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2018: The year of Rental Reform?

9 February 2018

Photo: Wellington Houses by Kate Alderton

Economic pressures, a tight rental market, a new government, and concerns over rental safety have created an atmosphere ripe for reform of tenancy law. But just what is being considered, and how will it affect Kiwi property owners and renters?

Vague prospect of reform affecting confidence and prices?

Rental reform has been a major policy focus since even before the 2017 election, with the National government introducing the important Safer, Warmer, Healthier homes program and reforms including new smoke alarm and insulation requirements. The promise of further reform, with a focus on renters’ rights, was a lynchpin of Labour’s election pitch. This now means expectation is high amongst both property owners and tenants for what the Ardern-Peters government will unveil for the rental market during their first full year in office.

Progress has been slow so far, with no concrete plans or proposals announced. The last two weeks has seen the new Housing Minister Phil Twyford take a careful approach. He’s effectively ruled out capping rent prices but hinted at other reforms, generally aimed at boosting tenants’ rights.

myRent supports any initiative that promotes a positive renting culture and provides certainty for all parties without diminishing the incentive for responsible property investment.

A survey of landlords by the NZ Property Investors Federation before the election revealed a high degree of anxiety about a Labour victory, with over 54% of landlords saying they would increase rent by $20 to $40 to account for expected increases in compliance costs. That concern may have been exaggerated, with more recent figures from an Auckland-based landlord’s group instead indicating a cautious optimism about Labour’s moderated plans now they are faced with the realities of governance. A good first step for Twyford and the coalition government would be to give property owners and renters greater certainty over what reforms they can expect over the next few years. Property investment is a long term commitment. Landlords provide a vital social good to a large proportion of the population. This is a sector that needs certainty more than any other.

Well-considered reform - based in fact rather than ideology - after a proper consultation period, should not be feared by landlords or tenants. The rental market operates at its best with long-term tenants who care for the property as if it was their own, and landlords who take responsibility for their investment as more than a source of income but also a social good. myRent supports any initiative that promotes a positive renting culture and provides certainty for all parties without diminishing the incentive for responsible property investment.

Are price controls really on the table?

Proposing rent control is a lazy excuse for meaningful housing policy discussion. Not only is it politically untenable, but it’s plainly poor policy. The rental market is too variable and unwieldy for any central body to attempt to set a cap. Just look at the dramatic differences between high-demand, urban markets like Wellington and Auckland as opposed to regional areas. Added to that is the massive variances between rental properties in terms of quality, size, style, and number of services included. Well-informed landlords responding to market trends remain the best way to set competitive and fair prices.

This is why myRent was glad to see Minister Twyford effectively rule out rent control as a reform the Ardern-Peters government would consider. Price controls would be a populist, short term solution ultimately only exacerbating the underlying problem of affordability while actively discouraging existing landlords from improving their properties and deterring prospective investors from entering the market. The acute undersupply of housing is the core issue from which all other affordability problems flow. Only by opening up more existing stock to rent and promoting more home-building will affordability be solved at a structural level.

myRent is, however, optimistic about some of the more marginal reforms proposed by Twyford. A ban on ‘rent bidding’, though potentially difficult to implement, is a good proposal to stop unscrupulous landlords exploiting prospective tenants. Increasing the regularity of rental increases from 6 to 12 months would also be a positive move to increase renters’ certainty while also bringing New Zealand into line with most Australian states. As would the mandatory inclusion of a formula in tenancy agreements for calculating rent increases. A cap (or outright ban) on letting fees may also reduce the impact of property managers who disregard tenants’ rights.

We would also like to see a simplification of notice periods and reasons for termination - the current law is not only vague, but also inconsistent and complicated in the differences between fixed term and periodic tenancies.

Making rental properties safer

One factor that may yet put more pressure on rental prices is the impending compulsory insulation standards. Reforms to the Residential Tenancies Act in 2016 gave landlords a 3 year grace period to comply with minimum requirements, with the deadline being 1 July 2019. It remains uncertain just how many more rental properties will require major insulation upgrades or refits and how the associated costs may affect prices. A mad rush to complete work over the next 16 months may mean professional installers increase the prices, which will inevitably be passed onto renters.

A more significant reform that has been mooted is the introduction of a nationwide ‘Warrant of Fitness’ test for all rental properties, mirroring the voluntary program in Wellington. Such a program would effectively impose a licensing system on landlords, obliging them to comply with certain minimum standards before being allowed to rent their property. This would constitute a significant disruption of private property rights, with property owners prevented from exercising their right to let property unless they meet a government standard. If this reform was ever implemented, the standard and compliance processes would need to be thoroughly interrogated before it would enjoy the support of property owners.

2018 could become one of the most significant years of reform for the New Zealand property market in recent decades. myRent encourages property owners and renters to approach the year with optimism and good will to improve the rental market for everyone while also solving underlying issues such as affordability.

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