RTA reforms pile pressure on landlords

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Less rental properties and higher rents could result from the reforms contained in the Residential Tenancies Amendment Bill, both Opposition MPs and government officials are warning.

Monday, February 24th 2020, 3:28PM 5 Comments

by Miriam Bell

After the Bill passed its first reading in Parliament last week, the Ministry of Housing & Urban Development (HUD) released the advice it gave to Associate Housing Minister Kris Faafoi on the proposed reforms.

In a regulatory impact statement, HUD said they recognise that some landlords consider that the package of tenancy initiatives under way will increase the risk to their business.

That’s because they will have more constraints on the reasons to end a tenancy and the exercise of termination notices may be more frequently tested at the Tenancy Tribunal once a reason is provided.

"This could affect landlord willingness to rent and the amount of rent charged and could lead to more stringent vetting of tenants.

“Consequently, there could be negative impacts on security of tenure for some tenants and, at the margin, a potential increased need for public housing."

This situation could also potentially have impacts on homelessness, HUD said.

Despite these risks, HUD considers that the likelihood of rental supply diminishing is low and the likelihood of rental increases is uncertain.

It said the effects on rents might be muted by other factors that reduce costs for landlords, like low interest rates and, over the medium to long term, increased supply.

“The risks arising from the removal of ‘no cause’ terminations are partially mitigated by the inclusion of additional grounds for termination and new systems for dealing with antisocial behaviour and rent arrears.

“However, we recognise that a consequence of limiting landlords’ ability to end periodic tenancies unilaterally and for any reason will be that – in some instances – tenants remain in a property for longer than is desired by the landlord.”

While government officials believe the risks posed by the proposed reforms may be mitigated by other factors, many Opposition politicians do not.

For ACT leader David Seymour, HUD’s regulatory impact statement makes it clear that the reforms could reduce the number of rentals available and increase rents, demand for state housing, and homelessness.

“You don’t need an economics degree to work out that new red tape will increase the cost and risk of being a landlord and that these costs will be passed on to tenants in higher rents.”

Meanwhile, in the Parliamentary debate during the Bill’s first reading, opposition to the reforms ran high.

The Bill was slammed as being “another shot in the guts for landlords”[National’s Dan Bidois] and the “straw that would break the camel’s back” [several speakers].

National’s Denise Lee said that rather than giving landlords strength, as claimed by NZ First’s Ron Mark, the reforms piled pressure on landlords.

She quoted one of her constituents, a landlord, who told her the Bill “undermines my rights as a property owner and prevents me from controlling who rents my property and how long they can rent it for”.

National’s Alastair Scott said that as landlord costs go up due to government policy changes, like the new ringfencing rules and the proposed tenancy law reforms, so too does the cost of capital and that means landlords want a higher return for their property.

This would either lead to landlords investing elsewhere to get the “return on capital that they deserve, that they demand, and that the market allows them to do”, or to rising their rents to get the return they need on their capital.

For National’s David Bennett, the reforms are all about the government “controlling people's personal property rights”.

But “if the government or any organisation goes into a market and then disrupts the ability of that market to operate, there are perverse effects”.

He said that if hard-working people go and invest in property as their major investment, and then the government comes and tells them what they can do with that investment, those people are not going to accept that.

“They're going to smarten up, and there's not going to be any houses. Then the government's got to step in and find those houses, and we get a massive increase in the problem that we're seeing in New Zealand around housing.”

Read more:

Full steam ahead for tenancy reforms 

REINZ & NZPIF join up to battle RTA changes 

Tags: compliance demand housing market housing shortage interest rates investment median rents NZPIF property investment property management real estate REINZ rental market rental returns rents returns RTA supply tenancy reform Tenancy Services Tenancy Tribunal tenants

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