Rents higher under property managers

• Tweet

New Zealand now has more property managers than it has drivers, cooks or architects, census data shows.

Tuesday, February 14th 2023, 8:00AM 4 Comments

by Sally Lindsay

As home ownership falls, property managers are increasingly present in the lives of the one in three households that now rent.

More than 40% of those tenancies are overseen by property managers on behalf of landlords and over the past 20 years, the number of property managers has more than doubled.

To landlords, property managers provide a valuable service, taking care of the day-to-day management of a rental – choosing tenants, arranging repairs and maintenance, and ensuring the rent arrives.

But to renters, a property manager is often an unwanted intermediary, a henchman of sorts, tasked with the landlord’s dirty work – letting you know in a hundred small ways that the house you live in is not your own.

The power this booming industry holds over tenants is huge, a Consumer NZ investigation found. 

In the past year alone, property managers lodged more than $162 million in bonds.

Do property managers push up the rent?  

Common wisdom has it that you’ll pay more if you rent from a property manager. But is this true?

Consumer NZ set out to answer the question by asking HUD to compare the value of bonds lodged by property managers with those lodged by private landlords.

This approach isn’t perfect. There’s no single source of truth for who owns what property and how much they rent it for. The best data is from bonds lodged with Tenancy Services.

However, bonds aren’t lodged for all tenancies and because they’re only lodged at the start of a tenancy, they don’t capture rent increases for existing tenancies.

Also, bond lodgement forms are not designed to definitively capture whether there’s a property manager involved.

Those provisos aside, the results are significant. Across the country, properties rented through a property manager are on average $7 more expensive per week than those rented by private landlords.

Consumer NZ says part of the difference may be that property managers tend to rent higher-value properties, but that’s unlikely to account for the full difference, according to HUD.

Across price ranges, properties rented through a property manager are consistently more expensive than those rented through a landlord.

While correlation doesn’t mean causation, this data signals the property management industry may have an impact on rent prices. So what’s going on?

One explanation is that landlords effectively pass some of the cost of using a property manager onto tenants.

In addition to various one-off fees and charges, property managers usually charge landlords a percentage of rent, typically between 6.5% and 10%. That fee structure may also incentivise property managers to push landlords to raise rents as much as they can.

Residential Property Managers Association (RPMA) chairman David Pearse accepts there might be such an incentive, but says rents are ultimately a function of supply and demand.

A core part of the service property managers provide is ensuring landlords keep up with changes in market rent, and they do so by looking at the prices of other properties in the area.

But the market rent is shaped by the decisions landlords make as to when they will raise rent and by how much.

Anecdotal stories suggest property managers may raise rent in circumstances where landlords would not otherwise do so – and even without the landlord’s knowledge.

As the property management industry grows, and more rent decisions are informed by the advice of property managers, the market rent may rise faster than it otherwise would.

Renters United president Geordie Rogers says this shows a need for stronger rent controls. Right now, landlords can only increase the rent once a year and tenants can challenge increases in the Tenancy Tribunal.

But these controls are weak and have little impact in keeping rents to an affordable level, because in practice tenants will pay almost anything for a home, Rogers says.

“You'll continue to pay as much as you can to ensure you have a home, because that’s where everything else comes from.

“At the end of the day, there needs to be some indication as to what is considered an ethical amount to charge someone for a house. Rent controls are about ensuring … landlords aren’t abusing a housing crisis to make the most out of tenants.”

Entirely unregulated

Anyone can set up shop as a property manager and start letting properties and collecting rent. No training, skills or good character required.

That now looks set to change. The Government is planning to push through regulation of property managers.  The new law will establish professional entry standards and licensing requirements for residential property managers, industry practice standards, and an independent disciplinary and complaints resolution process.

However, the coverage of the law is carefully circumscribed. Included are those who work as residential property managers. Private landlords are excluded.

This might seem uncontroversial. And in one sense it is – it’s almost impossible to find opponents to the reform, which is backed by renters and property groups alike.

But those same groups agree that, in a crucial respect, the proposed law falls short. It may leave some tenants better protected than others, based purely on who they happen to rent from. Property manager or landlord – should it matter?

Industry mess

RPMA’s Pearse, accepts the industry is a “mess” but says most specialist property managers are doing a good job.

Many are overworked and burnt out, with some responsible for up to 300 properties. The Ministry of Housing and Urban Development (HUD) estimates that an individual property manager typically manages between 70 and 100 properties.

Despite the growth of the property management industry, the majority of tenants still rent directly from landlords. In these cases, the landlord does all the things a property manager does.

This fact has raised concerns that the new law may be setting up a two-tier system.

A property manager or landlord problem?

Rogers admits he is no fan of property managers, but he fully supports regulating the industry but isn’t convinced there’s good reason to treat landlords differently.

Both groups “feed off the same power imbalance”, Rogers believes. Both think “they have power over the person that’s renting from them, just because of their circumstance”.

“A private landlord may not increase your rent as much, but because they have a good relationship with you, they might think they can invade your privacy by coming over to your flat unannounced,” he says.

“A private property manager probably wouldn’t do that, because they are about minimising their legal risk.”

Consumer NZ’s investigation found in the past financial year, Tenancy Services heard a higher rate of breaches by landlords than by property managers, according to data provided by MBIE.

Perhaps for this reason, some renters prefer renting from property managers.

Some say renting from a property manager is the “best thing ever”. They are as “impartial middlemen who aren’t stingy about spending on maintenance”, while private landlords have been difficult to communicate with and reluctant to spend on the property.

Pearse believes many private landlords are “completely ignorant” of their legal obligations, and attempts to exclude them from regulation are a “slur against all property managers”.

“You’re never going to get the issue sorted out in the industry and know what’s going on until you actually have everyone licensed in one form or another,” he says.

REINZ also supports including landlords, while the New Zealand Property Investors Federation is the only industry body to oppose including private landlords.

Landlords exclusion

So why aren’t private landlords included?

The official reason, according Consumer after obtaining HUD briefings obtained under the Official Information Act, is that landlords are already sorted.

“The activities of landlords are already adequately regulated through the RTA [Residential Tenancies Act] to ensure tenants have sufficient protection. The new law is “intended to complement but not duplicate or supersede remedies available under the RTA”.

But other parts of government don’t seem so sure. In November 2021, Treasury officials advised of “issues of RTA compliance by private landlords” and suggested the Government “assess whether that system is adequate to secure desired tenant outcomes”.

“We understand the need to avoid duplication with existing legislation and the logic, for practical reasons, behind dealing with private landlords and property managers separately,” the Treasury briefing said. “Thought will need to be given to ensuring the use of parallel systems does not create a two-tier system in terms of protections for tenants.”

Rogers speculates the scope of the law really reflects the Government’s true priorities: to protect landlords, not tenants.

“This regulation was designed to hold property managers accountable to landlords … They don’t care about the relationship between landlords and tenants.”

Tags: property management

Comments from our readers

Sign In to add your comment