, a more German approach to housing in New Zealand might mean supporting baugruppen and build-to-rent apartment complexes.

Stubbs sees the German model of long-term rental apartments, built to last a century, as a model built on trust. “Relationships built on trust are inherently easier.” To this end, another specific term of Simplicity Living’s rental agreements is the explicit provision for renters to live with a cat or small dog (on condition of landlord approval). To Stubbs’ thinking, when the landlord and the tenants trust one another, both parties are happier to participate in a stable rental, which benefits everyone.

“The other thing that creates a relationship of trust is the quality of the building. If you’re going to own that building for 100 years, you spend a little bit more on making sure it will last 100 years. Typically in New Zealand, for example, you have to spend about five per cent more to make a building last twice as long. The general pension funds [in Germany] will do that without blinking an eye. That’s just very good economic sense, but it also creates a better place for tenants to live in.” The investment in longer housing life, therefore better quality residence for tenants, is an olive branch; a way to enter into these tenancy relationships in good faith.

This olive branch is necessary because, as writer, campaigner and legal researcher Max Harris wrote for Newsroom in September, high-end build-to-rent developments risk worsening our housing problems. In response to the National Party’s recently announced policies aiming to boost the property sector, Harris wrote, “It’s precarious for any economy to put all of its eggs in the basket of one sector or industry, or a small number of sectors.” The build-to- rent apartments being constructed by Simplicity Living and Ockham Residential, to name two major players, may be destined to remain a small part of the housing sector, never intended to, or capable of, addressing the systemic problems with the New Zealand housing market.

As Stubbs suggests, there is no way for one housing provider to be all things to all people. Idealising another country’s ostensibly functional rental economy ignores the reality that, ultimately, our approach to housing has to work from what already exists here, as complicated as that may be. All things considered, the German housing model may be more of a castle in the air than a concrete plan for New Zealand moving forward, but that doesn’t mean Germany’s rental market doesn’t possess strategies and ideals New Zealand can learn from.

Photo: Shutterstock

Germany and New Zealand, apples and apfelsine

When pundits rhapsodise about German rental housing, the proffered benefits include long-term leases and accordant security, three-month eviction notices, stringent rent control, ease of access to tenants’ advocacy organisations, and a sense of ownership renters feel over their properties — the right to paint, build and, essentially, invest in one’s rental home. What we consider the “German model” is, in this sense, a conglomerate of overlapping policies, protocols and practices, many of which the New Zealand government has developed equivalents for, with mixed success.

However, it would be a mistake to romanticise Germany’s rental market. Since the reunification of Berlin, about a third of the city’s housing stock has been privatised, and studies show that corporate landlords are more likely to evict tenants, less likely to invest in maintaining housing stock and less accountable to tenants. In 2021, 56 per cent of Berliners supported a non-binding referendum for the government to expropriate properties owned by corporations with more than 3000 housing units. This referendum has been derided by landlords and politicians as unconstitutional and financially impossible. Nonetheless, it demonstrates dissatisfaction among many Germans with the standard of housing in major metropolitan areas.

Here, skyrocketing property prices are great for individual homeowners who bought when prices were low, and are holding onto their retirement nest eggs. The national house-price index increased 107 percent between 2000 and 2010. In comparison, the German housing index was remarkably flat in this same period. Since 2015, however, the appreciation between the two countries has been similar. New Zealand’s index increased 69 per cent between December 2015 and December 2022; Germany’s by 63 per cent in a similar period.

This story appeared in the November 2023 issue of North & South.