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SocietyMarch 30, 2017

Nine ways to fix NZ’s broken rental market: the landlords respond

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Last week Otago University tenancy researcher Dr Elinor Chisholm suggested nine things the government should be doing to improve conditions for tenants in New Zealand. We asked the Property Investors Federation to respond, and this is what they told us.

While improving people’s living conditions is a great goal, sometimes what looks like an obvious conclusion isn’t necessarily so. And while we’re not always in disagreement with Dr Chisholm’s list, here are some alternative viewpoints to consider.

All numbered points are taken from Dr Chisholm’s original essay, which you can read here.

1. Make renting more secure

A dream tenant is someone who looks after their home, pays the rent and stays in the property for a long time. Yes, rental property owners want their tenants to be stable in their homes as well. But how many tenants actually want long term leases?

In my experience and the experience of many others I’ve spoken to, if you offer a prospective tenant a long-term lease or a periodic one, nine times out of ten they will choose the periodic option. One of the benefits of being a tenant is flexibility. You only need give three weeks notice if you want to move on. Tenants like this.

Like tenants, rental property owners are not so keen to give up their current rights, mainly the right to sell their property.

So while rental property owners are quite happy to look at options to improve tenants security of tenure, it needs to be done in a way that is fair to everyone. This could include a matching system that puts tenants who want long term leases in contact with rental property owners that want long term tenants.

2. Extend Warm Up New Zealand

The NZ Property Investors Federation has encouraged members to insulate their rental properties for well over a decade. Warm homes encourage tenants to stay longer.

We initially supported the government Warm Up NZ subsidy, however over time it became bureaucratic and very expensive. It was cheaper to buy insulation and employ an installer rather than go through Warm Up NZ, even when the 50% subsidy was applied.

A survey of our members showed that 92% of their rentals had insulation. A more recent survey showed that only 17% needed more insulation to meet the new regulations.

So we would be all in favour of Warm Up NZ if it was redesigned and actually provided a true subsidy.

3. Introduce a rental housing warrant-of-fitness

In the past, proponents of a rental property WOF have suggested minimum bedroom sizes, maximum ages after which a home could no longer be a rental, minimum kitchen bench size and orientation of the property towards the sun be included in a rental WOF.

For at least 20 years, successive governments have rejected the idea of a rental WOF because it would be expensive to operate, reduce supply and become harder to comply with over time.

The NZPIF believes that rental property should be of a good standard, however the law already does this.

The cost of providing a home to tenants has increased significantly over the last few years, with increased regulation and prohibitive financial rules meaning fewer people are able to provide rental property.

Ultimately tenants pay for higher regulations through higher rental prices. How many tenants want to pay higher rents for features they may or may not want and for a government employee to come to their property periodically to check it?

4. Robustly enforce rental housing regulation

The Ministry of Business Innovation and Employment has established a Property Compliance Division who have the authority to investigate and prosecute rental property owners without the tenant’s agreement. Rental property owners face penalties of $4,000 if they take retaliatory action against a tenant who asks for something that they are legally entitled to.

5. Regulate property managers

The NZPIF has no official opinion.

6. Make landlords, not tenants, pay the letting fee

Only property managers can charge a letting fee, so private landlords can’t. If a tenant doesn’t want to pay a letting fee they can go to a private landlord. They tend to promote that there is no letting fee fairly predominantly.

At different points in time it can be either harder or easier to find a rental property. When it is easy to find a rental property tenants don’t need to pay the fee and prefer properties with no letting fee. in this situation owners will often pay the letting fee to help get a tenant.

So whoever gets the main benefit of the property managers services pays the letting fee.

Admittedly in the current environment of high population growth and difficulty in providing rental accommodation, tenants are finding it hard to secure rental accommodation and tend to pay the letting fee.

7. Support tenant advocates

It is a myth that landlords are all dominant, strong and knowledgeable while tenants are submissive, weak and less knowledgeable.

The vast majority of rental property owners in New Zealand have one rental property, some two, very few more than two. There are advantages and disadvantages to this, but it does mean that owners are not going to be highly experienced experts in tenancy law.

Just like tenants, landlords find going to the Tenancy Tribunal very unfamiliar and stressful. By and large the adjudicators know this and help both parties fairly.

Tenant advocates really means tenancy experts who work in the Tribunal day in and day out, representing tenants and going up against rental property owners who may never have been at the Tribunal before.

This will further increase the likelihood of fewer people wanting to provide rental property. At best it is likely to push owners into using property managers and the higher cost being applied to all tenants.

The current system is fair and reasonable and shouldn’t change.

8. Protect tenants from discrimination

The publication of Tenancy Tribunal orders online was introduced partly so that tenants could vet landlords as well as landlords vetting tenants.

The NZPIF does not have a policy on this, however if tenants that have won their case want their names removed I’m not sure we would have a problem with that.

9. And while we’re are at it… fix everything else, please

Agreed. We have a property supply issue in New Zealand and that includes needing more rental properties. It appears that an increasing number of tenants are coping by moving in with each other and living in overcrowded conditions. This isn’t good for anyone.

But if we need more rental properties, how is making it harder for people to provide them going to help?

If a person buys the average NZ home to provide to someone as a rental home, they need to come up with $51,000 as a 10% deposit, raise the other required 30% to meet minimum LVR restrictions by borrowing against their home, and top up the expenses in excess of the rent they receive by nearly $9,000 a year.

That is in addition to rents rising faster than wages are because our costs are going up at a faster rate as well.

This is not easy and fewer and fewer people in NZ are able and willing to do it.

Housing is a highly complex and intermingled matter and requires a mix of solutions to get it right. These solutions need to be researched thoroughly and in a balanced way before being introduced. Unintended consequences invariably occur when this isn’t done.

Read all The Spinoff’s Rent Week coverage here

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