Investors federation has plans to fix rental crisis

The critical parts of the plan include:

1. The establishment of a long-term tenancy option based on the German tenancy system, giving greater security of tenure for tenants.
2. The return of mortgage interest costs as a legitimate tax-deductible expense.
3. The repeal of ring-fencing restrictions.
4. The return of the Brightline test to two years.
5. The same rights and support for private tenants as given to state tenants.
6. The protection of neighbours and communities by returning the right for landlords to issue 90-day notices.
7. The reform of the Tenancy Tribunal.

There are about  600,000 rental properties across the country, with the private sector providing the overwhelming majority, at about 510,000 or 85% of rental housing. The Government provides about 72,000 rental properties or 12 % of the total.

There are no precise figures on the size of the rental economy – but the federation says using turnover (in the form of rent) as a guide then it is worth in excess of $15 billion a year.

While many believe most residential rental properties are held by large-scale landlords, a 2015 NZPIF survey shows 75.8% of residential landlords own just one rental property. Just 0.1% of all private landlords own 10 or more properties.

While the federation is an industry body representing rental property owners, vice-president Peter Lewis says it must also consider the needs of tenants.

In addition to higher rental prices, which Trade Me figures released last week show are rising rapidly, there are more than 25,000 families on the state housing waiting list and taxpayers are spending $1 million every day on emergency and transitional housing. “This wouldn’t happen in a well-functioning rental system.”

The federation says a large part of the rental crisis has been caused by measures to fix the housing crisis. The strategy of higher costs and taxes to reduce investment in rental property was meant to at least stabilise house prices, however this has clearly not worked with property prices having increased at alarming rates

What has occurred, says the federation is wide-spread rental property shortages, higher rental prices and poorer outcomes for tenants. 

It says there are a number of challenges facing the rental property industry in New Zealand:

• Difficulty funding new rental properties (banks criteria, ring fencing of rental property losses);
• Disincentives to providing rental property (Brightline test, tenants liability for damage, RTA amendments and removing mortgage interest as a tax deduction);
• Higher rental property taxes (Ten year Brightline test, ring fencing tax losses and removing mortgage interest as a tax deduction);
• Increased compliance costs (Healthy Homes Standards. RTA amendments);
• Higher costs to operate a rental property (insurance, rates, letting fees, repairs and maintenance);
• Difficulty in obtaining timely Tenancy Tribunal hearings to resolve problems.

The federation is proposing a new tenancy option be developed for tenants who want long term tenure security and landlords who are willing to provide it. The suggested terms of the new tenancy option are:

• Tenancy term negotiable between the parties, but must be for a minimum of three years;
• Tenants may give three months' notice to end the tenancy;
• Landlord can only end the tenancy for tenant default for rent arrears, damage to the property, illegal activity, antisocial behaviour, property uninhabitable or subject to mortgagee sale. (Landlords cannot end the tenancy to move into or sell the property with a requirement for the tenant to vacate);
• If ending a tenancy for antisocial behaviour or disturbing neighbours, landlords must issue a warning notice describing the antisocial behaviour/ neighbour disturbance (without having to name affected neighbours), making it clear that they will end the tenancy if the behaviour/disturbance continues. If the behaviour/disturbance continues, landlords can issue a 90-day notice to end the tenancy;
• Tenants can decorate the property as of right, but must return it to exactly the same state it was provided in, with no allowance for wear-and-tear, unless otherwise agreed to by the landlord;
• If practical, tenants can make gardens as of right, but must return it to the state it was provided in at the end of the tenancy, unless agreed to by the landlord;
• Landlords can charge a bond equivalent to up to 12 weeks rent;
• There is no obligation for the landlord to provide floor coverings, curtains, light fittings or appliances, including stoves. Walls are painted white at the commencement of the tenancy;
• Tenants are responsible for the payment of all insurance premiums, rates, and the costs (both fixed and variable) of services to the property (including water);
• Tenants can only assign their lease with the landlords' consent or on application to the Tenancy Tribunal on grounds of hardship. Hardship provisions also apply to the landlord. Landlords can prohibit tenants subletting the property.

This tenancy will appeal to tenants who want a rental that is more like their own property while providing compensation to landlord's for giving up their ability to terminate the tenancy.

To be clear, says the federation, not all of the Government’s actions have created problems. Most aspects of the Healthy Homes legislation have been good and are leading to improvements in the rental stocks. Likewise, most of the changes to the Residential Tenancies Act have appropriately improved conditions for tenants.

However, there are some changes to the rental industry that while intending to improve opportunities for first home buyers, have made renting worse for tenants, says the federation. These include removing mortgage interest as a tax deduction, ring fencing and extending the Brightline test. “These policies do not improve tenants’ living standards, but they have made renting harder to achieve and more expensive,” says Lewis.

The federation believes the Government needs to acknowledge there is a rental crisis and that some of its well-intentioned solutions to housing problems have caused it and continue to make the situation worse.”

Lewis says the federation’s plan will improve the living standards of tenants based on five core principles in providing stable and better homes, lower costs to enable lower rental prices, more rental properties to meet existing and future demand and facilitating improved access to justice for both tenants and landlords. The fifth principle is creating closer communities for the benefit of all New Zealanders.