Residential Tenancies (Prohibiting Letting Fees) Amendment Bill

Thank you, Madam Chair. I’m pleased to stand for what will be a number of calls on this Residential Tenancies (Prohibiting Letting Fees) Amendment Bill. I want to focus my efforts in the first part of this legislation and put on record a few of the myths that the Government have been spreading around this particular part of the legislation.

The first myth is that this will do anything to alleviate the pressure on renters, because it absolutely has zero guarantee of doing that. In effect, the RIS, or the regulatory impact statement, that was prepared in association with this bill clearly states that one of the risks of this particular legislation—in that a letting fee will be prohibited—is that the equivalent of the letting fee, which in some cases might be a week’s rent, will be spread out over the term of the tenancy and could be up to or around $10 a week additional rent that the tenant will now have to pay. So it is concerning that—you know, it’s the Residential Tenancies (Prohibiting Letting Fees) Amendment Bill, and the intent of it might be acceptable but this legislation will not deliver on any policy promise to take financial pressure off tenants.

The other thing that I wanted to address, given that we only had the second reading of this piece of legislation last week, is the incredibly compressed time frame in which landlords will have to adjust to changes proposed by this legislation. If I look at Part 1 specifically, a letting fee is “any fee or charge … in respect of services rendered by the letting agent”. So, basically, what it means is if a landlord engages a professional property manager—and we do know that the vast majority of landlords in New Zealand are what we call mum and dad investors and they might have one or two rental properties. So, actually, in many cases, it’s a good idea for the landlord to engage professional services of a property management company or a property manager as an individual who can help them navigate what is actually quite a challenging piece of legislation to ensure they comply with it.

I haven’t met any landlords, any investors, that don’t want to ensure that they comply with the legislation, but we’re seeing a series of changes to the residential tenancies legislation, and this is another one. Their ability to engage a property manager and then the property manager charge a letting fee at the start of a tenancy to get new tenants in the property—that’s the bit that’s going to be prohibited. So if a landlord still wants to have a property manager deliver that service—and I’m hopeful that many will, because it does add some comfort to the tenants as well as the landlord—their ability to recover the costs of that then get spread over the term of the tenancy. So if that’s a tenancy for one year, it might end up being the same amount of cost, but if the tenancy is three or four or five years, that extra $10 a week will be exorbitantly more than the letting fee would have been originally. So I just want to be clear in this Part 1 of what seems to be a straightforward piece of legislation but does have a significant impact. The reality is, for those who are going to be captured by this legislation, there’s an incredibly short time frame for them to adjust to it.

One of the examples that was provided through the process that the Social Services and Community Committee considered was the fact that this has been done in Scotland, but, actually, other parts of the UK have decided not to take this step because of the wide-ranging concerns about the increase in rents. I believe Statistics New Zealand have just put out the household incomes report which has said incomes have gone up 41 percent since 2008, housing costs have gone up 43 percent. So there is a continued pressure on households for housing costs. I would have thought any measure that leads to the risk of an increase in rent is something that this Government would want to run a mile from.

To be fair, to give credit where credit’s due, the Government is undertaking a significant review of the Residential Tenancies Act—one of the many working groups that the Government has under way. So it’s somewhat puzzling that the Government decided to do this piece of legislation in isolation. What it might mean is that you’ve got this piece of legislation that is out there and has an impact on removing the ability—or a disincentive for landlords to engage a letting agent—to engage in professional services that support them in setting up their tenancy and getting the right tenant in the first place, and adds costs. On the other hand, this more wide-ranging review of residential tenancies might work in a completely opposite direction.

So for the matter of a couple of months, because I think the tenancy—and the Minister, hopefully, will be able to answer this when he answers—question is: why was this not brought into the broader piece of review that the Minister is undertaking? So I do specifically want the Minister to address the timing of it, and the fact that it is coming in on 12 December, which is a very short period of time for landlords to adjust. As I said, the majority of landlords in New Zealand are not what the Government might suggest from time to time as being fat cat landlords that are out to milk their tenants. That is not the majority of landlords. Yep, there might be one or two that don’t look after their tenants in the way they should, and, absolutely, the Government should take steps to crack down on them. But the majority of landlords in New Zealand are mum and dad investors with one, possibly two, properties, and to navigate the residential tenancies legislation to ensure that they are providing a warm, dry rental property for their tenants—and, of course, there’s been recent changes that have also had a big impact on them—it is really important to make sure that they do have the ability of, in terms of this particular legislation, a fee or charge that is now not able to be charged by a letting agent passed on to a tenant at the start of the tenancy. But, instead, what the landlord is likely to do is to recover the cost of the property manager’s professional services over the term of the tenancy.

One of the other comparisons is regarding countries in Europe. I think Germany was one of the ones that was referred to, where the average tenancy in Germany is 14 years. Now, I’m not sure if the Minister is able to answer a question in terms of the average length of tenancies in New Zealand and what this $10 a week added cost will mean over the lifetime of a tenancy, but I think that’s an important element of it.

One of the aspects in the regulatory impact statement was that there was insufficient time for adequate consultation to be undertaken. Now, this, unfortunately, is a bit of a similarity that is appearing in much of the Government’s legislation. The oil and gas ban that is also going through committee at this stage is exactly the same, which means insufficient scrutiny, insufficient consultation, and insufficient ability for any unintended consequences to be thought through and resolved. Instead, we have a situation like this where, in Part 1 of the Residential Tenancies (Prohibiting Letting Fees) Amendment Bill, the unintended consequences, as stated in the regulatory impact statement, are likely to be an increase in rent for the very people that the Government purports to want to support in this legislation. So the Government can’t have it both ways.

So I am looking forward to the Minister answering the specific questions that I have asked so far. As I said, it’s a small bill but not an insignificant one, and that’s why it deserves the full scrutiny of the House, particularly when it will be implemented very quickly, with very little time for those affected to adjust. We argued strongly in Opposition to have a later implementation date, but the Government has proceeded anyway.

Thank you, Madam Chair. Part 1 of this bill is so typical of the smoke and mirrors that we get from the Minister in the chair, Phil Twyford. What the Minister would have the committee believe and what he’s told tenants up and down New Zealand is that if he bans letting fees, there’s going to be a big saving for tenants. So my question for the Minister is in terms of consistency. When I sat in the Minister’s chair, I introduced a bill requiring, in a tenancy change, that all homes have smoke alarms.

💬 Hon Shane Jones: Talking about himself—always talks about himself.

That’s right, Mr Jones intervenes. We passed a bill that required all tenanted properties to have smoke alarms to save lives. I don’t apologise for that. I’ve checked the Minister’s record; he said that bill would add to the costs, and he’s right. That is, if you impose a regulatory cost on the landlord, that will be passed on to the tenant. National introduced our tenancy amendment bill requiring all homes to be insulated by 1 July 2009—something the Minister in the chair never mentions these days. He would have us believe that all the heavy lifting around improving the insulation of homes was done by the current Government, and he overlooks the huge amount of work that our Government did. But, in the same instance, the Minister in the chair argued, quite rightly, that if you impose a cost on landlords to insulate homes, that’s a cost that falls on the landlord sector. That is a cost that will be borne by tenants.

So the very simple, straightforward question is around removing the capacity for the real costs when a property is re-tenanted. There is a real cost of writing out the tenancy agreement, of advertising the property, of checking out the credentials of the new tenant, and of letting the various tenants have access to the property. They are real costs, and the pretence by the Minister in the chair and the Government that somehow that cost will magically disappear if we pass this bill is a fraud. It is a real cost. It is a cost that will fall on the sector, and the only question is: who meets the administration, advertising, and interviewing costs of entering into new tenancy agreements? All we’re going to do is shift that cost from a transparent charge that’s made at the time you enter into a new tenancy agreement, and include it in the rental.

We’ve seen very sharp rises in rentals under the first year of this Government, despite all the rhetoric that we heard from them in Opposition, and our argument on this provision is that all you’re going to do is shift that letting cost, which currently falls quite transparently in the tenancy agreement, into the general rent increases that will be faced by tenants. This is just the basic disagreement that there is between the Government and the Opposition on this bill. The Government keeps pretending that you can impose costs, whether it be on supermarkets, whether it be on small businesses, whether it be on landlords, and somehow that magically does not affect consumers or, in this case, tenants. Our argument is very simple, and that is that every cost you impose on a sector—whether it be on landlords, whether it be on supermarkets, whether it be on any other area—ends up being paid by the consumer. It is misleading, it is smoke and mirrors, and it is a fraud for the Minister to be going around the country and saying that this bill is going to be saving millions of dollars for tenants, when it will not. It will simply transfer the costs, from the time of the tenancy agreement to the general rental.

Here’s the next question, and it’s the proper question for Parliament: is the real cost of finding new tenants and entering into new tenancy agreements most fairly allocated each time a new tenancy agreement is reached, or is it more fairly to be distributed into the general rental costs? The consumer pays either way. The question for Parliament is not whether this cost falls on tenants; it’s how it most fairly falls on tenants. And here’s the pitch: if you have a tenant that has a large number of turnovers—some people have lots of short-term tenancies; and I’ve had nine different flats while in Parliament and each time paid a letting fee—should the person who turns over their tenancies a lot more often have to pay for that, or should that cost be spread over the general rental?

Let’s be up front as to how these costs will switch. The interesting thing is, higher-income earners tend to have more regular transfers of their tenancy arrangements than do lower-income earners. That is, if you pass this law, what is going to occur is that the costs associated with letting fees for the costs of transferring tenants are going to be spread into the general rental, so the winners of this are going to be people that are in short-term tenancy arrangements.

So, for instance, sometimes you’ll get a construction company that will enter into a large number of short-term tenancies to be able to accommodate a group of workers for a short period. Those in the short-term tenancies will tend to benefit from this provision. Those that have their tenancies for a long period are going to be disadvantaged because it will be included in their rental and, effectively, it will be a cross-subsidy to those in short-term tenancy arrangements.

I just challenge members opposite: what is the logic of that? Why would we not let costs lie where they fall? Shouldn’t those people that change tenancy a large number of times actually transparently face the cost of the advertising and of the work that’s involved in letting agents doing that, rather than, effectively, Parliament regulating and saying, “No, you cannot charge in that transparent way. You must include that within the cost of your weekly rental.”? That is the essential question that members of the Government need to argue if they are going to argue that Part 1 of this bill is in the public interest.

Now, if we look at what these costs are, what you are going to see is them passed on in the actual charge of the rental, or do the Minister and the members opposite live in this fairy tale world where if you don’t enable the recovery of the letting agent’s fee, somehow that, magically, isn’t going to be paid by anybody?

💬 Dan Bidois: It’s a fantasy.

Well, I’m sorry—yes, it is fantasyland stuff.

It really goes to the heart of so much of this Government’s policy that is misleading. For instance, they put up the increased costs on petrol and they say, “Oh, that won’t be coming out of consumers’ pockets. That will come out of the cost.” The very Minister in the chair, Phil Twyford, is responsible for increasing the tax on excise, but he somehow argues, “Oh, but that will come out of the margin of the petrol company.” No, it doesn’t. It goes on to the cost of the consumer. They are now paying more for their petrol, and it’s exactly the same with this provision. If you are going to pass a law that bans letting fees, be in no doubt that tenants will continue to pay—as do all consumers—for costs that are being imposed.

I want to challenge the Minister on the advice that he’s received from officials. The advice from officials was very plain: “If you’re going to ban letting fees, you’re going to put the rents up.” So will the Minister in the chair accept responsibility for the inevitable rise in rents that are going to flow on from this bill? We know that rents in the last year have increased quite significantly. Does he accept the advice from his Ministry of Business, Innovation and Employment officials that Part 1 of this bill will see an increase in rents, and why doesn’t he just be open and honest with New Zealand tenants—that is, actually, you’re not getting rid of letting fees. It’s not a free lunch. All that’s going to happen is that rather than paying that cost up front, it’s going to be spread in longer rentals. Actually, people who are in stable, long-term tenancies are going to end up paying more, and people who are in shorter-term tenancies will end up paying less. Is that really the right incentive?

I come from a perspective that says, actually, there are broader society benefits from having longer-term tenanting arrangements. I think that’s a better arrangement for landlords. I think that’s a better arrangement for tenants. When you allow letting fees and costs to lie where they fall, you’re, effectively, providing a financial incentive for longer-term tenancies, and that’s in the public interest.

Thank you, Madam Chair. We are hearing a consistent theme here, and that is that right across this side of the House, the lack of consultation, the lack of engagement with the sector has been of real concern to many in the sector, both landlords and also tenants and others that have been sharing this concern to us through the submission process. For a party that declares the fact that it’s about the people and that it wants to listen to the people, hear their concerns, and work with them—with over 165 advisory groups and inquiries that are there—why, on this bill, was the same consideration not made?

If we were to read into the regulatory impact statement, this is what it declares. The regulatory impact statement “does not fully meet the standard because no consultation has taken place, and the time constraints have meant the analysis is somewhat repetitive. Clarity would be improved if time were available to address this.” That speaks to the heart of the concern that we have on this side, which is that not enough opportunity was given to be able to do this. But why the rush when we know that there currently is a review of the Residential Tenancies Act?

In fact, there is a review at the moment. There’s a consultation that’s currently taking place. It’s called the reform of the Residential Tenancies Act of 1986. Why the rush, when that should have been part of the whole of the review? Why the rush when the Healthy Homes Guarantee Act of 2017—again, another Act yet to come in, with a raft of changes to the tenancy law—is still yet to be tabled in the House? This would also have been able to cover these very issues. So why the rush? One can only say it’s for the political expedience of the so-called 100 days, to let the people know we’re doing something—something small and, in reality, not something that truly makes a significant difference to the lives of the people that they have of concern.

If one reads in the Residential Tenancies Act—in the cover sheet here—one of the important aspects that is, supposedly, the intent of this bill is that by removing letting fees, it’s intended to reduce some of the financial stress faced by tenants in securing a rental property. That’s not shared by those who are in the sector. So in the submissions and also those who have written through, we’ve got the voices of the stakeholders. From the Property Institute, the Chief Executive Officer, Ashley Church, said this: “the move would provide some relief to tenants struggling with increasing rents but appears to have been made for political purposes and won’t make a huge difference in the long-term [to this bill].”

So it’s a concern to us that when we’re talking about the Residential Tenancies Act and the prohibiting of letting fees, we again are hearing from the sector that those concerns are not being addressed.

💬 Hon Dr Nick Smith: I raise a point of order, Madam Chairperson. I think we are experiencing a substantial earthquake, and we should take the civil defence advice.

We’re interrupting your speech just for a moment. I just think we might be best to suspend the sitting for a few moments while we take some civil defence advice. It is obviously a substantial earthquake. I ask people to clear the gallery and seek shelter upstairs and take advice from the officials up there and for members to go back to their offices and ensure that their staff are safe. So I declare the House suspended until further notice.

Sitting suspended from 3.14 p.m. to 3.43 p.m.