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Letting fees banned

It is no longer legal to charge tenants letting fees after Parliament today voted to pass legislation banning them from 12 December.

Thursday, November 1st 2018, 6:01PM 2 Comments

by Miriam Bell

Housing Minister Phil Twyford says letting fees are unfair and banning them is a good first step in improving the life of tenants while the broader review of the Residential Tenancies Act continues.

“Our tenancy laws are antiquated and don’t reflect the fact that renting is now a long term reality for many of our families.

“Around half of New Zealanders now live in rented homes. This change could put up to $47 million into the pockets of Kiwi families each year.”

He says the law has been changed in time to give tenants a break before the summer rental season when so many tenancies turn over.

“With homeownership rates at a 60 year low, this change recognises that we need to take action now to make rent more affordable so people can save to buy their own home.”

While the change has been pitched at preventing landlords from charging letting fees, in reality landlords have never been able to charge them.

It has been letting agents or property managers, who rent out a property on behalf of a landlord, who can charge letting fees.

Not surprisingly, the property industry has not welcomed the ban – although it is commonly expected that costs to landlords will be increased to cover the shortfall from tenant letting fees.

REINZ chief executive Bindi Norwell says that banning letting fees might help tenants in the short term, but in the long run it’s likely the costs will be passed on to tenants via an increase in weekly rent.

“Our concern is that the ban may make tenants with shorter term tenancy requirements, such as students or seasonal workers, less attractive to landlords making it harder for them to obtain rental accommodation.”

Given the current raft of legislation being directed at landlords, this may contribute to more landlords’ deciding to exit the rental market, she says.

“This would further reduce the available pool of rental properties and drive up prices… We continue to call for a balanced approach to avoid harming the rental market in the long term.”

The NZ Property Investors Federation has previously opposed the ban: it prefers an option whereby a fee should remain and whoever gets the benefit from it should pay for it.

Read more:

End is nigh for letting fees 

Rethink letting fees ban 

Tags: housing market property investment property management

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Comments from our readers

On 2 November 2018 at 10:51 am hsharkey said:
This is the right thing to do. Landlords who will add this cost to the rent are mean. When I used a property manager in the past to find a tenant I paid the letting fee - it didn't feel right for a new tenant to pay a whopping 1 week + GST fee. In effect, a tenant who pays this is paying for the 'total' amount of resources used by the property manager to find a tenant for one property i.e. several viewings, petrol, advertising etc.
On 3 November 2018 at 11:42 am Peter L said:
As with most Govt fiddling, good tenants will pay more and poor tenants will pay less.

Reasoning:
Assume two separate tenants, A and B

Tenant A changes from rental frequently, probably because they live a transient lifestyle, get evicted, or have an unstable work history.

Tenant B gets a rental, settles in and stays there for 10 years.

Assuming that they both get their rentals through property manager, they pay a letting fee for each rental they get.
Working with a standard rent of $400 p/wk, that is a letting fee of ($400 + GST ) $460 and say that tenant A moves twice per year.

So, with the current system, over ten years, tenant A pays a total of ($460 x 2 x 10) $9200 in letting fees while tenant B pays just the one $460.

Now if letting fees are banned, the PMs costs will now be passed on to the landlord who will factor this into his cost structure and, over time, increase rents to cover this.

Assume that he raises the rent by ($460 divided by 50 weeks ) $9 per week to cover this extra expense.

Therefore both of these tenants will now pay an extra ($9 x50 x 10) $4500 in rent over the ten year period.

So feckless tenant A is better off by ($9200 - $4500) $4700

While good tenant B is worse off by ($4500 - $460) $4040

As I say, good for bad tenants and bad for good tenants.

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AIA - Back My Build 6.19 - - -
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ANZ 8.64 7.74 7.39 7.25
ANZ Blueprint to Build 7.39 - - -
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BNZ - Green Home Loan top-ups - - - 1.00
BNZ - Mortgage One 8.69 - - -
BNZ - Rapid Repay 8.69 - - -
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CFML Loans 9.45 - - -
China Construction Bank - 7.09 6.75 6.49
China Construction Bank Special - - - -
Co-operative Bank - First Home Special - 6.79 - -
Co-operative Bank - Owner Occ 8.40 6.99 6.79 6.65
Lender Flt 1yr 2yr 3yr
Co-operative Bank - Standard 8.40 7.49 7.29 7.15
Credit Union Auckland 7.70 - - -
First Credit Union Special - 7.45 7.35 -
First Credit Union Standard 8.50 7.99 7.85 -
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Heartland Bank - Reverse Mortgage - - - -
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HSBC Premier 8.59 - - -
HSBC Premier LVR > 80% - - - -
HSBC Special - - - -
ICBC 7.85 7.05 6.69 6.59
Lender Flt 1yr 2yr 3yr
Kainga Ora 8.64 7.74 7.35 6.99
Kainga Ora - First Home Buyer Special - - - -
Kiwibank 8.50 7.99 7.79 7.55
Kiwibank - Offset 8.50 - - -
Kiwibank Special - 6.99 6.79 6.65
Liberty 8.59 8.69 8.79 8.94
Nelson Building Society 9.00 7.65 7.25 -
Pepper Money Advantage 10.49 - - -
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SBS Bank Special - 7.14 6.49 6.35
SBS Construction lending for FHB - - - -
SBS FirstHome Combo 6.19 6.14 - -
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TSB Bank 9.44 7.79 7.55 7.45
TSB Special 8.64 6.99 6.75 6.65
Unity 8.64 6.99 6.79 -
Unity First Home Buyer special - 6.55 6.45 -
Wairarapa Building Society 8.60 6.95 6.85 -
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Westpac 8.64 ▼7.49 7.35 6.99
Westpac Choices Everyday 8.74 - - -
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Median 8.64 7.14 6.82 6.65

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