Balance required fixing “antiquated” rental laws – Peter Thompson

Peter Thompson, Managing Director, Barfoot & Thompson
Balance required fixing “antiquated” rental laws – Peter Thompson

The Government is intent on improving the quality of private rentals and in the past 12 months has introduced, or is talking about introducing, a series of requirements that rental properties or rental agreements must meet.

Few would disagree with the aims the Government is seeking to achieve – better quality rentals, warmer and damp free homes, and tenants with a fair level of security of occupation.

The sentiments stated by the Government are ones most landlords buy into themselves.

In terms of the latest changes to the rental properties themselves these changes include additional levels of ceiling and underfloor insulation, air expelling appliances for kitchens and bathrooms, smoke alarms and heating appliances that can heat the main living area to 18 degrees.

The Government needs to recognise that these will see some landlords incurring significant costs, and as all other businesses do, these landlords will likely look to recover those additional costs from the end user, which is the tenant.

Contrary to claims often made, providing private sector rental accommodation is not a short-cut to making an easy living.

Based on current average house prices and rents in Auckland, a private landlord owning a three bedroom property is earning a gross return of 3.25% on their investment.

That is hardly an excessive return, and the move to ring fence losses for tax purposes, and the added possibility of a capital gains tax, simply adds to the logic of landlords looking to make their rentals pay their way. The most likely option to achieving this is to increase the rent.

Encouraging private investors to exit the market through making rentals uneconomic seems a short sighted measure to me.

Based on 2013 census figures 453,000 households rented their accommodation, and of that number only 64,000 were renting from the Housing Corporation or a local authority.

It means that some 390,000 households were dependent on the private sector for their accommodation.

For the State to take over responsibility to house even a small proportion of these households would involve billions of dollars in capital investment.

Nor is it realistic to claim that if private investors were excluded from the housing market prices would fall to the point where current tenants would be in a position to buy their own home. Some would, but some will never be in a financial position to own and maintain a property.

And there is an increasing number of people who prefer to rent – their reasons including lifestyle, flexibility, being able to live in a preferred area and wishing to do so on a temporary basis.

The Government recently labelled existing tenancy arrangements ‘antiquated’ and among the measures being considered to right this situation is banning no cause terminations, increasing termination notices to 3 months, and removing the landlord’s right to ban pets and minor alterations without their prior agreement.

Barfoot & Thompson manages 16,500 properties throughout Auckland and Northland on behalf of landlords and we have been in the business of being property managers for some 95 years.

Our experience is that most property investors own one property, are conscientious in their commitments to tenants, hold on to their properties for medium to long terms and are not looking for special treatment.

They also expect to be treated fairly by the State and their tenants.

In terms of the State this includes being given a reasonable time to adjust to additional requirements imposed on them, achieve a modest return on their investment and have their rights protected.

In terms of tenants it includes the on-time payment of rent, not wilfully breaking fixed term contracts and honouring the terms of the rental agreement.

A disheartening fact is that 88% of all claims* made to the Tenancy Tribunal are taken by landlords against tenants. Commenting on this statistic, the Property Investors Federation said at the time the majority of those claims were for compensation for damage or unpaid rent.

Too many landlords are on the receiving end of unreasonable behaviour.

What I would like to see is the State seeing the provision of housing as a three-way partnership involving provision of social housing, encouraging owner-occupation and creating an environment where the rights and obligations of landlords and tenants is balanced.

The private sector has proved itself to be responsible partners in many core walks of life – education, health and energy immediately come to mind.

My call to the Government is if present tenancy arrangements are antiquated, in fixing them please ensure that the rights and obligations of tenants and landlords are fairly balanced.

*Researcher Philippa Howden-Chapman, December 2015

 

Peter Thompson

Managing Director, Barfoot & Thompson

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