0800 REAL IQ

The Broken Dreams of Renters United

  • Renters United Launch The Plan To Fix Renting

  • Tenant Group Growing In Political Influence With Heavy Weight Support

On Wednesday the 11th of July, Renters United launched their 'Plan to Fix Renting' and it grabbed plenty of media attention. This small group of volunteers have certainly been successful in drawing attention to themselves and whether you are a tenant or a landlord, you have to hand it to them they are extremely well run and have some prominent public figures backing their cause.

At the launch, they had Philippa Howden-Chapman of Rental Warrant of Fitness fame presenting and supporting them. They also had Sam Huggard of New Zealand Council of Trade Union presenting and Labour MP for Rongotai Paul Eagle was present as well. 

Legitimate concerns or Socialism in disguise?

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I decided to go along to have a look and listen to what they were proposing and to talk to some of their members. First impressions are that Renters United are a well-meaning group, fighting for the underdog. You have to admire the efforts and commitment of people such as Kate Day and Robert Whittaker who largely run the organisation. There is though an element of the group that is a little concerning with more than a hint of anti-capitalism and pro-socialist about their views. Because of this, it could have a detrimental impact on their credibility.

The fact that there has been absolutely no engagement with landlord groups or the Property Management industry is regrettable. As I wrote in my blog back in February, for every good intention a well-meaning group may have there is likely to be unforeseen consequences that can have a negative impact on what you are trying to achieve. You cannot fix renting without taking off the blinkers and listening to the thoughts and recommendations of Property Managers and landlords alike.

The most compelling of the speakers questioned the whole principle of private land ownership, and was utterly scathing of Property Managers, referring to our industry as 'Opportunistic Profiteering Parasites'. It is all very well to stand on stage and claim that our industry regularly discriminates based on race, sexual orientation, employment status and family status but to then go on and label our entire industry as parasites is a nonsense, hypocritical and discriminatory in itself. Groups like Renters United would do better to engage in meaningful debate with landlords and Property Management groups rather than call upon individuals who draw attention to themselves with such extreme and polarising views.

What is in the plan?

There are four sections to the plan with 36 points that they want to develop to fix renting. The four sections are as follows.

  • Stable homes
  • Fair rent
  • Safe and healthy homes
  • Meaningful enforcement

Let's tackle each of these issues one by one and grade them out of 10.

Stable homes

The first part of the plan has nine steps that focus on protecting tenants from eviction. Firstly, we agree that a stable home is essential for the well-being of tenants. Stability will be beneficial for all. Children are not uprooted from schools and families will become more engaged with their local communities. 

This part of the plan mainly focuses on reasons why a tenancy is ended by a landlord. There is a large emphasis on protecting the tenants against evictions and in particular, no cause evictions. A landlord will have to give a legitimate reason to end a tenancy and the tenant will have the ability to address that reason. This even comes into effect if the landlord has to sell the property. Renters United are proposing that even if a property sells, or the owner wants to reoccupy, this is not a legitimate reason to end a tenancy. If you rent out your property you could potentially be putting the property on the rental market indefinitely. 

The only reason to end a tenancy will be for rent arrears, anti-social behaviour and serious damage to the property. Indefinite tenancies could become the norm. Tenants will also be able to make minor alterations to the property and be allowed to have pets. In the event of a landlord giving tenant notice, the tenant will be able to give the landlord 7 days notice. Overall, the ideology around these steps does have some logic. Tenants can stay as long as they want so long as they look after the property and pay the rent on time. Win-win for everyone.

However, the plan fails to take into account the dilemma that many landlords may find themselves in as their circumstances change. A landlord may be forced into either selling the property or having to reoccupy it.

If you do have to sell, who would want to buy a property with a permanent sitting tenant in place? What it will do is reduce the capital value of the property. The only people who will likely purchase the property are either investors or developers. It will not be available for first home buyers.

The accidental landlord could also be forced out of the rental sector. Some people become landlords not through choice but through accident whether it be through divorce, relocation or inheriting a property. If this group of landlords are forced to rent out their property indefinitely they will leave the rental sector adding to a reduction in rental stock and driving up rents even more. These are just some of the unforeseen consequences this type of ideology can create.

I do share the views that too many tenants are forced out of houses quickly when the landlords sell and extending the 42 day notice period may help. However, the recommendations made by Renters United would likely see even more landlords leaving the private rental sector. Landlords should be able to sell their assets in circumstances that suit them. You would see a greater reduction of first home buyers as they would be squeezed out of the market due to lack of available stock. This may lead to a two-tier housing sector with first home buyers forced to pay more as there will be a shortage of supply.

One thing we do agree on is the reduction of the frequency of inspections to every six months after a tenant has occupied a property for one year. Every three months is intrusive and unnecessary however if the tenant is not looking after the property and breaches are issued a landlord should have the opportunity to re-inspect following up on the breaches.

Overall, we give this section a 5 out of 10. The policies are well-meaning but will lead to a further reduction in rental stock.

Fair Rent

One of the great misconceptions within the group was that landlords and property managers ramp up rents every six months. I hardly ever see this happening. I see no issue with an annual rent increase as to what they are proposing and tenants already have the power to challenge the landlord through the Tenancy Tribunal for Market Rent. Capping a rent increase goes against the concept of a free market.

The basic rule of economics is supply versus demand. Yes, rents have gone up and slightly ahead of income but the reality of the situation is simply down to a lack of rental stock. Landlords are having to make a significant investment in their properties and want an economic return. The only way this can happen is through rent increases. 

 This graph is the Housing Affordability Measure for all properties in New Zealand. It is based on the number of occupants of houses that spend more than 30% of their income on accommodation. As you can see, rent has been stable for over 10 years. (sourced from Ministry of Business, Innovation & Employment).

This graph is the Housing Affordability Measure for all properties in New Zealand. It is based on the number of occupants of houses that spend more than 30% of their income on accommodation. As you can see, rent has been stable for over 10 years. (sourced from Ministry of Business, Innovation & Employment).

Take a look at Christchurch and Wellington as an example. Christchurch has an oversupply of rental stock available and as such we have seen rents decrease slightly compared to Wellington which has a shortage of stock and subsequently rents have increased. There is no conspiracy between landlords to fix rents in Wellington. There are no landlords preying on students who have had money given to them by the state. The issue has always been that there is not enough stock in Wellington. In particular, three bedroom properties are what New Zealand needs. This is the failure of consecutive central Governments, local councils, poor planning, increased bureaucracy and a lack of foresight. This is not the fault of landlords.

Properties For Rent on Trade Me (15th July 2018)

In this chart, we highlight the impact of Supply v Demand. The average weekly rent in Wellington is $488 compared to Christchurch which is $372 (statistics obtained from MBIE) . The only way to control rents is to increase supply. State intervention is not the answer.

If you want to control rents, do not leave it to the state. New Zealand needs a strong private rental sector and if you make it difficult you will see a mass exodus of private landlords. We have already seen this as compliance costs, meth, Osaki have all lead to many landlords saying enough is enough. Let the market decide and build enough rental stock to meet the demand to control rents.

Renters United also seem to have the opinion that landlords own copious amounts of properties and nothing could be further from the truth. The vast majority own only one or two properties.

The final point that Renters United make is to scrap the letting fee. There is a sense of inevitability about this and ultimately the tenants will pay for it with rent increases as companies and landlords attempt to recover the costs.

As with every facet of business, let the market decide, not the state. If you want rents to be stable we need more stock. This will have the opposite effect. 2 out of 10

Safe and healthy homes

This is one section that Renters United and I agree on the majority of the proposals.

I have always argued that if you are a landlord you have a social responsibility to provide a warm dry house and as a nation, we will all collectively benefit if our housing stock is warm and dry.

The Healthy Homes Guarantee Bill will go a long way to sorting out the rental stock of New Zealand but it will take time to fix simply due to a lack of tradespeople.

A concern I have about their proposal is that there seems to be an over-emphasis on compliance with the Rental Warrant of Fitness being implemented along with a Rental Housing Quality Grade system. One or the other should suffice, having both is further unnecessary cost put on landlords and on the tax-payer. More bureaucracy, more cost.

There is also a suggestion that local councils can supplement national standards with their own specific regional needs such as ventilation in warmer climates. This is all very well but why would you limit the proposals to just rental properties? Surely all residential housing needs to come under such legislation.

One potential flaw in the plan is that if they try to rush this through, then time may be an issue. I suspect we will see a number of non-compliant rental properties this time next year due to a lack of insulation. If standards are set and the timeframe for compliance is too short we may see thousands of rental properties left derelict as the cost of getting older properties compliant will not make financial sense. This will again lead to a reduction in available rental stock and drive up rents further.

The majority of this we are onboard with 7 out of 10

The plan to fix enforcement

Some of this we are 100% behind such as the regulation of Property Managers. I even support increasing sanctions on landlords who are in breach of the Residential Tenancies Act. There is also the recommendation that a landlords register is adopted along with a register of every rental property. The data that will be accumulated will be extremely valuable to track trends such as rents, length of tenancies and track compliance.

Some of the suggestions though are unbalanced. Renters United claim that the disputes process is unfair, with a power imbalance in favour of the landlord.

The current system is in our opinion extremely fair and if anything there is a bias towards the tenant. Look at the implication of the Osaki case. Tenants have no responsibility in terms of accidental damage and many, including myself, feel that this has swung too far in the tenant's favour.

Overhauling the whole disputes process including Mediation and Tribunal would be a massively expensive and an unnecessary process. Some of the changes they propose around changing Tenancy Tribunals to become focused on investigation and establishing the facts seems to be exactly what we have now. Tenancy Services provides a useful service for tenants and landlords. 

The reality is tenants have plenty of rights. The main issue is that the vast majority of tenants do not know how to exercise them or simply cannot be bothered. 

Another interesting idea is to anonymise tenants who appear in Tribunal so they do not fear standing up for their rights. This can work but only under special circumstances such as when the tenant applies to the Tribunal. They can be given the choice to remain anonymous and it must only apply when they are successful in their claim or when the tenant's safety is compromised.

The concept around this is that every tenant is a victim, yet there are plenty of landlords who are victims of bad and unscrupulous tenants. 

The feeling that tenants are victimised through the disputes process is completely unfounded and highlights the deficiencies in this whole plan. It is too one-sided with no input from the other side. If you asked Property Managers who are dealing with disputes who the system favours, I would suspect the majority would say the tenant.

Some of this is spot on, other parts are inaccurate. 5 out of 10

Is renting really broken?

Reviewing this leads me to the final question. Is renting really broken? Some of the current legislation is probably now out of date and needs reviewing, but overall the Residential Tenancies Act just needs some fine-tuning. 

The main issues are around supply and demand of rental properties, poor quality of much of the rental stock and issues around the lack of regulation around Property Managers. If and when the industry is regulated you will see long-lasting improvement in the quality of service and qualified, regulated Property Managers will not be allowed to manage non-compliant properties. The other recommendation we have is that private landlords need to sit an exam to allow them to privately manage their own investment properties. Many of them muddle their way through the process, making mistakes and leaving them exposed to litigation.

At least the Government is trying to do something about increasing stock and the Healthy Homes Guarantee Bill will go a long way to improving the quality of rental properties, but this is going to take time. 

Overall, Renters United have successfully put the spotlight on renting in New Zealand, though this whole document would have far more credibility if it had input from groups such as REINZ or NZPIA. It would be far better if we all listened to each other's concerns and adopted a collective response.