Landlords v tenants: How legislative change could affect 1.5m lives and $171b sector

The Rotorua house before $60,000 was spent. Photo / Michael Burge

The $171 billion residential real estate sector is in for a big shakeup if the Government goes ahead with planned law reform.

Supporters say reform is long overdue and the direction of change is positive for a nation of many adults now renting and likely to do so for many decades to come.

But representatives for landlords are strongly opposed to changes, amid fears of a new concept of tenants for life and say some property owners could sell as a result.

Landlords house around 1.5 million New Zealanders, so much is at stake.

Last week, Associate Housing Minister Kris Faafoi announced that the Government would amend the law so landlords could not evict tenants without just cause, to be defined as only a small range of options.

Currently, landlords don't need to give any reason for eviction and studies have shown scant security of tenure in New Zealand, which Eaqub says is an outlier internationally in its poor tenant treatment.

Faafoi said 90-day eviction notices could only be issued in future if three anti-social acts were committed in three months if rent was five days late three times within three months, the property was sold with vacant possession, used as business premises, for extensive alterations or demolition.

In addition, rents could only be increased annually, not six-monthly. Fines for landlords could rise from $50,000 to $100,000 and landlords would have to give 90 days', not 42 days' notice, if they want to sell or move the family in.

As well, fixed-term tenancies would automatically flip into periodic tenancies with the tenant having the power to stay, whereas currently the tenant and landlord must agree to this.

All that gets approval from Shamubeel Eaqub, an economist and co-author of Generation Rent, who was a tenant for many years before buying in Auckland for him and his family of four.

"We know the period of change adds uncertainty for landlords," says Eaqub, acknowledging disquiet about the change. But he scoffs at widespread sales.

"We are likely to see a range of reactions: a minority of landlords will sell. These places will be snapped up by first-home buyers who can borrow so much more now than investors since LVR changes. But it means the rental stock will barely grow, amid a wider housing shortage."

Economist Shamubeel Eaqub. Photo / file

He believes some landlords will react to the law change by employing professional managers, "which isn't a bad thing". But Eaqub says that management needs to be professionalised and regulated.

"A very small minority of landlords will try to work around the system, not filing bonds, that kind of thing," Eaqub says. But the changes would benefit the majority of tenants, which was the intention of the spirit of strengthening the law, he said.

By far the majority of landlords would "just get on with it, as they have always done. But I suspect for most landlords, they didn't use no-cause evictions often, did not greedily hike rents every six months or hold rental auctions. The silent majority will continue to be in the business of providing a home for renters from all works of life," says Eaqub.

But Andrew King, of the NZ Property Investors Federation, believes New Zealand could be moving towards a system more like Germany's "tenants for life". He is worried about axing no-cause terminations.

"Tenants for life is a possibility. There are some who believe a landlord should never be able to end a tenancy unless the tenant is not meeting their obligations such as paying the rent," he says

The law change would make it much harder for landlords to get rid of unsavoury renters, which would also affect neighbours of bad tenants who would have to put up with them for longer, says King.

The Government plans big changes to rental law. Photo / file

Critics say King is over-reacting because many tenants have been badly treated by landlords and managers, as evidenced by many cases lately. Those include:

• Whangārei forestry worker Greg te Tomo Aranui told the Northern Advocate in July he was denied a cottage due to his Destiny Church membership: "We would not let it to you as we are opposed to anything that Destiny Church represents", he says a landlord told him.

• Auckland landlord Rinal Kumar, known as Danny, was fined nearly $25,000 for non-compliant behaviour and failing to lodge tenancy bonds.

Landlord Angela Robb appeared in nine separate tribunal cases. Photo / Belinda Feek

• Hamilton landlord Angela Robb was fined $15,121 after nine separate tribunal cases for over-charging rent, being ordered to repay bonds and power bills as well as compensation for temporary accommodation when tenants felt forced to leave. She refused to provide tenancy agreements, claiming she was running a boarding house and threatened to charge more for agreements. She plans to appeal.

• Royal Oak tenant Pipi Reisch said she successfully fought an eviction notice for putting a bath tub in the garden but just days later got a second notice, about a week before Christmas.

• Tenant Ataoletaeao Kelly Tigifagu won more than $22,000 compensation after renting a hovel-like West Auckland property in Glen Eden which was a mould-infested rental riddled with holes, leaks, rats and fleas.

• An Auckland woman won more than $5000 from the tribunal after her flat managed by Barfoot & Thompson and owned by Lachlan Chung was found to be unfit to live in due to dangerous mould levels.

• A Henderson house rented by Bjana Thompson had leaking and damaged gutters, rotting window frames, illegal stairs, a sagging and mouldy ceiling, rotting weatherboards, a rotten toilet floor and exposed electrical board. Landlords Ross and Sally Craigie were ordered to pay just over $13,000.

Hall of the vandalised Rotorua home. Photo / Michael Burge

But landlord Michael Burge said he fears the law swinging further towards tenants. He spent $60,000 on a vandal-hit run-down meth-contaminated Rotorua house where lewd images were spraypainted on walls and fittings, doors ripped from cupboards, personal items were strewn throughout rooms and holes smashed in wall linings.

"It's situations where they abuse the property or don't pay the rent that I'm worried about. The law change could make it so much more difficult for people like me," Burge said this month.

"If this comes in, people who own the asset will have so much less control over them. It pushes this society towards being one where no one has got any responsibility for what they do, including damage to houses."

Landlord Ron Goodwin in his house tenants trashed. Photo / Nick Reed

Auckland landlord Ron Goodwin said up to $140,000 worth of damage was done to his Stanmore Bay property after tenants contaminated it with meth so seriously that most fittings, architraves and even paint had to be remove.

South Auckland landlord Kerry Burridge said "all hell broke loose" when the armed offenders' squad was called to her meth-hit south Auckland property. She claimed just under $80,000 from Tower for reinstatement of her place.

The Ministry of Housing and Urban Development consulted widely on the changes, seeking feedback from last August until October. A document, Residential Tenancies Act Reform: Improving fairness in the Act, cited Māori, Pacific people and the disabled being disproportionately represented in the rising rental population. More older people and more children are in long-term rental accommodation.

Yet the stability of tenure is fragile: the New Zealand Rental Sector Survey of 2015 found 46 per cent of tenants had moved in the previous two years and of those, 30 per cent were shifted because the landlord sold the house, the document noted, the ministry document said.

In Ireland, 2004 changes mean tenants can stay up to four years once a six-month trial period is concluded. The ministry concluded the existing act no longer provided enough protection, given the changing composition of the rental market.

Now, it's over to the Government to make the next move and swing the balance more towards tenants. One thing Eaqub and King do agree on: the already-stretched Tenancy Tribunal will need significantly more staffing if the changes go ahead.

WIDELY SCOPED
Law changes have been widely flagged:
• Ministry of Housing and Urban Development consulted sector;
• It released Residential Tenancies Act Reform: Improving fairness in the Act
• That discussion document came out in August last year;
• Five stakeholder workshops were held;
• High-interest level from tenants and landlords;
• 4787 viewpoints received.
[Source: Ministry of Housing and Urban Development]

SECTOR SCOPE

• 270,000 landlords in NZ;

• They own 546,000 rental properties;

• 1.5m+ people in NZ are tenants;

• Rental homes worth about $171b;

• 87 per cent of tenants rent from the private sector;

• Median NZ rent $450/week;

• Average tenancy length two years, three months;

• 57 per cent of landlords in business 10 years or more.

[Source: NZ Property Investors Federation]