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Remove The Letting Fee At Your Peril

  • Report warns of job losses and costs for long term tenants increasing if letting fee is scrapped in the UK
  • New Zealand cannot ignore report as 'Crowd Pleasing' do-gooders push for reforms
  • Time to penalise tenants for late payment fees

A report has recently published in the United Kingdom around the impact of scrapping the letting fee and how it will affect the Property Management industry. This report has raised alarm bells and New Zealand should pay close attention to what it says. The ARLA Propertymark report warns that long term loyal tenants will be forced to pay more and potentially 16,000 jobs in the UK will be put at risk as around 20% of revenue will be lost. 

Tenant fees are likely to be scrapped in England and have already been scrapped in Scotland.

The similarities between the UK and New Zealand are apparent as both countries have to deal with an unregulated industry and both countries are seeing a big squeeze on the rental properties as rents have increased to unprecedented levels in many regions across the country.  

Scrap the letting fee and scrap the profit margin

As many companies battle with increased costs through compliance with health and safety, the profit margins many companies work to have become smaller. With an estimated 50% of Property Management companies managing fewer than 200 properties, a ban on tenant fees could force many operations into liquidation if they cannot put the cost of the letting fee onto the landlord.

Long-term impact not good

The obvious choice for Property Management companies would be to charge the landlord the letting fee. However, expect this to be met with sharp resistance as landlords have had to face increased costs to remain compliant under the Residential Tenancies Act. These costs will further increase if the Labour backed Healthy Homes Guarantee Bill gets through the house and becomes law. This bill will see standards implemented around heating and ventilation and is currently with a select committee after getting through its first reading.

With increased costs for landlords, the report predicts that if landlords will be forced to take the following steps to recoup the costs passed on to them. This could include.

  • Rent increases on an already overheated rental market.
  • More landlords selling properties and withdrawing from the rental market meaning a further shortage in rental stock.
  • Less rental purchases by investors.
  • Less money being allocated to property maintenance and repairs.
  • A drop in the use of Property Managers in an attempt to save money.
Tenancy advocate Kate Day of Renters United is obviously not a fan of the letting fee.

Tenancy advocate Kate Day of Renters United is obviously not a fan of the letting fee.

 

The report also highlights that removing the letting fee may be beneficial for short-term tenants as they no longer have to pay it, however, long term tenants will be out of pocket as rent increases will mean that they will be paying more in the long run.

The letting fee has been debated more rigorously in recent times particularly after the Green party back by Labour promoted the fact that they wanted to remove the letting fee in an amended bill that failed to get through the first reading. Phil Tywford, Labours housing spokesperson is also not a fan. He gives a blunt assessment of the letting making a rather misguided assessment that "Letting agencies are charging tenants simply because they can."

Unsurprisingly, we have also seen Tenant Advocates supporting such a stance.

40% of bonds lodged are now by Property Managers

Statistics from Tenancy Services state that up to 40% of all bonds lodged are now in the name of a Property Management company which highlights an increase in the use of companies in recent years. Kate Day, spokesperson for Renters United argues that the landlord are the ones benefiting more from the usage of Property Managers so feels that it is only fair that they should pay the letting fee. In a recent interview with the New Zealand Herald, she is quoted as saying "The letting agent - their customer is the property owner. So the tenant, through a letting fee, is being asked to pay for that letting agent's service to the property owner - which doesn't make sense."

She may well have a point but the reality is you can expect a backlash from landlords if they are the ones who have to front up the fee.

Time to penalise tenants for late rent payments

Rightly or wrongly, landlords and investors are blamed for many things in terms of property prices and providing inadequate housing for poor tenants. However, tenants also need to be held accountable for their actions and one change we would like to see at Real iQ is the ability to be able to penalise tenants for late payment of rent. 

Many countries around the world do this and we believe this is only fair. When tenants fall into rent arrears, the vast majority do not pre-warn the Property Manager or landlord if they become in financial trouble. They just simply do not pay the rent. The thought of an added penalty for late payment would prompt many tenants to prioritise better and communicate with their Property Manager or landlord. Rent should be the first bill they pay.

If landlords default on their mortgage payments because of a tenant not paying their rent, why shouldn't the landlord be able to offset that penalty to the tenant.

It would also save time and money for Property Managers and Tenancy Tribunal as we would see a large reduction in tenants getting into arrears as rent would become their number one priority.

If National do win the election in Spring, do not expect any changes. However if Labour get in, we would not be surprised to see major changes around the Residential Tenancies Act as this legislation will swing further and further in the tenants favour.