How will the proposed RTA changes to tenancy leases and rent increases affect your tenancies?
November 28th 2019
There are more RTA changes being proposed by the Associate Minister of Housing Kris Faafoi. The three changes we think would cause the greatest impact on landlords are:
- Fixed term agreements becoming periodic leases at the expiry date unless agreed by tenant and landlord to re-sign or vacate;
- The end of no-cause evictions, giving 90 days notice to vacate to a tenant (periodic tenancies only);
- Restricting rent increases to only once per year, currently permitted once every 180 days.
1. Fixed term agreements becoming periodic leases at the expiry date
This would have the greatest impact on investors and tenants.
To remove a landlords right to set a lease end date or to move a tenant on, and only permit this in extreme situations, ignores all the social conventions we should expect; that is, autonomy to decide what happens with an asset you own; being responsible for one’s own behaviour; and real consequences for actions which adversely impact on others.
Even with the most careful background checks tenancies can go wrong; and the warning signs are often not serious enough to warrant or enable multiple visits to Tenancy Tribunal. It is imperative that landlords retain the means to decide whether to end a tenancy at the expiry date.
Requiring backing evidence from neighbours about anti-social behaviour is too high a threshold to meet for many people, let alone fear of the consequences of complaining about problem tenants.The side consequence of such a change would impact adversely on tenants.
Currently if tenants are young, have had previous bad credit, or don’t have an impeccable rental record, it is possible to put them onto a six month lease to see how if they work out. If signs are looking good then an extension can be offered, if there are small concerns then the tenancy can be ended and no major impact.
However if that ability to end the tenancy is removed, it won’t be worth the risk for any landlord to start a lease for prospective tenants who don’t have a pristine record.
2. Ending No-Cause Evictions
As the majority of Ruby Housing tenancies are on fixed term leases, the first item would have minimal impact on our current policies or practice. There are some properties with long-standing tenancies which are on periodic leases rather than fixed term, generally these are for tenants who have really made the property their home, and have lived there for over 5 years and in some cases 20 years or more. So the likelihood of the tenancy relationship or behaviour deteriorating to an extent that the best choice is to give notice is minimal.
However, although the 90 day notice tool is rarely used it is a valuable means to gain back control of a property where other means would be ineffective.
3. Restricting rent increases to only once per year, currently permitted once every 180 days
Limiting rent increases to annually would be detrimental for both landlords and tenants.
At Ruby Housing we review rents every six months against current market value, and even if no increase is warranted we advise tenants of this. In most cases there will be a small increase, perhaps $5 each six months for a smaller unit, or $15-25 if a large home. This is dependant on the area, time of year and how much other factors have affected the market in Christchurch. A minor but regular increase is much easier for tenants to absorb into the weekly budget, than an annual increase of perhaps $15-$40.
Some suburbs in Christchurch have seen little or no rental price movement over the past 3 years. In that instance we can’t increase rents, even though landlords other costs have increased.
Our concern is that annual increases will of necessity be for higher amounts, and may prompt tenants to move to a lower quality property rather than pay extra, which will be detrimental for both tenant and owner.
The stated reasons behind this proposal don’t add up in the Christchurch market, where rent and house prices have flattened over the past few years, and very rarely would rent bidding occur. No-one likes paying more than they need to, but most tenants understand that as other living costs increase, so will rent.
What is Ruby Housing is doing to counter the effects of this?
As a member of the Property Institute of NZ, as well as the NZ Property Investors Federation and the Canterbury Property Investors Association, we are strongly opposed to this latest round of amendments. This seems to be an ill-conceived and poorly thought-out idea, with far reaching and devastating consequences for investors, property managers and tenants.
If the ability to end a tenancy at lease expiry is removed, then only tenants with a completely clean record would be considered for a home. It wouldn’t warrant the risk of allowing tenants a shorter lease if they don’t have any rental history, or if they’re getting on their feet again after a difficult period.
In order to preempt the real problems this could cause if the legislation is implemented, we have unfortunately already had to tell prospective tenants without rental history that we are unable to accept their applications. Of course if people are not given the opportunity to become tenants they will never build up a sound rental history, so will be stuck in a cyclical pattern of being unable to get a home of their own. This is a real shame for the rental market overall, and is akin to employers being unable to use a 90 day work period, or give notice of any kind except for the most serious breaches. The consequences of these proposals are detrimental to good rental practice, and will ultimately create an elite class of tenants with everyone else missing out.
We’ll keep you informed as more develops, in the meantime, please lobby your local MP, do the survey NZPIF have posted, and make your views known.
- EXPLORE MORE ON RELATIVE
- * Landlord's 'mind-boggling' fight to remove tenant
- * Govt plans to ban landlords from ending tenancies without reason
- * Landlords will not be able to protect neighbours
- * Government considers extending failed HNZ policy to private rentals
- * Facts in the landlord vs tenant debate