A raft of ‘tenant-friendly’ rules to be imposed from Feb. 11 under the new tenancies law has, ironically, provided an incentive for owners to evict "marginal" tenants, and may be pushing up rentals to offset spiralling compliance costs.
So says New Zealand Property Investors Federation executive officer, Sharon Cullwick.
She told BusinessDesk that the next stage of rules under the freshly minted Residential Tenancies Amendment Act, which came into force in August, has seen landlords "pre-emptively" look to remove tenants now rather than being locked into regulations that will make it almost impossible to get rid of troublesome or anti-social renters.
The current 90-day notice provision, which allows landlords to end a periodic tenancy without cause, ceases next month.
It is being replaced by what is effectively a ‘three-strike’ rule which places the onus on the landlord and complainants to prove anti-social behaviour or non-payment of rent to the Tenancy Tribunal.
The property management industry had argued against the removal of the 90-day provision, citing it as a safeguard for small landlords to bring difficult tenancies to an end.
Cullwick said the change also had long-term implications as landlords would now take a harder look at a tenants’ history before signing them up, side-stepping the potential risks of getting the wrong tenant ‘locked in’.
In the event of an issue, she said landlords will now need to document incidents, “get everything in writing and witnesses and neighbours will have to testify or at least sign affidavits, and that can take months to sort.”
The spill over from that, she said, will mean owners and managers take a very careful approach, avoiding applicants without a history. That will likely impact first-time tenants and students the most, where ‘mum and dad’ will, for example, have to start signing surety.
“The costs of getting it wrong are just too high for private owners,” Cullwick said, noting that the number of potential breaches for landlords had increased from 24 to 60 while potential fines handed down by the Tenancy Tribunal had doubled, from $50,000 to $100,000.
BusinessDesk also counted 42 of those breaches as representing ‘unlawful acts’, subject to fines from the tribunal ranging from $500 for failure to provide adequate insurance to $4,000 for failing to meet the government's healthy homes standard.
Another layer of costs
As well as increased compliance, landlords will also be looking to cover the costs of coming into line with healthy homes requirements, with all private rentals required to comply for new or renewed tenancies after July 1 this year. More respite is given to the government's housing agency Kāinga Ora and other community housing providers, which have until July 2023 to comply.
Under the RTA, rent increases are already limited to one every 12 months, versus the previous 180-day rule.
The latest available Trade Me rental price index shows rents climbed by 4 percent from 2019 to 2020, with the national median weekly rent at $520 last month. That was despite the government-ordered rent freeze from March to September as part of its covid response.
It's also despite a 6 percent increase in overall supply, led by an 8 percent increase in supply in NZ's biggest rental market, Auckland, on the back of the departure of foreign students and temporary workers. Investors have also been piling into rental properties, spurred by low interest rates.
But even that, according to Trade Me property spokesperson Logan Mudge, was overshadowed by a 20 percent overall increase in demand for rentals for the year.
More rental increases on the way
While the market had been turbulent and stressful for renters, Mudge said prices aren’t showing “any signs of slowing down.”
And Cullwick expects to see an initial blush of rental increases as landlords push up rents even more, based both on expected costs of installing items like heat pumps and extractor fans, but also because of increased property valuations being linked to higher rents.
In one case, a tenant has seen a $115-a-week increase in what was an under-rented home, rather than what would have been an "incremental" and more manageable increase of $50, she said.
Another change under the RTA is a ban on landlords or agents seeking or advertising rental ‘bids’, with all rental offers clearly stated and agreed in writing, upfront.
To ensure compliance, the powers of the regulator – the Ministry of Business, Innovation and Employment – have been greatly beefed up, allowing improvement notices to correct breaches to be issued with penalties for non-compliance.
MBIE has an estimated 32 personnel already enforcing tenancy rules and is expected to enlist at least that number again to cover off the additional workload, according to a spokesperson.
The NZPIF, which represents some 3,500 property owners, with an average portfolio of about six rental properties, initially estimated the new rules would see about one-in-five investors leave the rental market.
However, its membership has actually increased, as residential property continues to represent some of the best returns available in a low interest rate environment.
Cullwick said much of that was also about education.
“Owners want to better understand the implications of being a landlord, how much more paperwork they need to do and what their own rights are, and that has seen a lot of inquiry across the past couple of months.”
Given the increasing numbers of owners, or those with expanded portfolios, she said the federation also supported the government’s intention to introduce a code of conduct to ensure property management services met professional standards.
Bindi Norwell, chief executive of the Real Estate Institute of NZ, said an estimated 35 percent of Kiwis live in rental properties, “yet NZ is currently one of the few countries in the OECD that doesn’t regulate its property managers.”
She said that has had a negative impact on tenants and landlords who have reported bad experiences owing to unprofessional work, and managers not being held accountable for their actions.