Up to $47 million could be put back into the pockets of Kiwi families by the banning of letting fees for tenants, the Government says, but Bay of Plenty property bosses are not convinced.

Urban Development Minister Phil Twyford announced the law change on Thursday and said the ban was a "good first step in improving the life of renters" while the Government continued to review the Residential Tenancies Act.

Twyford said about half of all New Zealanders were renters and the ban would make a real difference to struggling families.

"There are significant costs associated with moving to a new rental property, which many families are now forced to do every year."


Twyford said letting fees were "unfair" and had no economic rationale because there was no relationship between the amount of the charge and the cost of the services provided.

"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," Twyford said.

He said the proposals in the broader review were designed to provide tenants with security of tenure and allow them to make their house a home while protecting the rights and interests of landlords.

But Tauranga Rentals owner Dan Lusby said the change would ultimately result in more costs for tenants.

Lusby said letting fees were "quite a significant" part of the company's revenue and that cost would have to be made up somehow.

He said any extra cost put on to landlords would ultimately mean higher rental prices for tenants.

The average length of tenancy in Tauranga was more than 12 months, which meant most long-term renters would not be greatly affected, Lusby said.

"We've had some tenants in the same property for 10 to 15 years, this is not going to make any difference to them."


However, those looking to move into a rental property were currently expected to pay six weeks rent - four weeks rent as bond, one week in advance and one week as a letting fee.

Lusby said coming up with those costs was hard on tenants, especially those who moved often.

Simon Anderson, chief executive of Realty Group, which operates Eves and Bayleys, said the change in legislation came earlier than he expected but it was anticipated.

He said a positive to the law change was that tenants looking to move into a rental would have lower move-in costs.

However, Anderson said the cost would have to be made up somewhere.

He said the industry would experience a transition period where property managers would be working out where this extra cost would go, but it was likely to result in extra costs for tenants.

Sacha Dustin welcomes the ban on letting fees. Photo/ Supplied
Sacha Dustin welcomes the ban on letting fees. Photo/ Supplied

Getting into a rental property had been "extremely difficult" for Toi Ohomai student Sacha Dustin, who had to move out of his rental last year.

The second-year sport and recreation student had been looking for another suitable rental property on and off for the past 12 months and had resorted to living in his father's warehouse in the meantime.

Dustin said he had gone to several rental viewings where there had been about "40-odd people" going for the same property.

The 45-year-old welcomed the announcement that letting fees would be banned but said it did worry him rental prices could increase further.

Dustin was making inquiries into a rental property that was $550 a week and move-in costs were more than $3000 after a bond and advance rent payments were made.

He said there was a lot of pressure on students who studied and worked fulltime and he personally would have to rely on the back-up of his credit card.


"There is no doubt younger students would be borrowing money to support themselves."