Think the rental squeeze is bad? Well breathe in as it could get worse

    • Insulation, negative gearing and capital gains may lead to mass selling off of our rental stock
    • 70,000 rental properties may be uninhabitable by July as deadline approaches

We have all seen the headlines. Teachers forced to bunk in with their bosses, over 10,000 households waiting for public housing, up from 4530 the same time last year. We have even seen disturbing headlines such as ‘sex for rent’. Almost daily now, we see stories across New Zealand of people struggling to secure rental properties and rising rents forcing people out of their homes.

In the last 12 months, we have seen sky rocketing rents. In many parts of New Zealand rents increased by over 10%. Queues upon queues of desperate tenants, battling to try and secure a battered, run-down rental property and being forced to pay more. In one case I witnessed in Wellington, about a group of twenty tenants turned up to a viewing trying to secure a tiny one bedroom flat in which the bedroom so small, the double bed of the vacating tenant had to sit in the lounge. Although habitable, it was tired, dated and more akin to something out of Victorian Britain. The asking price? A bargain at $410 a week. There was no shortage of applicants.

The young solo parent who lived in the property was being forced to move because she could not keep up with the rent. As I left the property, I couldn’t help but feel a sense of nausea and concern as to where this rental shortage is heading. It is not just limited to the cities.

In Gisborne, a place where traditionally there has been no shortage of rental properties, I went into an office where the weekly rent had increased by 25% over four years with nearly half of that increase over the last 12 months. Surely it wasn’t meant to be like this?

Things were going to get better for renters under this Government, weren’t they?

Housing was Labour’s top priority in the run up to the election in 2017 with campaign promises such as.

      • Crack down on property speculators with the removal of negative gearing
      • Improved rights for tenants with introduction of new legislation to provide greater security of tenure
      • Pass the Healthy Homes Guarantee Bill that raises the standard of rental properties
      • Ban letting fees
      • Create a level playing field for first home buyers
      • And of course, the most famous pledge of them all. Kiwibuild! 100,000 houses to build across New Zealand over the next 10 years

So, half way through their first term, how are things panning out? Not good if you are a renter.

You think things are bad now? Well, you’d better breathe in New Zealand, as the rental squeeze could get worse. A lot, lot worse as thousands of rental properties may come onto the market for sale in the Autumn due to non-compliance with new insulation standards leading to an even greater shortage of rental properties.

Why have things gone so badly wrong?

There are a multitude of reasons which we will examine, but ultimately, one of the main reasons is that the vast majority of investors, whom own one or maybe two properties have found it just too hard with the prospect of having to invest thousands of dollars to make properties compliant leading to diminishing returns. Then, add on the prospect of the removal of negative gearing which leads to the inability to offset losses against landlords personal income leading to a tax break. Many landlords have decided to cash up and sell as the cost of owning a rental property becomes too expensive without the required return.

Why has it become so hard?

There is so much change around legislation and taxation that many small landlords simply no longer see property as a viable investment and have chosen to put their money elsewhere. This has led to an increase in sales to first home buyers, however the pool of tenants has remained the same leading to an even greater increase on demand for rental properties and in particular, three to four-bedroom housing. The basic rules of supply and demand has led to the inevitable increase in rents.

Increased rents would surely make landlords happier? Agreed, but even with the increase in rents, this will likely not cover the increase in expenses facing many landlords across the country.

Unfortunately, this Government may have drastically underestimated the potential consequences to some of their policies. It now seems ironic, that the people they were elected to help are being punished through some of these policies yet the big wealthy landlords, whom they promised to target are probably laughing all the way to the bank. Cashflow is king for those big landlords and many of the savvy long-term investors may not face the same debt to equity ratio and other operating expenses as a percentage to their income.

In defence of the current Government, not all the blame should fall on their shoulders. The previous Government has to take some of the blame as do many landlords, who it has to be said, have neglected their rental properties for years.

So, we try to break it down and examine why things have gone so desperately wrong and why things are only going to get worse before they get better.

1st July Insulation deadline

Back in 2016, legislation was passed that meant that every rental property in New Zealand would have to be insulated where it was practicable to do so. The deadline for completion is the 1st July 2019. That date is fast approaching and there could be as many as 75,000 properties that will soon become non-compliant and technically, unable to be rented.

The Housing Stocktake of New Zealand that was compiled last year estimated that there were approximately 580,000 dwellings being used in the private rental sector (PRS) and approximately 37% of the population were living in rental accommodation. Many of these properties were uninsulated. This gave landlords three years to get their properties compliant and insulated before the standards became mandatory.

Typically, many landlords were oblivious to this or simply just put it off and ignored it. We estimate that there is still approximately 10 to 15% of rental dwellings non-compliant and the insulation industry does not have the capacity to get the work complete. Best estimate is that 50,000 dwellings can be insulated a year according to one leading insulation provider. We believe that there could be as many as 75,000 non-compliant properties when the 1st July 2019 deadline strikes. Any landlord with a dwelling that is not insulated by 1st July 2019 could well face $4,000 exemplary damages through the Tenancy Tribunal and be issued a work order ensure that the work is done. Ignore that and you could face an extra $3,000 in exemplary damages.

Because many landlords have been slack or have left it too late, we believe that we will see a surge of rental properties put on the market for sale as the deadline approaches. The reality is that much of our rental stock is in poor condition and many landlords will not want to throw money anyway spending thousands to make a property compliant. This could be good news for first home buyers and savvy investors but bad news for tenants leading to an even greater shortage of rental stock.

Tenancy Compliance Investigation Team (TCIT)

These guys mean business and it appears that they are targeting Property Management companies up and down the country. Lots of companies have already been audited by the TCIT. Last year, Paul Davies Senior Operations Advisor TCIT warned Property Managers that that they were being targeted and it would be them they would be holding to account if landlords did not get properties insulated. No Property Management company wants to face $4,000 of exemplary damages and have the brand negatively portrayed across the media.

Therefore, the only real option they have is to walk away from the potential thousands of properties under management. Rather than manage the properties themselves, many landlords will again, probably choose to sell, as getting the property compliant will be too costly, too hard and too time consuming. Others will simply form a ‘black market’ of rental properties as many landlords will take the gamble of not getting caught out and prey on tenant’s naivety.

The Healthy Homes Guarantee Bill

This is a bill that we do support as the quality of rental properties in New Zealand is well below the acceptable standard that you would expect from a country of our stature. Literally hundreds of thousands of tenants up and down the country are living in cold, damp rental accommodation.

In our opinion, this bill is probably one of most radical changes to housing legislation that there has been in this country. Soon, standards will be set as to what the indoor temperature of a rental property must be achievable. This is likely to be 18 degree Celsius, as per guidelines set by the World Health Organisation. This means that tenants must have the ability to maintain the indoor temperature of their rental property to 18 degree Celsius regardless of what the weather conditions are outside. Failure to do so will lead to a breach of Landlords Responsibilities with a further $4,000 exemplary damages facing non-compliant landlords.

Nothing wrong with that, however this will likely lead to a further reduction in the rental stock.

Let’s take Dunedin as a prime example. Many of the student accommodation in the city is of an age and condition that would probably make if financially unsustainable to invest the tens of thousands of dollars that is required to make the property compliant.

A potential consequence of this is that the landlords simply do not do the work and leave the properties derelict, as again, to rent them out would be a breach of the RTA. Instead, many may just land bank and wait for developers to buy up the land that their properties sit on, leading to a greater shortage of rental stock. There could be streets of empty, boarded up derelict housing whilst the thousands of students scramble for what little rental stock there is. Investing in a good quality Dunedin student rental may not be a bad idea.

Attack on Negative Gearing

When we are demanding that the approximate 400,000 landlords across New Zealand invest thousands of their hard-earned dollars into their rental properties, the worst thing we can do hit them with a stick and remove the ability to offset rental losses against their own personal income. In many cases, landlords get a significant tax rebate. This rebate could be used to finance many of the much-needed improvements. Yet with this taken away from them, the financial return simply no longer stacks up. Approximately 90% of the landlords in New Zealand own only one or two rental properties. Therefore, this tax break is vital for the financial viability of their investment.

In my opinion, this is Labour’s biggest mistake. From the outset, they have said that the largest exponent of negative gearing is large property speculators. They could not be further from the truth. These landlords probably run their business as a profit and therefore only benefit from the rising rents.

How ironic it is that the biggest exponents and benefactors of this policy are the large landlords Labour set out to target. Increased rents by over 10% per annum means that they find themselves making more and more money.

The best thing that the coalition can do is park this policy until all properties comply with the Healthy Homes Guarantee Bill, or even better, remove it from the table completely. That, however, is unlikely to happen.

Proposed increase of tenant rights

The increasing debate around tenants’ rights has left many landlords feeling that they have been unfairly targeted with many believing that things have gone too far. I for one have no problem with some of the proposed changes such as pets, limiting rent increases to once a year and tighter legislation around Boarding Houses.

However, when you have to give a valid reason to end a tenancy or go to the Tenancy Tribunal to end a tenancy, then many feel as though property ownership rights have been taken away from them.

Landlords have already been hit unfairly with tenants no longer being liable for accidental damages after the infamous Osaki case. The proposed Residential Tenancies Amendment Bill No 2 does address this to some extent but it does not go far enough.

If a tenant is allowed to have a dog by right, and the dog damages the property, then the landlord should not have to spend a cent in repairs to damage caused by the tenant.

Tenants already have a multitude of rights; the main issue is that many do not know how to exercise them. If things go too far in the tenant’s favour, then many landlords again will weigh up their options and if it becomes too hard, many throw the towel in.

There are other factors as well such as the artificial shortage of land which seems absurd considering less than 5 million people live here and our country is not much smaller than Japan, yet they can accommodate 128 million people. Go figure!

Then, add on the cost of building and is it any wonder that Kiwibuild has been an absolute flop?

The proposed implementation of capital gain taxes will also have many investors nervous with the prospect of having to pay a proportion of the capital gain to the state in taxes.

Overall, however good their intentions are, all of these factors are leading us to a potential crisis point with rental accommodation and things will get worse before they get better.

I feel the coalition government are trying to rush too much policy through without taking stock and looking at the potential fallout. I for one agree with many of the things that they are doing such as making it compulsory for all rental properties to be insulated and the passing of the Healthy Homes Guarantee Bill.

However, the targeting of private rental sector landlords is short sighted and claiming that speculators are the biggest exponents of negative gearing is factually incorrect.

At a time when we need our landlords to invest in their properties attacking negative gearing is not the right solution and if anything, it is making matters worse. The potential for mass selling of our rental stock leading to increased rents is a realistic prospect.

Whether many on the left of the political equation like it or not, New Zealand needs a strong and professionally run private rental sector. Targeting them has simply backfired


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Fake reviews make real news!

  • News storyhighlights the risks of obtaining and creating fake reviews
  • We go through online etiquette and look how to manage reviews

The New Year has started where the old one finished off. Property Management companies in the headlines for all the wrong reasons. This time the Te Aro branch of Quinovic is back in the news following revelations that many of the reviews online are fake. Stuff.co.nz journalist Dileepa Fonseka released the story on the 20th of January and many individuals working for Quinovic franchises up and down the country must have thought ‘not again!’ when it appeared. This branch seems to be doing their best to commit commercial Hari-kari following their terrible faux-pas with the now infamous ‘Your Tenants may hate us but you will love us’ advertising campaign. Unfortunately, it looks like they have failed to learn their lesson.

Of the nineteen Google reviews it has received, fourteen come with 5 star reviews giving them a total average of 4 stars from nineteen ratings. So far so good. But when you take a closer look, twelve of those 5 star reviews look very, very suspicious.

They have all been made within a very short time frame and each of the twelve individuals has made two reviews of the same two companies. One of them is The Te Aro branch of Quinovic and the other is for Arlington Exchange, a small pawn broker from the city of Poughkeepsie in New York State. Now this may be a pure coincidence, but what are the chances of twelve individuals having properties managed by the same company in Wellington New Zealand, whilst also dealing with the same Pawn Broker in New York state, USA?

Even Donald Trump would have a job selling that story!

One must feel sorry for the many good people who work under the Quinovic banner. Their reputation has taken an absolute pounding over the last few months through the actions of one branch. One wonders how much more the powers that be will tolerate such behaviour from a rogue branch.

The Importance of the Review

Many companies fight hard to get as many reviews as possible. No problems with this, it just has to be done in an ethical way. The consequences of doing it wrong can be dire and the negative headlines could be the least of your worries if found guilty of breaching the Fair Trading Act.

Reviews on Google and Facebook have been hot topic in our industry for some years now as the world has moved from print advertising and Yellow Pages to the digital platform. It makes commercial sense to obtain as many positive reviews as you can as at some stage you will get the inevitable complaint and sometimes this happens when you have done nothing wrong. As an example, a tenant may have not had their lease extended due to a variety of reasons such as noise, antisocial behaviour or rent arrears. The easy way to get back at them is to slam the Property Manager on Google. ‘That’ll teach ‘em!’

Unfortunately it comes with the territory as in an industry that deals with the amount of conflict that we do, getting a 1 star review will happen at some stage as we live in a society of keyboard warriors and trolls.

Getting plenty of positive reviews will also help search engine optimisation or SEO as it is more commonly known. In an increasingly competitive market, everyone seems to be scrambling for a strong Google ranking and companies will spend thousands of marketing dollars using SEO companies to help boost their rankings on Google. Some will use Google AdWords but organic SEO is by far and away the most productive.

There is a saying that I have heard and it is probably very true, if you want to hide something, put it on page two of Google as no one goes there.

This is where the reviews also play their part. In many of the training and consulting sessions that we do up and down the country, we encourage clients to obtain reviews. This is by asking consumers whether they be tenants, landlords or anyone who has had a positive interaction with the company. Some do this really well with amazing success rates and this is just by simply asking people to review and making it easy for them to do so.

There are also companies that help businesses obtain and manage reviews such as Trustpilot by helping businesses collect customer reviews, display them in search, and drive more traffic. So, it does make real commercial sense to obtain as many good reviews as possible. Disappointingly however, some companies will get this wrong whether this is intentionally or unintentionally so. They could be utterly oblivious that someone has done something foolish. As we have recently seen, the consequences that may befall them could be catastrophic, whether you are large or small.

I have no doubt that many companies will now be reviewing what is being said online about them and developing policies around such conduct and behaviour.

Keep them real

When the news about the ‘Fake Reviews’ broke this week, Bindi Norwell, CEO of REINZ made the comment that by doing a fake review, you could be breaching the Fair Trading Act. She is right!

Section 9 of the Fair Trading Act states that ‘no person shall, in trade, engage in conduct that is misleading or deceptive or is likely to mislead or deceive’. By obtaining a fake review you could be exposing yourself to a fine of up to $200,000 and the company could be exposed to the amount of $600,000. Many individuals who work in Property Management companies will be oblivious to this as will many consultants who advise their clients to do this. They may well be doing a review as a favour yet they could be exposing themselves to a serious breach that could put their careers and the companies future at risk.

So, we have decided to give you our recommendations in dealing with Google reviews and further advice as to how to behave on social media.

The Real iQ guide to dealing with Google Reviews and Feedback on Social Media

  • Develop an online review policy: Whether you are an organisation that is large or small, it is increasingly important to police what is being said about your company online. Once a review has been placed and it either looks suspicious or is negative, ensure that senior members of your management team are made aware and ensure you follow your company policy.
  • Ensure your staff are transparent when they review the business: You would be amazed how many staff members review the companies that they work for with a 5 star review and don’t add any wording to go along with the review - or rave about the company and don’t declare they work there. If your team members want to place a review best practice is to convey that they work for that company in the wording. There is certainly nothing wrong with saying that they love working for a company if that is the case - especially as property management superstars will be googling your business prior to applying for any future positions.
  • Make it easy for them to review you: There is nothing wrong with asking for reviews, particularly if you are doing an excellent job. Many people, particularly the ‘Baby Boomer’ generation which own many of the property that is being managed will be unsure how to leave a review. Make it easy for them to do so. A banner on your email signature, a link in a newsletter or even on your digital statement that you send them are great ways to get more engagement and more reviews. One office I have worked with have an iPad at reception where the consumer can leave a simple review when they come into the office. Simple, cost effective and engaging.
  • Too busy, get professional help: If you are too busy or do not know where to start, it may be worth getting companies to help obtain feedback for you. Trustpilot is one of the those companies that you can use.
  • Be careful in reviewing other companies: This has been done by a number of companies and in principal, I have no problem with this so long as you follow some strict guidelines.
    • Explain who you are and what you do
    • Explain your relationship with that company. If you are a referral partner, say so.
    • Explain openly and honestly why you are recommending them.
    • Do not pretend that you have used their service when you haven’t.
  • Respond to all reviews, good and especially the bad: It is imperative that you respond to feedback, particularly bad comments but there is a way to do so. Too often, we get rapped up in the emotion and feel as though we are being attacked, sometimes unfairly so. The best way to deal with bad reviews is as follows.
    • Review what happened, you should be aware of the issue. Is it a tenant or a landlord and are we at fault?
    • How serious is it? Once you know what happened and who they are, look at the scale of the complaint. It could be someone just venting because they missed out on a property, it could be a landlord with a more serious matter.
    • Decide on a response. It may be easier to contact the individual directly to see what you can do to resolve the situation and put things right. If you can do this, only ask them to remove the review once you have rectified the situation. Remember that you cannot make them take it down and if they refuse, accept it.
    • Write your response carefully. Do not attack them publicly, this is highly unprofessional. If there is a genuine mistake and you acknowledge this publicly, most reasonable people will accept this. We are all human and we have all made mistakes.
    • Thank them. Whether it is good or bad, thank them as they have given you an opportunity to learn. As Bill Gates said ‘your most unhappy customers are your greatest form of learning’.
    • Learn from it and move on. Don’t beat yourself up after a bad review. Yes, it hurts and if it is your business or it is aimed at you , naturally you will take it personally. However, so long as a lesson is learned in the long term it will benefit you. You cannot change the past, but the past can influence how you may act in the future.
    Probably one of my favourite responses to a bad Property Management review. A great response putting humour into a rather embarrassing situation. Any reasonable person will be able to make light of what has happened. However, without the response from the owner, who knows what conclusions the public would have come up with.

    What about Facebook and Social Media?

    Facebook is an other source of reviews and recommendations. I have to admit I am less and less a fan of social media and in particular Facebook, but that is a different discussion for a different time.

    However, at least with Facebook you can have some control over what is being posted and said but once something has been shared, it is out there. The reviews that a business receives on Facebook has now changed and they are now called recommendations. A Facebook page rating is based on a number of factors. These include recommendations, likes, and shares. You again, have to be careful as to what you put onto your Facebook page and your company should have a social media policy. You need to develop engagement yet in Property Management, the trolls are increasingly out in force and any wrong type of comment made on Facebook could be met with a barrage of abuse.

    Also you have to be aware if any of your team do something unethical on Facebook. It is very common to see these posts shared and screenshots of the posting taken and then recycled. Once it is out there, its out there!

    Facebook makes changes

    You will see this new update when you visit a company Facebook page. It is well worth having a look at how things have changed.

    Facebook has recently made changes to how your clients can review you. They now have a tab asking if you would recommend this business. You click yes and then type in the comments that you want to make. If there are any poor reviews, you can respond and also ask that they be taken down.

    My view is that Facebook and Instagram should still be a platform to promote company values and culture. Share what your team are up to, what community work you do and educate your potential consumers about all types of things that may help them.

    I see too many Facebook pages that are truly boring with nothing about what the team are up to and little online engagement. They use it as a tool to promote properties but you will get little traction from this if consumers are not engaging with your page. Use it to promote properties but do not overkill this and certainly not every post. Also, look to engage with any feedback you receive through your Facebook and Instagram pages.

    Also, use LinkedIn. This is my favourite social media platform and I find many interesting articles on there. It is an under-utilised place to seek endorsements from fellow professionals and you don’t get the same negative trolls that are on Facebook.

    Who gets the most reviews?

    Some companies do a fantastic job of getting reviews and I certainly would not discourage them from stopping what they are doing so long as they are doing this in a professional and ethical way. We have done some research to see which companies across New Zealand get the most reviews. Here is our table of the top twenty Property Management companies who get the most reviews. A1 Property Managers in Christchurch get a staggering 283 reviews while we found 8 Property Management companies that got more than 100 reviews on Google.

    We have researched the top twenty companies who have obtained the most reviews. If you think you should be on this list let us know!

    Its just not cricket

    Like the Australian Cricket team, the temptation to tamper is too great for some. Fake reviews like ball tampering are simply not cricket!

    The recent stories will certainly make some people within our industry stop and think before they give a review to a fellow Property Management professional. I have likened this to the scandal that arose around the Australian Cricket Team after they tampered with the ball using sandpaper against South Africa. If you are not a cricket lover, this is a big no no! We all looked shocked and disgusted at what they did, but the reality is, they are probably not the first cricket team to tamper with the ball and cheat.

    The same can be said for the Te Aro branch of Quinovic who have gone too far. It was such a blatant breach that they were inevitability going to get caught especially after the recent bad publicity they have had. It was a case of desperation and whomever is responsible for these fake reviews should be marched out of the building and hopefully, out of our industry. Yet some of us would have at some stage, probably unknowingly and innocently reviewed someone as a favour to help them with their ratings.

    Now, I suspect that many individuals and companies will be looking at their reviews to ensure that they are all legitimate and honest. So my advice to you is this. If you have given a fake reviews or solicited them do what you can to remove them, because fake reviews are simply not cricket!

    Regards
    David Faulkner


    2018-image

    2018 The good the bad and the ugly

    • We review one of the most eventful years in property management history
    • 2018 will be remember for many reasons but not all is bad

    Where to start? I had the same problem this time last year when I did the same article. 2017 seems like a distant memory now as over the last 12 months, our industry has had everything thrown at it including a bucket of KFC!

    In my time working within the Property Management industry and in particular the rental sector, I cannot think of a time when we have had so much upheaval. Saying that it has been a challenge is an understatement. We have a lot to look at so let’s not waste any more time. As ever, we would love your feedback along with your high’s and low’s of the year.

    The good

    Professor Sir Peter Gluckman:On the 29th May a bombshell was dropped on all and we predicted that this would happen in our first article of 2018 when we stated in January that the ‘Meth Myth’ would finally be busted. And busted it was! The report by the now retired Professor Sir Peter Gluckman was comprehensive and condemning, stating that “There is currently no evidence that levels typically resulting from third-hand exposure to smoking residues on household surfaces can elicit an adverse health effect”. Sir Peter and his team was equally dismissive of the field composite test stating that they should not be used as it creates a bias towards detecting higher levels.

    I have long been a critic of many within the industry for using scaremongering tactics. The defence of the industry would be that we are trying to make the public aware of the implications. However, when your source of income is aligned with keeping the levels as low as possible, your opinion will naturally lead to a bias to keep the status quo and adopt the guidelines set by the standards committee in 2017. The sad thing is that thousands of people would have been affected and the health of some of the parties involved would have deteriorated probably due to financial burden and the emotional damage of having to deal with the fallout. Millions of dollars have been wasted, benefiting only the testers and the people who do the remediation work.

    The Meth testing industry has not yet to given up and is holding on to the Residential Tenancies Amendment Bill No 2 as a reason why testing should still take place. They even attempted to get a petition to get Parliament to commission an independent review of the Gluckman Report. This petition closed with only 526 signatures, probably made up of people who make money from testing and remediation.

    Tenancy Tribunal ended up in scratching there head as to what to do in the immediate fallout after the report. However, Tenancy Tribunal, who have to take some responsibility for creating this mess, have now adopted the Gluckman Report. To do otherwise would mean that HNZ, New Zealand’s biggest landlord would be committing multiple breaches of the RTA. In time, insurance companies must also follow suit and change their stance on not refusing to pay out unless a Meth test is carried out pre-tenancy. To maintain this stance is immoral and is in contradiction with the Gluckman report as Gluckman states the only testing that should be done is discrete individual swipes, the cost of which would be in excess of about $1200. Could you see all landlords doing that at the commencement of a tenancy?

    Unfortunately, across the ditch in Australia, we can see that they are heading down the same slippery slope with many in the industry using similar tactics that was used here. Yet the reality is, even after all this news and debate, no one can provide medical records that show an individual has got seriously sick or died from living in a property with low levels of meth. A waste of time, money and emotion. Sir Peter, you have done us all a massive favour. Now lets all please move on.

    Other mentions

    Dealing with the letting fee: This was always going to be passed on to the landlord as the industry finally took a cement pill, a deep breathe and wrote to their clients informing them that they would have to bear the cost. The fall out was minimal as many landlords understand that this is a service that comes at a cost. Someone had to pay.
    RTA Reform discussions: Being part of this was very very insightful and it showed that landlord and tenant groups could actually sit down and have a constructive discussion without abusing each other. A pleasant change to sit around a table and talk rather than abuse each other on Facebook. Balance is required with any reform.
    Pets: Good news all around if you are a pet loving tenant. It looks likely that tenants will have the right to have pets in their rental properties. I have no issue with this so long as amendments are made around tenant liability.

    The bad

    Attack on Negative Gearing: Everything the Coalition government is doing with rental properties, and it’s doing plenty, this has the potential to have the most negative consequences. Currently, if a rental property runs at a loss, the landlord can offset that loss against their own personal income and claim tax back. In the example below, the landlord earns $90,000 per annum in their paid employment and they also get income from a rental property that they own. The cost of operating the rental property including interest payments on the mortgage is just over $40,000 whilst the income from rent is only $28,600. This means the property is running at a loss of about $12,000. When you take the loss and add it to the annual salary, the landlords income drops to $78,157. This means that the landlord has paid too much tax by approximately $4,000. Today, you can claim this tax loss and get a refund on the tax you have paid.

    The Government looks like it is going to change this meaning that landlords will no longer be able to claim the tax loss.

    Labour have long held the opinion that the people who benefit from the practice of negative gearing are large scale speculators but the reality could not be further from the truth. This stance is going to really hurt many of the 80 to 90% of landlords who one no more than two properties.

    Just when we need landlords to invest in their properties to ensure that they are compliant with the Healthy Homes standards, we hammer them by removing the ability to offset losses against their own personal income. This again will lead to the selling of rental properties and driving up rents even further.
    A short sighted policy that will do more harm than good.

    Other mentions

    Special mention must go to Paul Davies of the Tenancy Compliance Investigation Team for his endearing ‘We are coming for you’ speech at the REINZ Conference. It is a long time since I felt like I was in trouble at school. Meanwhile Steve Watson, the General Manager of Tenancy Service gives the same message at the LPMA Conference but in a completely contrasting style showing empathy to the challenges Property Managers face. I know which approach I would rather work with.

    The alleged 100,000 uninsulated rental properties that are apparently still out there. The insulation industry has a capacity to do 50,000 a year according to one of the leading insulation providers. It seems inevitable that we are going to have a large amount of non-compliant properties by the time July 2019 comes around. Landlords have had plenty of time to get ready and I for one have no sympathy for those who do not comply.

    The ugly

    The Papakura Swamp House: This case highlighted how bad some of our rental properties are. The facts in story are that Dawn Robbie, her partner Cameron and their two young children have been living for the past 21 months in a rental house that floods underneath every time it rains. The problems were so bad that their 11 month baby ended up in intensive care with bronchiolitis.

    The landlord, Aven Raj, even issued the tenants a 90 day notice to vacate which was a clear breach of the Residential Tenancies Act under Retaliatory Notice. Fortunately common sense kicked in and it was withdrawn. The Ray White branch at Papatoetoe looked to have done a great job in resolving issues as they only took on the management after an insanitary notice was issued. This was brave of them as they could have potentially exposed themselves to unnecessary and unfair litigation. However, their pro-active approach helped both parties resolve the ongoing the issue.
    This story highlights the genuine health concerns that many tenants have to deal with. Thousands of tenants still live with in poor quality housing throughout the country and that whether we like it or not, the New Zealand rental stock still has its fair share of slumlords.

    These are the genuine health concerns of tenants in New Zealand. This is where the focus needs to lie and some of the Government policy rightly reflects this.

    Other mentions

    Media attack on the industry: You cannot blame journalists for doing their job and investigating stories but it has had a negative impact on the morale of many people working in the industry. I have spoken with people directly after some of them made the news for the wrong reasons and for one such person it was completely out of their control. She spent the weekend locked in her bedroom in tears to embarrassed to leave, devastated by the story that appeared, even though she had no control over the circumstances of the story.

    The issue is the damage it causes for individuals exposed under the media spotlight. Many are just doing their job to the best of their ability and all of a sudden they are making the headlines. I have seen Property Managers and business owners brought to tears after stories about them have been published. How can we attract and retain good quality people if they are subjected to such ordeals?

    The worst of these stories had to go to Rebecca Stevenson who’s article ‘Why Property Managers are terrible for everyone’ was appalling and had many inaccuracies. I don’t envisage Ms Stevenson will be winning any Pulitzer Prizes for this article.

    No cause evictions: I can see the logic in this but I suspect that this is again is going to cause far more issues than what it solves. A slow Tribunal process and a lack of supportive evidence could lead to all types of issues. Safety must be paramount in any decision around changes made and I fear that this may be glossed over.

     

     

    They said it! Quotes from the year in property management

    "There is currently no evidence that methamphetamine levels typically resulting from third-hand exposure to smoking residues on household surfaces can elicit an adverse health effect.
    — Professor Sir Peter Gluckman

    "I am satisfied that the Gluckman report justifies the adoption of a higher level where appropriate and as determined by the adjudicator on the facts of each case.
    — Principal Adjudicator Melissa Poole: Tribunal case 17th October 2018

    "At one point we had sewage spilling out by the back door. Not kidding – when we flushed the toilet it came out by the back steps because the pipe was blocked and broken.
    — Anonymous Tenant in the report about Property Management by Anglican Advocacy

    "I firmly believe property managers are s*#t, for both tenants and landlords
    — Rebecca Stevenson in her Spinoff Article about Property Managers

    “A lot of tenants ironically actually like the letting fee
    — Andrew King Head of NZPIF being interviewed on the AM Show

    "In another year let’s see if those rents have gone up Phil
    — Judith Collins with Phil Twyford on the AM Show talking about the letting fee ban

    "We make no apologies for our approach
    — Paul Davies, Senior Operations Advisor for MBIE commenting on their approach to targeting Property Managers with regards to compliance with insulation standards at the REINZ Conference

    "Legitimate reasons will be limited to non-payment of rent; serious illegal or anti-social behaviour; or significant damage to the property. No other reasons will be legitimate, including sale of the property, or the landlord’s family taking occupancy.
    — Renters Utd on reasons to end a tenancy in their plan to Fix Renting

    Enjoy the break!!

    If ever an industry deserved a break its ours. The year has been a challenging one with plenty of up’s and downs. It has been exhausting trying to keep abreast of all the changes that are coming and I have to confess, I don’t think I have looked forward to a break as much.

    As ever, we will do our best to keep you well informed in 2019 as the ever evolving world of Property Management and renting continues to spring surprises.

    In the meantime, switch off and take a break. Don’t answer the phone and don’t respond to emails (unless your working of course!!). Get off social media, it’s way too negative and make sure you spend time with your families and loved ones. We want to wish each and every one of you a Merry Christmas and a Happy New Year.

    Signing off for 2018

    David Faulkner


    phil-twyford

    Let it be: How to cope with the letting fee ban

    • We explore the best options for dealing with the Letting Fee Ban
    • Labour signal that there will be radical changes to the Residential Tenancies Act

    We have been warning you now for nearly two years that this was coming and now the day of reckoning is nearly upon us. The new Residential Tenancies (Prohibiting Letting Fees) Amendment Bill is now at the Select Committee stage with public submissions on the bill open until the 23rd May. Expect this to be law by Christmas with a further three months before the fee is banned completely.

    For all you people who are thinking of calling the letting fee something else or looking for an alternative fee to charge tenants, save your time and energy, that isn't going to work. The best thing we can do as an industry is to accept this, figure out if and how we can recover this and adapt to the situation.

    Make a submission to the Government

    We would recommend that you submit your opinion to the Government. It is our democratic right to do so and there is no point in whinging from the sidelines if you are not prepared to put pen to paper (or type on your keyboard) and make a submission. You have until midnight on the 23rd May to do so.

    History of the letting fee

    If we are being absolutely brutally honest, Labour is right to ban it. Is there anywhere else where a contract is signed between one party and another and a third party has to pay the fee? It is dated and goes back to the original act where only REINZ members and Real Estate Agents could charge the fee. This was pre-Real Estate Agents Act 2008. Property Management was left out of the REAA and in 2010 the new National Government amended the RTA allowing anyone acting as a letting agent or a solicitor the ability to charge a fee (see section 17 of the RTA).

    Where we, as an industry has failed, is to justify what the fee is actually for. How can a property rent in Ponsonby for $950 and a similar property rent for $300 in Levin yet the fee remains one week's rent?

    The reality is that it has been coming for some time and even if National had formed a Government in the last election, it was going to go at some stage when Labour eventually got in. This happened sooner than many anticipated so now we will just have to deal with the fallout. The chances of the next National lead Government reversing it are probably close to zero.

    What next? We explore the options

    Well, there are plenty of options open to the industry but unless you are prepared to wipe out on average about 15% of your total revenue, the landlord is going to have to pay it somehow or other. What this will mean is that where possible, there will be a further squeeze on rents as Property Management companies will try to increase rents where they can so their landlords are not out of pocket.

    It is a complex issue however after to talking to many companies across New Zealand both large and small, we think we have discussed almost every possible option there is. So, without further ado, we will look at what you can do to soften the impact of this blow.

    Option one: Sell your rent roll

    If you are a relatively small operator then I have no doubt that you would have considered this option as the prospect of approaching your owners for more money must be harrowing. Especially as many a small operator has used price as a point of difference as they have run the business out of their own property so to reduce overheads. If you have approximately 200 properties and your average fee is not great, you will be concerned.

    Originally, we predicted that the multipliers of rent rolls would decrease as supply would outweigh demand. However, this does not appear to be the case. Yes, activity has been quiet, particularly post-election as everyone has waited to see what will happen. However, we have all of a sudden become busy with people getting rent rolls appraised and our latest sale in provincial New Zealand went for a multiplier of 2.6 for every dollar in management fees.

    We have long held the belief that the natural evolution of the Property Management industry will see more properties managed by fewer companies. Most companies that we see are struggling to grow organically as the investors leave the market, leaving acquisition as the main source of business development. To put it simply, the big will get bigger as they gobble up the smaller companies. There will still be room for smaller companies but they have to charge accordingly. In January 2017, I predicted that cheap, boutique property management will simply disappear and nothing has changed my mind from that viewpoint.

    If you are genuinely worried about the future, now may be the time to man the lifeboats and head towards the escape route.

    Option two: Absorb it

    Obviously, this one would be most popular with the landlords. The option here is that you take a hit on your profit margin, try to trim some fat from your business and maybe implement a strong rent increase to try make more money out of the tenants.

    However, I struggle to see how anyone can do this. Even if they could, it would send a very negative message to your clients that you have been ripping them off for years.

    "15% cut in revenue? Don't worry about it, we'll wear it!" This would leave me thinking that I have been paying you too much for too long.

    The only companies I believe this is a realistic option for is for large offices who's overheads become a smaller proportion due to the size of their income or to good operators who are charging a high fee already. They may be able to absorb some of the cost but I firmly believe that these operators will be few and far between.

    Zenplace is a Property Management business in California that uses AI through Chatbots to improve productivity, communication and efficiency. They charge the landlord 50% of the first months rent and 4.9% ongoing.

    Others may take a serious look at the P&L and look at what fat they can cut out of their business as well as look at ways to make the business become more efficient and productive. This is where technology can help play its part. I have long argued that in the future we will see a new brand of automated Property Management evolve and this may speed up the process as Proptech companies continually introduce software that will improve efficiencies meaning Property Managers can manage more. We will also see a move to Artifical Intelligence as there are many tasks in Property Management which can be automated such as arrears and inspection notifications.

    Option three: Increase your management fee

    This to me, is probably the most obvious one to do for owners and Property Managers alike. We have sat down now with a number of companies and examined how much fees would have to increase by to ensure you recover the lost revenue.

    This table shows different ways of recovering the lost income through increasing fees and rent. We accept that some locations such as Christchurch may not be able to increase rents as there is an oversupply of property.

    If your letting fee makes up approximately 12% of your total revenue then a fee increase of about 1.3% should enable you to recover the cost. The obvious request of landlords will be that you increase your rents so our recommendation would be a combination of both were possible.

    However, some landlords with long-standing tenants may find this unfair. 'Why are you increasing my fee when my tenant has been living in the property for 7 years?' this is a fair call.  The decisions for companies is when do you implement this. Do you do it when the fee ban comes into effect or wait until there is a change of tenant?

    The other added benefit to companies who do increase their fee is that they are adding value to their business. Multipliers on rent rolls take into account contract fees such as the management fee and inspection fees. By increasing the management fee by 1% you could be increasing the capital value of your business by approximately 15%.

    Option four: Charge the landlord fee

    Probably the most obvious option will be to just charge the fee directly to the landlord. It is unlikely that owners in more expensive suburbs will be willing to accept a full weeks rent and what we may see evolve from this is an increase in Landlord paid advertising.

    If you are considering this as a way of recovering the fee, our recommendation will be to introduce a variety of marketing packages. Dependant on how the landlord wants to market the property, this will determine what fee they will be charged. If you are going to do this you also need to take into account the time and costs involved in letting the property.

    Promoted landlord paid advertising may become more prominent.

    One of the benefits of this option is that landlords may become more motivated to retain their tenants and we will see a greater spend on repairs and maintenance.

    This is something that should become more of a focus for our industry. One company that we work with do this remarkably well. There average spend on repairs and maintenance is higher than any company that we work with. Then we look at the average length of a tenancy. The correlation between maintenance spend and happy secure tenants is obvious. With this company, the average length of a tenancy is approximately three and a half years and the letting fee makes up less than 8% of total revenue. They run at an average occupancy rate in excess of 98% and there average arrears for the month is under 1%. This company has nothing to worry about.

    Option five: Ancillary fees

    The final option we will look at is to increase ancillary fees such as disbursements on maintenance and inspections. This is often an overlooked area where companies miss out on revenue.

    The maintenance fee is a prime example of companies missing out yet sometimes it is a fee that owners struggle with. Many owners will have the mindset that their Property Manager is getting maintenance done purely as a means of generating extra revenue. This, in my opinion, is untrue yet it is a perception many landlords may have and we cannot ignore what our consumer might think.

    Many companies spend extra time and money arranging maintenance and some will even end up doing Project Management without being paid for it. This is again an area of missed opportunity and we only have ourselves to blame. It again all comes down to landlord education and spending quality time at the start of the relationship explaining what is involved. Project Management is an entirely different skill set and service and goes way beyond 7% management fee.

    I am in no doubt that landlords whether they like it or not, are going to have to invest a considerable amount of money into their properties to ensure that they are compliant under the Healthy Homes Guarantee Bill. Companies can look at introducing a Project Management service or ensure that they are getting renumerated for the time they spend arranging repairs and maintenance.

    This table shows what you can potentially earn through organising repairs and maintenance. The average spend on maintenance is likely to increase as compliance with the Healthy Homes Guarantee Bill impacts landlords.

    Inspections is an other area where fees can be reviewed or introduced. You should be inspecting approximately 25% of your portfolio every month. By reviewing or even in some cases introducing an inspection fee you will be adding significant revenue that should go part of the way to compensate for this missed revenue in letting fees.

    Inspection revenue is an other area that could be looked at as a way of recouping the letting fee. Here the table shows what extra revenue can be earned by tweaking your inspection fee.

    Approach it sooner rather than later

    The fact that Property Management has been in the media spotlight so much in recent times means that landlords will already be conditioned to the fact that they will have to pay more. In our opinion, it would be wiser to approach them now to start the discussion. Present them with a number of options and see which one they prefer. No one likes being told what to do so engaging in dialogue with them to get their feedback will help enhance your relationship.

    I hold the belief that 90% of people are genuinely good to deal with and are understanding. Most landlords will realise that you are in business and you have to make a profit to survive. We may see some fallout as some landlords decide that they will do it themselves to save money. With all the legislation changes that they will have to deal with, good luck to them. They will need it!!

    Kiri Barfoot is interviewed on the AM Show discussing the letting fee

    Twyford admits that rents will increase

    In a recent interview with online media portal The Spinoff, Minister for Housing Phil Twyford accepts that rents will go up because of the letting fee ban. Twyford says the following.  "I know that if you ban letting fees those costs will be passed on and ultimately they’ll end up being added to rent to some extent, but the point about letting fees for tenants is that they come at the worst possible moment when you’re being expected to find bond and rent in advance and so on."

    This is after he has stated that there is no evidence to suggest rents will increase when this ban is introduced. Maybe he changed his tune after being in the same studio when Kiri Barfoot was being interviewed about the ban on the AM Show.

    Phil Twyford is the keynote speaker at this years REINZ Property Management Conference in August which is a great coup for REINZ. It will be fascinating to hear what he has to say and expect a full house to turn up and listen to him.

    The face of renting will change radically in New Zealand over the next 5 years. A lot of it is good but ultimately there will be a significant cost to all parties. As ever, here at Real iQ, we will keep you updated and give you our opinion.


    Rising rents on the horizon as government policy kicks in

    • Rent increases inevitable as companies on charge the letting fee to landlords.
    • Criticism of companies who suggest increasing rents is unfair, we explain why.

    Last week, one of Wellington’s largest Property Management companies made the headlines recommending to landlords that they increase rents by $6 a week to recover the cost of the letting fee as they are forced into on charging it to the landlord. Many criticised Oxygen Property Management for taking such an approach. However in our opinion, they were simply doing their job.

    Is your company charging the landlord the letting fee?

    To expect a company not to try and recoup losses that their clients may face due to landlords absorbing the letting fee is utterly naive and delusional. If you believe that a landlord is not going to recover the costs from tenants then you are simply in denial or have no understanding about how business works. Recently, Prime Minister Jacinda Arden stated that she ‘hopes’ rents wont increase as a result of the letting fee being passed onto landlords. Surely this Government must have foreseen that rent increases were an inevitable consequence following their hard stance on property investors. This has left the door ajar for National to land some blows as they blame Government policy for increasing rents. They have a point, but lets not forget that National’s record on housing and in particular state housing, was far from satisfactory.

    When the price of crude oil sky rocketed in recent months, you didn’t see petrol companies absorb the cost, they simply passed it on to the consumer at the pump with petrol prices hitting nearly $2.50 a litre in some parts of New Zealand. As the price of crude oil dropped, so did the prices at the pump. Why would being a landlord be any different?

    The reality is that when people make decisions and especially when it comes to money and housing, the vast majority will put their own interests first. Being a landlord is no exception. They are not social housing providers.

    It is not our job to house state tenants

    The Property Management industry has faced one of its toughest years and has come under intense scrutiny. Many referring them as leeches, sucking extra rent out of tenants by issuing rent increases way above market rent and booting tenants out so they can claim another fee. Utter rubbish!!!

    If I started a Property Management company and ran an advertising campaign telling landlords that ‘We will keep rents affordable for tenants’ I would not expect to be in business for very long. Landlords want to earn a rent to reflect the capital value of their asset. This doesn’t make them greedy, they are just trying to make their investment work. If you took two Property Management companies offering the same service for the same fee yet one says that they will earn them an extra $20 a week in rent, nearly every landlord will pick that agent.

    This is the simple reality of business that many tenant groups and their supporters don’t acknowledge. Instead, many of them would rather have a rental sector owned and controlled by the state and a housing policy akin to Eastern Europe in the 1960’s. I have seen this first hand after attending two Renters United meetings, one of which was their high profile ‘Fix Renting’ launch. On both of these occasions, they have had a guest speaker or members challenge property ownership rights saying that they are unfair.

    Oxygen's approach a breath of fresh air

    In regards to the letter by Oxygen Property Management that sparked headlines last week, Oxygen has done what any good business operation should have done. They have researched all the options, talked to their landlords and have come up with simple solution that will ensure that their main priority, their landlords, are not out of pocket whilst protecting their own business interests. This is something that many media commentators fail to understand.

    A good Property Management company does have an obligation to look after their tenants and I would be one of the first to acknowledge that too many in our industry do not do enough. Yes, it makes good business sense to look after your tenant but not to the detriment of your landlord. This doesn’t mean that you do what the landlord wants every time and simply ignore the tenant. If the a tenant makes a reasonable request for a repair and the landlord disagrees, you would strongly recommend to the landlord that they have the repair done as they may face sanctions if they neglect their responsibilities under the Residential Tenancies Act.

    This again is something that some commentators either don’t understand or do not realise. Although we have a relationship with both tenant and landlord, we ultimately are employed by the landlord.

    It is the landlord who hires and you and the landlord who fires you if you do not deliver results and provide value for money. All that Oxygen have done is look at the average length of a tenancy and worked out what rents will have to go up by to ensure what needs to be done to recover the letting fee. They feel as though they have come up with the best solutions for their landlords. They have been transparent, open and honest without trying to put unnecessary spin on the announcement. In my opinion, they should be applauded for their approach.

    Most companies make their move with regards to the letting fee

    The announcement to bring forward the date of the letting fee ban to the 12th of December took many companies by surprise. Now, as reality has set in, the industry has finally made its move with many companies now writing to their landlords explaining that they have to on charge the fee as they simply cannot absorb it.

    It has been like sitting at a table of a high stake poker game. Companies big and small have been waiting to see what cards have been dealt, trying to work out what each other company may or may not do. Do I raise, call or fold?

    At some point though, you have to make a call and most companies have now done this after careful consideration. Quinovic were the first to make the headlines with their ‘Tenant Fee’ being on charged to landlords but many companies had already made their move prior to this.

    Some companies will undoubtedly try to absorb it to give them a market advantage but this would mean they would likely have to ‘trim fat’ out of their business. Maybe outsourcing automated tasks overseas where labour costs are cheap or compromising service levels by reducing what they offer or by overloading staff with more properties.

    In order to avoid lower returns some landlords may bypass property management companies and self manage.

    Online self management tools such as MyRent may see an increase in users. There will always be that human element to the business and if you cannot handle conflict and the ongoing changes to legislation, Property Management is still the best solution.

    Letting fee is only part of the issue of the issue for rising rents

    From what we have seen across the industry, there has been a level of ‘acceptance’ by landlords that they will have to pay the fee, though many now want their rents reviewed and increased to compensate. This is just a small part of the added costs our Coalition Government is putting on landlords.

    Back in February this year, we wrote a blog warning New Zealand that everyone will have to pay for the ‘Utopian vision’ that the Government has for our country.

    “Removing the speculators’ tax loophole will save taxpayers around $150 million a year once fully implemented. Total savings in the first ten years will be $1.2 billion. Labour will use this money to help 600,000 families heat and insulate their homes to modern standards.

    — Labour policy on their website with regards to ring fencing losses before the 2017 election

    In this article we highlighted the extra costs landlords would face which included cost of compliance with the Healthy Homes Guarantee Bill.

    There is a realistic risk of a reduced rental stock in New Zealand and this will drive up rents even further. The brilliant Chief Economist of BNZ Tony Alexander, recently summed up our concerns in an interview with NZME property website OneRoof.co.nz.

    Alexander identifies that the Government is creating diminishing returns due to increased costs around compliance and reducing deductibility for expenses. As it gets more and more expensive to own a rental property, investors are forced to increase rents to compensate the added costs.

    Alexander also states that if there is a reduced rental pool, landlords will have a much larger pool of tenants to choose from and will become more careful around who they pick.

    This will be exasperated if rental reforms are pushed through and the banning of 90 day ‘no cause eviction’ is implemented. Then, not only will you have a reduced rental stock, you will have Property Managers and landlords taking real care in who they put into a property as getting this wrong could be disastrous as the ability to remove a tenant will become far more labour intensive with added risk of litigation by the tenant and lengthy delays in Tenancy Tribunal.

    It is ironic yet also somewhat predictable, that the policies created by the Government could end up hurting the people they were designed to help the most. The poor and vulnerable.

    In our opinion, the best thing the Government can do is remove their policy to ring fence losses that a rental property will generate. This means that if a landlord runs a rental property at a loss in the financial year, as many small investors do, they can offset that loss against their own personal income. So, if your rental property runs at a net loss of say $10,000, you offset that against your wages, giving you a tax rebate because you would have paid too much tax. Our coalition friends, want to remove this. The result of this means that as landlords are forced into investing more money into their rental property, the ability to offset the losses will be removed exasperating the problem.

    Of the thousand of properties that we see, the average property to landlord ration is about 1.4 properties per landlord. About 90% of landlords in New Zealand own one or two properties.

    Naturally, this all adds to the expense of owning a rental property. This policy was aimed at high stake speculators but in fact the people who it hurts the most are ‘Mum and Dad’ investors who own no more than one or two properties and these make up about 90% of all landlords in New Zealand.

    One senses that this Government is trying to ‘bully’ landlords away from property and release more stock to first home buyers, in an attempt lower house prices. However, this may well backfire as rents look set to increase further which is not good for the economy long term as there will be less disposable income. Government should revaluate what they are trying to achieve as New Zealand, like any other capitalist country, needs a strong private rental sector.

    As we stated back in our article in February, everyone will have to pay more. Landlords will pay more in expenses and operating costs, tenants will pay more in rent increases and the taxpayer will pay more in subsidising housing benefits.

    In conclusion, many of the reforms such as healthy homes, we have always supported yet some of the policies are starting to impact negatively as rents start to increase meaning a tougher times for landlords and tenants. In my opinion, this Government is trying to do too much too soon. Slow down and listen to people at the coalface as to what the likely impact of their policies will be. You can always ignore them and hope that things work out fine. However, ‘hope’ is not a strategy I would like to see any minister take, let alone our leader.


    The Real-iQ recommendations for RTA reform

    • Is the average length of a tenancy 12 month? We don't think so!
    • We provide our solutions for pets, security of tenure and sorting out tribunal

    Back In February 2018, the much anticipated Housing Stocktake of New Zealand was published. This report which was commissioned by Housing Minister Phil Twyford back in November 2017 painted a sorry picture of the housing situation in New Zealand and in particular, for renters and low income earners. The report was written by Alan Johnson of the Salvation Army, Philippa Howden-Chapman of Rental Warrant of Fitness fame, and Generation Rent author Shamubeel Eaqub. The report is fascinating reading with many recommendations that we are now seeing in front of us through the Tenancy Reform Discussion document. Hopefully, you got a chance to make a submission.

    However, we have found one potential inaccuracy that leads to serious question marks as to what advice the Government is receiving.

    12 month tenancies the norm? We don’t think so!

    In this month’s article, we have decided to include the Real-iQ submission to the Government in regards to tenancy reforms and in this we question how they have come to the conclusion that most tenancies last 12 months. Please bear in mind that this submission is purely of the opinion of Real-iQ. Others mentioned in this article may not share all of our opinions. It would be great to get your feedback regarding our submission so please feel free to share your comments.

    Our submission to the RTA reform committee

    This is our response in regard to the Residential Tenancies Act Reform Document. We thank you for the opportunity to submit our views to the proposed reforms.

    As New Zealand’s most recognised Property Management training company, partnering with The Skills Organisation and REINZ, few are in a better position to give a balanced view on what needs to happen with regards to renting in New Zealand.

    We support many of the changes recommended in the reform document but there are other areas that are of concern and we wish to put forward our recommendations to help improve the experience of renting for tenants without penalising landlords unfairly.

    Information sourced from the Housing Stocktake of New Zealand

    In our opinion, landlords have been penalised enough recently following the Court of Appeal decision that stops tenants from being liable for accidental damage. This is hugely unfair. Even though this is being addressed in the Residential Tenancies Amendment Bill Number 2, it does not go far enough. We will touch on this later.

    Decisions based on incorrect data

    The Government is basing some of its decisions on incorrect data, in particular, the average length of a tenancy.

    In paragraph 6 of the RTA Reform documentation, it states that most tenancies in New Zealand are around 12 months. The reality is that this summary is woefully inaccurate. At Real iQ we get access to Property Management data from around New Zealand which will include close to 20,000 properties under management. Only in one case have we seen a rent roll with the average length of a tenancy close to 12 months. The vast majority of what we see is in excess of two years with the longest being three and a half years. On top of this, we have contacted some of the largest companies in New Zealand such as Barfoot and Thompson, Ray White, Crockers in Auckland and Oxygen in Wellington. Between them, they will manage in excess of 30,000 properties. Again, their data correlates with our findings.

    This graph from the Housing Stocktake of New Zealand shows the turnover of tenants is reducing and the report goes on to say the average length of a tenancy is over two years. Phil Twyford commissioned this report yet he insists that most tenancies last only 12 months.

    The Housing Stocktake of New Zealand is a report commissioned and signed off by Housing Minister Phil Twyford. The report was compiled by Shamubeel Eaqub, Philippa Howden-Chapman and Alan Johnson back in February 2018. A lot of the recommendations around tenancy reform have come directly from this report. Under paragraph 1.4, the findings of the authors are that the average length of a tenancy is in excess of 2 years. Again, this backs up our findings throughout the industry.

    One must question how and why the minister is stating that the average length of a tenancy is only 12 months. Therefore, we ask whether it is wise to make decisions when some of the data you are making the decision on is clearly flawed and inaccurate?

    Removing ‘No Cause’ terminations from periodic agreements

    This is a decision that we have thought long and hard about. Yes, some landlords do exploit this and if landlords do end a tenancy as a Retaliatory Notice (see section 54 of the RTA) then they should face sanction.

    However, the reality is that the vast majority of tenancies end because a tenant gives notice, not the other way around.

    What the reforms do not take into account is the safety and wellbeing of landlords, neighbours and in particular, Property Managers. Every year we survey the industry and put forward the question ‘Have you ever felt that your safety has been compromised as a Property Manager’?The majority of Property Managers have said yes, in particular, female Property Managers.

    The job of a Property Manager can be at times risky and dangerous. You deal with conflict on a regular basis and property seems to bring the worst out of people. The risks of the role were so tragically highlighted last year when two Property Managers were shot dead in Northland.

    The question we have around having to give a valid reason to end a tenancy is this. If we have to go to Tribunal to end a tenancy, how do you prove that your Property Manager felt at risk? We teach Property Managers to listen to their instincts and if they do not feel safe, do not enter. On a small amount of occasions in my previous role managing a large Property Management team, I would give 90 days’ notice to a tenant due to the fact that the Property Manager, almost always female, felt at risk entering the property. Seldom will the Police get involved as they look at these situations as civil matters. Therefore, obtaining evidence will become difficult.

    Selling the rental property

    Other concerns we have is around the landlord not being able to give notice to a tenant to sell a house vacant. This is hugely unfair on a landlord and I have seen numerous occasions where tenants have deliberately tried to sabotage sales due to the fact that they do not want to leave their tenancy. This can cost a landlord thousands upon thousands of dollars as tenants leave the property messy but not so bad that warrants a breach. We understand that the rental property is the tenants’ home. However, the property is owned by the landlord and they should have the ability to end a tenancy to sell a house vacant.

    We see no issue with removing 42 days’ notice and extending this to 90 days’, but we feel that tenants notice period should extend from 21 days to 28 days. This will give a landlord more time to advertise their property to reduce the vacancy period.

    Therefore, after careful consideration, we simply cannot support the removal of ‘no cause’ evictions. The decision is based mainly on the grounds of health and safety and the wellbeing of Property Managers up and down New Zealand. We wish for the status quo to remain for both periodic and fixed term tenancies. We do however, have an alternative recommendation in terms of penalising landlords who use ‘no cause’ evictions unlawfully.

    Alternative action instead

    What has always been apparent is that there is a simple lack of knowledge of rights and responsibilities. This is not just for tenants but also for landlords and disturbingly, many Property Managers as well.

    Tenants already have a multitude of rights, the issue is, they do not know this, or they simply cannot be bothered challenging landlords. As such, we have an alternative suggestion to help protect tenants from being subjected to unfair evictions.

    Increase exemplary damages for unlawful acts to a percentage of the annual rent income rather than a dollar amount and strengthen the penalties that can be awarded against landlords and tenants.

    Example; currently the maximum amount of exemplary damages for section 54, (Retaliatory Notice) of the RTA is $4,000. It would be a far greater disincentive to make this far higher. For example, expand this to a maximum of 50% of the annual rental income. If a property rented at $450 per week then the annual rent would be $23,400. 50% of this means the maximum exemplary damages award for a Retaliatory Notice is $11,700.

    Under section 13A of the RTA (Content of a Tenancy Agreement) include that a statement must be on the Tenancy Agreement notifying tenants that if they feel that they have been given unfair notice, they have the right to appeal this under section 54 of the Residential Tenancies Act. As 42-day notice periods are likely to be removed then we can extend the amount of time a tenant can apply to Tenancy Tribunal to 35 working days to give them more time.

    Different Types of Tenancy

    One of the recommendations the report makes is to remove the fixed term tenancy. I do see some logic in this reasoning. Fixed term tenancies can cause issues for tenants and landlords alike. However, they are particularly useful in regard to student flatting situations and gives tenants the assurance that their property cannot be sold from underneath them and it gives landlords assurance that they have tenants for the student year.

    However, as the main theory around removing fixed term tenancies was due to the fact that periodic tenancies would convert to fixed term to avoid ‘no cause evictions’ then there is no point to change if the status quo remains. If a tenant is paying their rent on time and looking after the property, then there is no reason to not renew a tenancy.

    Rent Increases

    One recommendation that we do have is that a landlord can only do a rent increase at the renewal date of the tenancy and not half way through a fixed term.

    Rarely have we seen rent increases every six months. The vast majority will offer a rent increase on an annual basis. We also have no issue with banning rent bidding.

    Review Osaki ruling and we agree with Pets

    This is one recommendation that we do agree with. Tenants should have the right to own a pet as they can play a major role in the emotional and mental wellbeing of tenants. It is not fair that a family in an owner-occupied property can have a dog, but tenants next door cannot without the landlord’s permission.

    However, there has to be changes to the RTA to protect owners and this is where the current proposed changes in the RTA Amendment Bill Number 2 do not go far enough. Whether we like it or not, pets can and will damage rental properties. It is unfair to expect any landlord to have to pay money to rectify accidental damage caused by a pet however this will be the case under the current proposed changes in the RTA Amendment Bill Number 2. Under the proposed section 49B(3) When tenant liable it states that the tenant can only be liable for up to four weeks rent or excess of insurance, but not for each event.

    The infamous Osaki case is finally being dealt with in the Residential Tenancies Reform Bill Number 2. We argue, it doesn’t go far enough with landlords unable to claim multiple insurances excesses for multiple insurance claims. This needs to change if tenants have the right to own pets

    Often, insurers will look at multiple damages by a tenant as individual claims, so the landlord will have to pay multiple excesses. The tenant is only liable for up to four weeks rent. This again is unfair.

    If the RTA Amendment Bill Number 2 is altered to ensure that tenants are liable for the excess on each insurance claim made by a landlord, then we will gladly support the allowance of pets.

    In terms of pets, we suggest a new section of the RTA being introduced.

    Section 41A Tenant’s responsibility for actions of pets.

    In this, we propose the following.

    On request by the tenant the landlord cannot unreasonably deny a request by a tenant to allow a pet.

    Any pets allowed at the property must comply with local and statutory laws such as the Dog Control Act 1996. If the pet is a dog, then it must be registered with the local council.

    The landlord can put limitations around the number of pets at the property (similar to occupants)

    At conclusion of the tenancy, the tenant agrees to have the carpets commercially clean and treated for pests such as fleas.

    Body corporate rules supersede any rights that a tenant may have in regard to pets.

    Modifications

    We agree that tenants should be allowed to make minor modifications to a rental property. Tenants will not be able to make structural changes to the property, this would be in breach of the Building Act and any local council by laws. Likewise, with electrical or plumbing work. Tenants should be allowed to hang picture hooks, put up shelving and other minor alterations.

    The only concern we have around this is in regard to painting walls. Landlords should have the right to ensure that any painting is carried out to a professional standard and should have the right to say no if they have concerns around the tenant’s ability to carry out the work.

    At the conclusion of the tenancy the tenant and landlord can decide to have the property restored at the tenants expense or leave the property as is.

    Boarding Houses

    We strongly approve of a Warrant of Fitness being introduced for boarding houses and their operators. The recommendations in the report should be implemented. New Zealand’s most vulnerable citizens often live in boarding houses and they need to be protected. Landlords in breach of standards set around a Warrant of Fitness should find their licence to operate suspended or have work orders enforced on them to make them compliant.

    With an increase in short term rentals on a room by room basis, in particular around Central Otago, we believe that any property being operated under this manner with a tenancy that is greater than 28 days should come under sections Part 2A Boarding house tenancies.

    RealiQ recommendation for exemplary damages

    This is what we believe exemplary damages should look like. We also believe that there should be additional exemplary damages for intentional damage of a property, whether it be caused by the tenant, a guest of the tenant or a pet.

    Enforcement of Tenancy Law

    As stated earlier, we believe that enforcement needs to be looked at and in particular, how Tenancy Tribunal operates.

    First, we will deal with exemplary damages. The current exemplary damages do not go far enough both for tenants and for landlords. We propose that the penalties should be greater and reflect the annual rent collected.

    Example: Breach of section 45.1A Landlords Responsibilities is currently $4,000. This is a serious breach and should be extended to on serious cases such as the ‘Papakura swamp house’ a maximum penalty of 50% of the annual rent with a maximum ceiling of $50,000.

    Likewise, the current penalties tenants may face do not go far enough. Tenants do not face exemplary damages for intentionally damaging a property. If I deliberately smashed someone’s car, I would face criminal charges. However, a tenant can deliberately damage a landlord’s property and only be charged the cost of repair and remediation.

    This brings us to our final recommendation.

    Automate Tribunal Orders for rent arrears only applications

    Tenancy Tribunal is slow. With these reforms we predict that we will see more tenants exercising their rights (something we approve) and extending the amount of time it will take to get a hearing. Yet currently, of the 15,000 annual Tribunal hearings, roughly 68% of the hearings are for situations where the tenant is in arrears.

    The Tenancy Tribunal role is to make rulings on disputes, however quite often, when a landlord makes an application solely for rent arrears, there are no disputes. What we propose is as follows.

    The landlord can apply for termination on the grounds of rent arrears under either section 56 or 55 of the RTA.

    When a tenant becomes 21 days or more in arrears then section 55 of the RTA applies (Termination for non-payment of rent, damage or assault).

    The landlord should then send evidence to Tenancy Services proving that the tenant is 21 days or more in arrears.

    If the application is solely for rent arrears then the adjudicator must provide a possession order of tenancy to the landlord giving possession to the landlord in five working days.

    The tenants will be notified of the possession order. The time between possession being granted to the landlord will give the tenant time to apply for a rehearing under section 105 of the RTA. If the tenant has evidence that they have paid then a rehearing will be granted within 10 working days of the possession order being granted.

    We believe that this will have the ability to half the Tenancy Tribunal wait time and lead to faster and fairer dispute resolution.

    We believe following this process could half the wait time for a Tribunal hearing. Approximately 10,000 cases involving rent arrears are heard every year in Tribunal. On many occasions the tenant will not even turn up.

    We agree that Tenancy Services and Tenancy Compliance Investigation Team (TCIT) should have powers to audit landlords and Property Management companies for compliance and have the powers to enter Boarding Houses. We also believe that TCIT should have the ability to issue all three options suggested under Enabling effective and efficient enforcement action.