Removal of no cause termination can work, but Tenancy Tribunal has to reform first.

We explain why the Property Management industry will benefit from changes to the RTA.

I know I will be in the minority in our industry who feel this way, but the removal of the 90-day no-cause termination may not be as bad as everyone is making it out to be. That is not to say I am on board with all of the amendments that Kris Faafoi, the Associate Housing Minister is proposing. There definitely needs to be some fine-tuning such as the three strike policy which is totally impractical and the Tenancy Tribunal needs reform before this bill becomes law. However, a subsequent unforeseen consequence from this bill could lead to a surge in the need for professional and qualified Property Managers. Tougher fines, more evidence of compliance, stronger enforcement powers and making it harder to remove tenants will lead to many self-managed landlords outsourcing the management of their property portfolio.

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Should it stay or should it go

First, let’s deal with the removal of no-cause terminations. I admit that I do find myself torn when I look at this. There is a huge part of me that agrees with what Faafoi is doing. Without blowing my own trumpet too much I feel I am as well qualified as anybody to have an opinion on what is being proposed. There are not many people who have greater insight into renting in New Zealand than myself. I have seen renting in places as far off the beaten track as Westport and Kaitaia. Places where there are all sorts of social and economic issues. I have worked with Social Housing providers and see the challenges they have to face. I have worked with companies who attract average rents well in excess of $600 a week and we work with hundreds of Property Managers who have or are working towards getting qualified.

Kris Faafoi’s Residential Tenancies Amendment Bill is now at the select committee stage

I have also spoken with Tenant Advocate groups as well as landlords who deal with student rentals. I have researched at length what is happening in the UK as for whatever the reason, both countries seem interlinked when setting policy around renting.

The reality is this. There is and will continue to be a significant percentage of landlords who will end tenancies or not extend a fixed term due to the fact that a tenant becomes too demanding, even if they haven’t breached any legislation. I have met tenants too scared to approach their landlord for basic repairs when paying extortionate rents in a dwelling more suited to slums from a bygone era. This is simply not fair and should not happen.

When landlord groups complain that rents will increase because of policy I cannot help but laugh. It is like a child saying ‘no more sweets for me please’. I’d rather they call it for what it is. They want to have the ability to end tenancies without the need to go to Tribunal.

It is Tenancy Tribunal which is the problem, not the 90-day no-cause. 

 Yes, I do accept that we are seeing and will continue to see an increase in tenants pushing the boundaries as to what is acceptable in demanding their rights. I work with Property Managers all the time who experience this. I can understand and empathise with their frustration as tenants make threats of seeking justice through the Tenancy Tribunal and in an increasing amount of cases, without a valid reason. However, this is why an experienced and professional Property Manager is so important. If things were so easy, then our industry would never be needed and things are about to become a lot more complex. The majority of the self-managing landlord will simply not have the skill set or experience to deal with demanding and difficult tenants. For them, this will happen too infrequently due to the small number of tenancies they manage and when it does, they typically get overly emotional and make an irrational decision. This usually resorts to ending the tenancy by giving the tenants notice. Things will no longer be that simple.

Our we heading the way of the Germans?

We are slowly moving to a more European model and in particular, a model similar to Germany where the average length of a tenancy is 11 years. Tenant groups look at Germany as being the Mecca for renting. Nearly half the population of German’s rent and whilst the UK has seen property prices increase by 259% in a 20 year period up till 2017, Germany has increased by an average of only 27%. In Germany, the tenant has all the rights and the housing market is probably one of the most boring in the developed world.

In the not too distant future, we will get to the stage where owning your own home will no longer become a dream and many younger people will choose to rent for life. Why would you want to own your own home when tenants have more rights than property owners? The tenant has a secure tenancy whilst they do not have to pay rates, interest on mortgage payments, insurance and maintenance. A more mobile population will enjoy the flexibility that renting will provide.

We are going to see a radical change in how we live. Tenants may still own property but as an investment rather than a home. Concepts such as Build to Rent will gain traction as people will still look for the security that property investment has compared to other investments but under a different model. The length of a tenancy which has slowly increased over the last few years will extend greatly to probably around 5 to 7 years. All rentals will be pet-friendly and tenants will be allowed to make minor modifications. Personally, I have no problem with this as stable families lead to stronger communities.

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Getting the balance right between landlords and tenants

The key to any successful relationship is to ensure that you get the balance right. Labour and especially the Greens have been guilty of only looking at tenants and have done nothing to address concerns of landlords. They may do the politically acceptable ‘Consultancy process’ but let’s be honest, their minds were made up long ago. Since they have been in power, landlords have been constantly hit with change after change with increased costs. I accept that some change was necessary, particularly around minimum standards for rental properties, but the amount of change has simply been one-way traffic and whether some on the left-hand side of the political spectrum like it or not, New Zealand needs a strong private rental sector. As well-intentioned as it may be, Government policy has so far succeeded in driving up rents to dangerously high amounts.

So far since this Government has been in power, landlords have been hit with the following.

  • Wearing the cost of the letting fee that was originally paid by the tenant.
  • Losing the ability to offset losses from rental properties against their own personal income when the rental property runs at a loss.
  • Added costs with compliance due to insulation and healthy homes.
  • Increased reporting as evidence of compliance with legislation.
Berlin, Germany. 90% of the population are tenants and rent control legislation is used to control rents.

Naturally, landlords try to pass on the increase costs as best they can through rent increases. As things have got financially tougher for tenants, we have seen a huge increase in the demand for social and emergency housing. This leads to the inevitable call to fix rents or cap increases. In Berlin, law has been passed which bars landlords from increasing rents in by more than 10% above the local average rate. 

The one thing that does annoy me is the lack of any exemplary damages to tenants who willfully or intentionally damage a property. A tenant can smash up a landlord’s investment and face no fines or criminal charges. This is simply not right and needs to be addressed. Also, if tenants are evicted for antisocial behaviour, exemplary damages should be awarded and even penalties such as community work should be enforced to act as a disincentive. An opportunity may have been missed for the Government to address this and this is why so many landlords are upset. Don’t expect too many investors to be voting for Labour!

As I wrote back in October last year, Tribunal needs reform so it can deal with cases of anti-social behaviour quickly and effectively. Waiting several weeks for a hearing will be unacceptable with waiting times only likely to extend. Safety of Property Managers has to be a priority and the changes around termination of antisocial and aggressive tenants need to reflect this. Quick, effective, consistent and balanced Tribunal is what we should be addressing. At the moment, we do not have that. If a Property Manager feels unsafe in a property due to tenants behaviour towards them, then this should be a valid reason to end a tenancy. Three strikes for three separate incidents over a 90 day period is ridiculously impractical and potentially dangerous. If a Property Manager feels threatened, do they need three pieces of evidence recording this for three separate incidents? This needs to change.

Tenancy Compliance Investigation Team increase audits but this only drives bad landlords underground

In the past fortnight, I have been contacted by a number of companies who are getting audited by TCIT. The presence of TCIT has increased dramatically and Property Management companies are now becoming less and less tolerant with landlords who simply refuse to comply and take their advice. 

With proposed changes in the amendments focusing on reporting and retaining evidence of Health Homes compliance, the TCIT will be given powers to issue infringement notices and fees to organisations and individuals who breach the act. Don’t have a Healthy Home statement with evidence of compliance? That’s a $2,000 fine for that breach.

The sad thing is, as TCIT focus on the Property Management industry, the bad landlords who should be identified are being driven underground. The majority of Property Management companies who are trying to do the right thing are left exposed and with no choice but to sack non-complaint landlords as the risks are too great.

Unfortunately, these landlords will prey on the vulnerable and many will simply go unpunished and undetected.

The next few months are going to be fascinating as housing once again, will become an integral part of the upcoming election. Simon Bridges has already indicated he will renege some of the policies such as ring-fencing losses and some of the more ‘Nanny state’ healthy homes standards.

Whatever the outcome, we will keep you informed and up to date with the ever-changing world of renting in New Zealand. As an industry, we should remember this. Never underestimate your value as the service our industry provides will become more sort after. Being a landlord in New Zealand isn’t becoming easier.

David Faulkner

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