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COMMENT: How much is too much

New regulations around rental properties mean that being a landlord is becoming increasingly unattractive. Auckland Property Investors Association vice president Peter Lewis asks how much is too much…

Thursday, September 5th 2019, 6:32AM 6 Comments

Recently we had a friend call us. She lives in Melbourne but has a rental property in West Auckland. Her tenant recently moved out of that property, so she had come over to see how it was going. She wanted me to go to visit the now vacant property, carry out a full property inspection, and see what would need to be done to keep the place compliant.

The property has been managed by a large real estate firm, but I could see problems immediately. There was an iron burn mark in the living room carpet, there were holes cut into the wall lining to allow for a sound system installation, some of the curtains had been ripped and were hanging loose, and all of the lightshades had disappeared.

There had been no claims on the tenants for the damage and the entire bond had been refunded. So that’s a few hundred dollars down the drain, but no point in going there. I produced my property inspection form and tape measure and got busy.

By measuring up the living room and entering those dimensions into the Tenancy Services online calculator I found that the living area will need 6.2kw of heating. There is an open doorway from the living area into the main hall, so a door will need to be installed in that doorway. Otherwise the legally defined living area will include all the hallway and front foyer and will need more power to heat. There is a flued wood burner already installed with a label that says 9.2kw, but she’ll need to check that it’s compliant.

The ceiling insulation appeared fairly new and compliant, but the under-house insulation has gaps and some segments have been removed. That will need work. Also, the under-house is around a third concrete car parking with the rest just soil. As it is enclosed, there will need to be a moisture barrier installed. The soil area will have to be permanently walled off so tenants cannot stack sharp items on the polythene which could rip it.

Although there is a rangehood in the kitchen and a three-in-one light, heat and fan fitting in the bathroom neither of these vent to the outside. Despite there being opening windows in both of these areas, new extractor fans are required by legislation.

So apart from the damage left by the departing tenants, there is going to be some thousands of dollars of capital expense for my friend over the next couple of years.

My friend bought this house before she departed overseas for work. Her intention, when she returns, is to move in herself. It is interesting to contemplate that if she moved in right now, she wouldn’t have to spend that money or do that work. The house, for an owner occupier, would be considered perfectly sound safe and healthy.

All of tenancy law is now is based on the unspoken assumption that a rental house is, and always will, be a rental house. For ever.

But there has always been quite a number of people who are home owners but, for various reasons, aren’t be living in their house right now. They may have been transferred overseas for work, they may have gone on a protracted holiday, they could be elsewhere looking after family members, or may have bought with the intention of moving in once they return from overseas.

Traditionally, these people have rented out their house for a year or two while they are away. This would have provided them with in income to pay the inevitable and ongoing costs of property ownership and also provided some security rather than leaving the property empty and vulnerable. As a side benefit to society, the availability of these properties have contributed markedly to the rental property pool.

However, with the considerable and ever-escalating costs of making a house tenancy compliant, this option no longer makes financial sense. That supply has died. Add in the difficulty of getting much in the way of recompense for any tenant damage, and it now makes more sense to keep the place empty and get someone to pop by every couple of weeks to mow the lawns and empty the letterbox.

So a sizeable pool of available rentals has been removed from the market, at a time we are facing a nationwide shortage of rental properties. We see headlines like “Record-breaking rents expected around the country for summer”, while quite reasonable houses sit gathering cobwebs because their owners see no reward in funding the considerable expense of being allowed to offer them on the rental market.

Having contributed to the scarcity of rental housing, the government is now considering making even more unlikely that people will rent out their home for the medium term.

The latest novel idea is to remove the ability of a landlord to terminate a tenancy unless they can prove, in front of a Tenancy Tribunal adjudicator, that the tenant has transgressed against either their Tenancy Agreement or the RTA.

They call it “removal of the no-reason termination”, which is rubbish. No landlord ever gets rid of a tenant for no reason. There is always a reason - it is just that to give the reason is to give cause for argument.

Under the new proposals, once a tenant is in the property they will basically be there for life. Who is going to rent out their house while they are away under those terms? The government is trying to rush policy through without taking stock, without properly consulting those in the business, and failing to appreciate the inevitable and undesirable consequences.

Sure, times are tough for renters, but no private property owner can be compelled to be a landlord. As in any market transaction, there has to be a benefit to both sides.

Punish and demonise landlords and the supply of rentals dries up, the social housing queues grow longer, the costs to the government of housing the desperate in motels escalates, and the shock-horror headlines in media grow ever more strident.

These new laws are bringing us to a crisis with rental accommodation. It does not need to be this way.

Tags: compliance healthy homes housing shortage investment landlords property investment rental market rental returns rents tenancy reform Tenancy Tribunal tenants

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Comments from our readers

On 5 September 2019 at 11:13 am gabrielle said:
I resonate with the points raised in this article. I have a few rentals. But it is becoming less and less attractive. The tenant increasingly has all the rights. A friend of mine has a rental in a low socio economic area, she had a pre meth test and a post meth test. The post meth test came back positive. She tried to put in a claim to the Tenancy Tribunal for the excess on her insurance. That was not even deducted from the bond. I hope there are some loud voices of reason (to the policy makers)around the never being able to kick a tenant out.
On 5 September 2019 at 12:13 pm BCR56 said:
Peter.
I love your work and enjoy reading your comments. I do however feel you missed a few very important points.
The 'Large Real Estate Firm' that managed the property should be asked to compensate the owner for their poor performance. I am in this industry and for far too long many companies have been allowed to dish out sub standard performance. They should be held to account.
Secondly while I agree some of the new regulations are having some unintended consequences, much of this upgrading of properties is long overdue and in general are improving the owners asset. Taken the current interest rates it's simply impossible to argue the cost of these upgrades are too high.
On 5 September 2019 at 3:33 pm Janice111 said:
I totally agree with the above comment. We've been Landlords for 8 years with 3 rental houses and wish to purchase a fourth next year. We manage the rentals ourselves and do all the lawns and gardens, etc.
On 5 September 2019 at 4:16 pm John Butt said:
Yes. Here is some numerical proof of your hypothesis

http://listings.jonette.co.nz/posts/landlords-selling.html
On 19 September 2019 at 8:33 pm ethics said:
$6bn is too much - which is the health cost to the economy of the houses we live in according to government figures.

I'm struggling to think of another industry that treats its customers this way. We should not provide a level of service that is healthy for our clients because we had a dodgy customer once. Try that in the airline industry - yeah we lost that plane but we're fairly sure one of the passengers was rude to a stewardess once. That burger van is fine OK that burger might kill you but we once served some drunks.

You should not be acting as a landlord if you cant afford to provide a rental property that complies with the World Health Organisation's definition of a healthy house (18 degrees, no mould). Stop doing it.
On 19 September 2019 at 9:21 pm ethics said:
. $6bn is too much - which is the health cost to the economy of the houses we live in according to government figures.

I'm struggling to think of another industry that treats its customers this way. We should not provide a level of service that is healthy for our clients because we had a dodgy customer once. Try that in the airline industry - yeah we lost that plane but we're fairly sure one of the passengers was rude to a stewardess once. That burger van is fine OK that burger might kill you but we once served some drunks.

You should not be acting as a landlord if you cant afford to provide a rental property that complies with the World Health Organisation's definition of a healthy house (18 degrees, no mould). Stop doing it

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