The Good, Bad and Ugly for 2019

Government intervention the theme of the year as we take our traditional look at the last 12 months.

It hasn’t been an easy year for anybody associated with our industry. In terms of renting in New Zealand, 2019 continued where 2018 left off. Changes in legislation. Landlords complaining about too much state intervention and tenants complaining about high rents and a shortage of stock.

Don’t expect too much to change in 2020 as this Government tries to implement all of its election promises before we all head to the polling booths again.

Anyway, it is time for us to take a look back on what was another eventful year for our industry as we take our now annual review of the year which includes the good, bad and ugly for 2019.

The Good

The Call For Change Campaign: It has been difficult to find any real positives in a challenging year, but the launch of A Call For Change campaign launched by REINZ back in September in an attempt to regulate the Property Management industry has probably been the best. On the last count, nearly 80 agencies, Property Management companies, advocacy groups and community organisations are now supporting this. 

The launch of 'A Call For Change' was our highlight of 2019 but more needs to be done.

There is no doubt that since Bindi Norwell was appointed as CEO of REINZ, there has been a real focus by the organisation to raise the profile of Property Management. For the first time ever, REINZ has appointed a resource who is solely dedicated to Property Management in Jo Rae, the Head of Property Management. 

In the past, people have been critical of REINZ with their attitude and apparent lack of dedication to Property Management. There may have been some validity in this argument in the past, but no one can accuse REINZ of paying lip service to the industry now. REINZ has showed renewed focus and long may it continue.

It hasn't all been positive however around the campaign. It desperately needs to keep the momentum going and there is a risk that it could run out of steam as other things become a focus or a priority for REINZ. The campaign has also been discredited by PROMINZ, the newly branded Property Management Institute of New Zealand, after their President, David Pearse called the campaign a ‘Cunning and devious plan’ designed to promote REINZ Property Managers. This was during an interview held on Radio New Zealand Morning Report programme.

Listen to the Morning Report interview with Bindi Norwell and David Pearse

Some of Mr Pearse’s comments have been nothing short of outrageous. He was also quoted in the New Zealand Herald stating “Real Estate agencies gave poor service because of their greed and making property managers into slaves by having them manage up to three times the number of properties that they can effectively manage." Comments such as this only damages our industry further, and if someone is going to make comments like this, they have to back it up with facts and not solely their own personal opinion. For the campaign to get further momentum, PROMINZ would be doing our industry a service by putting their support to this campaign. I'm sure A Call For Change was not designed to be a 'REINZ are better than the rest' campaign, the greater good means all organisations should get behind this regardless of what you are a member of.

That aside, the industry slowly but surely is starting to find a voice. As an industry, we manage over 40% of the 600,000 rental properties and this number will only continue to grow. 

Although new Associate Housing Minister Kris Faafoi has initially ruled out the regulation of the industry, I for one am confident that they will recognise the importance of having some structure and regulation around Property Management. Over a quarter a million of residential dwellings are now under the management of a Property Manager so surely it is only a matter of time before the change actually does happen.

Other mentions: 

The rise of Proptech: Property Technology companies or Proptech as it is more commonly known is a hugely exciting development for our industry. Many are headed by young entrepreneurs who are challenging the status quo. At our conference that we held with Palace in March, Michael Abbott, the CEO of Palace said that the Property Management industry was in its infancy. Those comments stuck with me as we are finally starting to learn how to use the data our industry creates. I for one wholeheartedly agree. Also, you have to give credit to the Privacy Commissioner who listened to the criticism of their original guidelines and reformed them to give more clarity as to what you can and cannot ask for when selecting a tenant.

The Bad

Swamp House Tribunal Decision: Remember the ‘Papakura swamp house?’

We reported on the dilemma of tenants Dawn Robbie and Cameron Taylor last December. This young couple with their two daughters rented their three-bedroom property in Papakura. Unknown to them when they rented the property, blocked drains and malfunctioning stormwater lead to an ankle-deep swamp under the property and an unusable flooded yard every time it rained.

Underneath the infamous Papakura Swamp House. Atrocious conditions for the tenants to tolerate.

Their 11-month-old daughter at the time had serious health issues and was admitted to the ICU unit in Middlemore Hospital due to severe bronchitis that was brought on by mould in the property. All of this for $520 a week in rent.

The Tenancy Compliance Investigation Team took the landlord to Tenancy Tribunal on behalf of the tenants and even went to the lengths of getting the tenants to sign an NDA so they could not talk to the media about the case.

They finally had their day in Tenancy Tribunal in November 2019 and this looked a straight forward case. The landlord had clearly breached their responsibilities due to the flooding and damage caused by the flooding. The tenant's health had been severely affected by the poor condition of the property and compensation was certainly due. Tribunal agreed yet the sum of money paid out to the tenants was pitiful for what this couple had to tolerate. Compensation of $4,000 and exemplary damages of only $1,000 were awarded to the tenants. The latter was only 25% of the maximum penalty that could be awarded by the adjudicator. Why so little?

When you read the decision which is available online it leaves you scratching your head and asking yourself has justice really been served? You also have to question the ability and judgment of the adjudicator. Adjudicator Benvie makes reference to Boarding House legislation which is utterly irrelevant. Then the adjudicator defends the decision by saying that the landlord did not intentionally commit the breach. This is ridiculous. According to Adjudicator Benvie, the landlord must deliberately flood the property to be liable for the full amount of exemplary damages. As if a landlord is going to do that!

Mr Raj, the landlord, knew it was an issue for an extended period of time and simply did nothing about it. He should have had the book thrown at him. In this case, the punishment nowhere near fitted the crime.

Watch the video about the Papakura swamp house. When you see what the tenants had to tolerate, $5,000 seems like a slap in the face.

Other mentions:

Leaving insulation to the last minute has caused a number of problems for many. The lessons we have to learn from this as we tackle the Healthy Homes is not to leave it to the landlords as many of them simply will not get it done. Also, a shortage of rental stock continues to be a major issue. The current Government promised to eradicate poverty and made housing it’s number one priority in its election campaign of 2017. They even went as far as asking that the then National Government declare a 'National state of emergency' due to the housing crisis. However, people on the waitlist for public housing has now reached 14,000. This has more than doubled since the Coalition Government came to power. Many of these families are now falling into the private rental sector. The approach of targeting landlords has backfired and I still do not see any state of emergency being declared.

The Ugly

Property Managers continue to face risk and abuse: With property, there is always lots of emotion. For landlords, in many cases, it is their nest egg and they may have previously lived in the property meaning that they will have a strong emotional attachment to the property. For tenants, it is their home and many are paying over-inflated prices for a second hand and substandard product.

With this, the financial pressure that is placed on both landlord and tenant has grown in large down to Government policies. The pressure leads to aggression and abuse as Property Managers often become scapegoats to problems that they cannot control. Other factors that have led to the rise in abuse are Property Managers simply trying to educate landlords on what they need to do to have a compliant property. Many landlords do not like it as the costs associated with compliance continue to hurt margins. This will only continue as we inspect the thousands of rental properties for compliance with the Healthy Homes Standards.

Tenants can also be abusive and we have heard of direct threats of violence to Property Managers. Social Media also does not help. Tenants and their associates vent and sometimes become abusive online. This is gutless but unfortunately, it now comes with the territory. 

More needs to be done to protect Property Managers from abusive clients and a ‘zero tolerance’ approach should be taken by our industry. This is where the 90-Day No-cause termination has its place. There is simply no need for the removal of this as tenants already have plenty of rights to protect them from being evicted unfairly.

It has been over two years since our industry was rocked by the shooting of two Property Managers in Northland. Has anything changed?

I cannot help but feel that we have failed to learn lessons from the tragic events of two years ago when two Property Managers were shot dead by a tenant. Property Managers walk into difficult situations all the time and the job can almost feel more like being a social worker rather than a Property Manager. As the financial burden of renting continues to see more and more families forced into desperate situations, Property Managers are often treated poorly. If it becomes too hard to move on antisocial tenants, this will only get worse. 

More needs to be done in this area going forward particularly if we are to attract and retain good people within the industry. Leaving the 90-day no-cause termination as it is, is a step in the right direction.

Other Mentions:

Anti-social behaviour seems to go unpunished if you are a tenant of Kainga Ora, the organisation that was formerly known as Housing New Zealand. The soft friendly let’s all hold hands together stance that the Government has taken to tenants in state-owned properties is starting to cause some grievances. Recently I received a call from a Hamilton Property Manager seeking advice as they have tenants wanting to break a lease due to their neighbours, Kainga Ora tenants fighting in the street every weekend and threatening neighbours. These gang-affiliated tenants look like they are going to staying for a long time as pleas to Kainga Ora have fallen on deaf ears. There was not a lot I could offer in assistance.

Dealing with tragedy and why our industry does not get the recognition it deserves

2019 has seen some horrendous events in our country and too many families have been struck by tragedy in the last 12 months. The Christchurch shooting was particularly disturbing. As a country, we felt like we lost our innocence on that fateful day in March. Christchurch Property Managers have had to deal with tragedy and disaster in the past following the earthquakes but one Property Manager from Ironbridge won the hearts and minds of all at the LPMA Conference. 

Not long after the shooting, a Property Manager found a tenant hiding whilst doing a routine inspection. This tenant had been in one of the Mosques when the shootings took place and were clearly in a distressed state. The tenant was terrified and in desperate need of help. The Property Manager went above and beyond in helping this tenant. They made sure that the tenant got the support they needed and spent time reassuring the tenant that they would be ok. It is a shame as I cannot remember her name, but it highlights the qualities that we know our industry has. It's funny how stories such as this do not get mentioned in the media.

Make sure that you take good care of yourselves over the holiday period. Have a great Christmas and we will see you in 2020. 

Signing off for 2019

 

David Faulkner


Carbon Neutral Property Management. Is it possible?

  • We look at the likelihood of achieving a net-zero carbon industry by 2050

  • The government needs to help landlords and we have ideas on how this could work

‘Ok boomer!’ How big is the carbon footprint that the residential rental sector in New Zealand leaves behind and more importantly, how do we reduce it? I am not attempting to offend an entire generation of landlords here, but the comments from Millennial Green MP Chloe Swarbrick after she was heckled by an MP during her speech to Parliament earlier this month have certainly grabbed attention, so I thought I’d try the same approach.

Behind the rhetoric, the disdain and all the media scrutiny that the now-infamous comments received, the attention deflected away from a significant bill that was passed in early November that will have a major impact on every business in New Zealand. This includes the Property Management industry and we will have a monumental challenge in front of us if we are to achieve its target. A net-zero carbon footprint for our industry.

On the 13th of November, Climate Change Response (Zero-Carbon) Amendment Bill was passed. This means that by the year 2050, New Zealand will have a net-zero carbon footprint. What does this mean for renting and Property Management in New Zealand? By my calculation, I will be 78 years old so hopefully, I will still be here to witness it. I certainly expect my kids and future grandkids to be around to see it happen.

Ever since Jacinda Ardern became Prime Minister, I have argued that many of the changes her Government are making around the residential rental sector are motivated partly by reducing the carbon footprint of rental properties. What was it she said in the lead up to the last election? 'Climate change is my generation's nuclear-free moment'. 

Who can blame her, it is an easy target? The condition of housing in the rental sector is notoriously poor and trying to keep your rental home warm in winter can be a costly exercise. The bigger the cost, the larger the carbon footprint. For Labour, targeting landlords is easy as many of them will not be Labour voters and it plays into the hands of their support base as well as coalition partners the Green Party. Not only is it costly to run a typical rental property, but the carbon footprint will be substantial. Probably a lot more than your typical owner-occupied property. What percentage of rental properties will have double glazing or have solar panels? I would be surprised if it was more than 1%.

Landlords have had a lot to grumble about recently, and many feel with some justification, especially after the latest set of proposed reforms announced by Associate Housing Minister, Kris Fafooi early this month. All of a sudden, getting rid of bad tenants just got a whole lot harder. However, as an industry, we have to accept the fact that the carbon footprint rental properties leave behind needs to be reduced and we need to start having serious conversations about how we can do this. For all of the apparent landlord bashing that many claims this Government has been guilty of, few can complain about that the Healthy Homes standards we are currently working towards. 

The Healthy Homes standards, for all of its faults around implementation and timeframe, is a step in the right direction towards building a more sustainable and healthier industry. Better insulated homes with less costly heating appliances will certainly help, but what more can be done?

One company leads by example

Natalie Wendell is leading the charge to make Property Management carbon neutral.

One company is certainly trying to make a difference. In September at the LPMA Conference held in Auckland, Natalie Wendell, the General Manager of Wendell Property Management spoke at length about their commitment to build a more sustainable and environmentally friendly industry. Her husband and head of LPMA New Zealand, Ashley Giles, also shared his insights into this in a recent interview we did with him before the conference. They are clearly committed to making a difference, Wendell Property Management makes a bold statement on their website with the aim of being completely carbon neutral by 2020. Not much time to get that done! However, it is refreshing to see a company within our industry making such a commitment. We all have to start somewhere.

So what does a carbon-neutral Property Management business look like? It can clearly happen, but who pays to make the properties more environmentally friendly and what else is involved to make it possible?

Firstly, you can look at your own footprint as an office and a company. The paperless office is a bit of a buzzword and I have yet to walk into an office without seeing lots of paper on desks but realistically, there is no reason why anything really needs to be printed. Digital signatures are becoming more and more common and widely accepted within the industry. There is no reason why Tenancy Agreements, Bond forms and Management Authorities need to be printed. Surely even the Tenancy Tribunal will move into the 21st century and move away from printing ream after ream of photographs and turning up with three printed copies of evidence.

Other things that can be done in your office are things such as installing solar panels and LED lights. This will also go a long way to reducing your footprint. Change the company car to EV’s rather than drive around in petrol vehicles is also a great way to reduce emissions. Wendell has already done this which is a great statement to make. 

Maybe one day, we will see Property Managers rushing to inspections and viewings on E-Scooters!

Natalie Wendell's tips on a more sustainable industry

  • Provide tools so people can assess their own usage. Click on FutureFit to assess your carbon footprint.
  • Moving your Property Managers to EV's has greater savings on fuel consumption.
  • When renovating, look at restrictions about the materials that you use and look for more sustainable and energy-efficient appliances
  • Encourage longer tenancies as they are better all round for everyone. Less movement means less carbon footprint
  • Waste management in rental properties. Ideas such as worm farms are a fun way to educate tenants and reduce landfill

What about the properties?

All of these small commitments to reducing your own carbon footprint will help, but the real issue is with the properties that we manage. It has been hard enough trying to get all of our landlords to invest in insulating their properties and we are going to spend the next two years battling with some landlords around the implementation of healthy homes standards. Can you imagine the response when a millennial Property Manager calls the baby-boomer landlord to inform them that their student rental in Dunedin leaves too big a carbon footprint and they had to reduce it? I suspect the response would be less than diplomatic!

With over 600,000 rental properties accommodating over one-third of the population, trying to make all these properties carbon neutral will take a monumental effort and it will also need a collective buy-in. Try getting every baby-boomer landlord to start investing in solar panels and double glazing for their rental properties. See how far you get before you start seeing them either sell up or move to another company. Getting a collective buy-in, will be nigh on impossible, especially whilst the majority of rental property is owned by the Boomers. This is why we need to start discussing how we do this now. All the issues that this Government has faced in terms of dealing with Kiwibuld and the housing crisis are not going to go away anytime soon as a lack of builders, expensive materials, costly and time consuming resource consents, as well as the current condition of the majority of rental stock are all issues that we will have to contend with for decades to come.

Millennial landlords will probably be more receptive to change, after all, it is their generation that is going to have to live with the effects of global warming. The reality is however, we simply cannot wait till the Boomers depart and leave it to the next generation of landlords. So what can be done?

Doing our research and talking with Wendell, the typical property in New Zealand will use approximately 8,000 to 10,000 KwH per year. Getting this down to zero is not going to happen in the short term but as an industry, we should be looking at ways we can reduce the usage. As it is highly unlikely that landlords will start retrofitting houses with double glazing, LED lights, solar panels and wind turbines, what can be done to help convince them that doing some or all of this is not only a good idea, but there are incentives to get them to do so?

Subsidise landlords to invest in renewable energy

As Christmas approaches, I cannot think too many landlords will be wanting to send Jacinda Ardern a Christmas Card. Many think that the Government is trying to force landlords out of the market. However, we need good landlords more than ever as what the last two years have demonstrated is that if you target landlords with extra compliance and cost, all you do is drive up rents and reduce the stock. This strategy has simply failed as twice as many families are now seeking emergency accommodation compared to when National was in power. Rents in some regions have gone up over 20% in two years and this is typically for a substandard product. Hammering landlords simply does not work. 

How will we get properties such as these in Dunedin to reduce their carbon footprint?

One idea we believe warrants exploring is subsidising landlords who invest in making housing more energy efficient. If landlords invest in solar panelling or double glazing, the Government could be able to offer them interest-free loans to get the work done. The landlord has to commit to renting the property for a minimum period of say seven to ten years to get the interest free loan and if they sell the property or move into it during that period, then they are charged interest on the loan. The benefits of this scheme are that landlords are committing long term to rent out their properties which give added security to the tenants. The other obvious benefits are that the property will be cheaper to run meaning that tenants will have the extra money in their pocket whilst the carbon footprint of the property is reduced.

As landlords can no longer offset losses on their rental property after the Government changes rules on negative gearing, this is an added sweetener and the savings the Government make on more tax will simply be reinvested in the interest-free loans. The property will increase in capital value whilst tenants will be healthier which means there will be further savings in medical bills and less of a strain on the system.

Focus on smart home devices to track consumption

One thing that the Healthy Homes standards have led to is the increase in companies conducting inspections in regards to what is required to meet the standards. One such company we had the pleasure of meeting was the Sustainability Trust in Wellington. This is a not for profit organisation committed to improving the quality of housing by making them more efficient. They are especially focused on the rental sector and their new tool for reporting on Healthy Homes is excellent. 

We will also see an increase in smart devices such as Tether which measures temperature, ambient light and Co2 emissions. Tapi with its artificial intelligence will make reporting and fixing maintenance issues more cost-effective and quicker. In short, it won’t be long before houses can talk and transmit messages to their Property Manager when there is an issue. Tenants will have devices that tell them how much power they are using in dollar value in real-time. All properties will be marketed with energy-efficient star ratings on them and if they fall below a certain star rating, then the landlord will be in breach of Landlord’s Responsibilities. All of this will help see houses run more efficiently leading to a reduction in the Carbon footprint.

Plant trees to offset emissions

This all sounds very exciting, but reducing every rental property in New Zealand to zero emissions is not going to happen soon. I struggle to see how it can happen by 2050 so what else can we do? 

David Faulkner talks to an audience of mainly Boomer landlords about the relevance of Greta Thunberg

Apparently, 10,000 KwH equates to approximately 7 metric tonnes of Carbon Dioxide emissions. With approximately 6 trees required per metric ton, that means the typical rental property will need about 40 trees to absorb the Co2 emissions. When I interviewed Ashley Giles and asked him what can we do to be Carbon neutral, I was half-joking when I suggested we just plant trees for every property we manage. I could tell by his response however that he was deadly serious when he said that this is exactly what we should be doing. 

His wife, Natalie in her LPMA presentation also made the suggestion that as an industry, wouldn’t it be a great initiative if we pulled resources together and started planting trees for every house we managed. A quick estimate would mean that we would have to plant about 10,000,000 trees to offset the Co2 emissions of 250,000 premises that the industry manages in New Zealand.

If however, we were able to work smarter and gradually reduce emission from say 10,000 KwH per annum down to say, 5,000 KwH within the next decade, then down to 2000 KwH by 2040, then we could be on our way to having a zero net gain in emissions through exciting initiatives such as tree planting to balance the effect of running a rental property. 

By this time, Millenials will be the landlords and they will understand the importance of providing an environmentally sustainable property to their consumers. Future tenants will simply demand it and the landlord will have a legal responsibility to provide it. Maybe, just maybe, Wendell are onto something. Every movement, every idea has to start somewhere and I firmly believe that to achieve great things, sitting in your comfort zone is not going to get you there. Many landlords currently will not buy into this, but when Greta Thunberg’s generation become landlords and enter the workforce, they certainly will.

Well done Wendell for starting the discussion, I’ll plant a tree or two to that!


Build to Rent: The future of renting in New Zealand?

  • Build to Rent Forum gives a glimpse of what renting will look like in the future

  • Time to embrace change and accept that renting has to evolve

Although renting in New Zealand may not be entirely broken, I have come to the conclusion that things desperately have to evolve and the status quo cannot remain. Well-intentioned, Government policy has only succeeded in making matters worse by driving up rents through an anti-landlord policy that has resulted in many small ‘Mum and Dad’ investors selling up. Landlords and the Property Management industry have to take some ownership too. If landlords had maintained their properties sufficiently, there would be no need for a Healthy Homes Guarantee Bill. And for too long many Property Management companies have tolerated poor landlords, scared of upsetting them in case they lose their business, continuing to manage poorly maintained and in some cases, non-compliant properties.

What we have now is a serious shortage of stock leading to many tenants paying over-inflated prices and in many cases, for a sub-standard second-hand product. What can be done to improve the situation?

Build to Rent; What is it?

One idea that seems to be growing traction is the concept of ‘Build to Rent’ or BTR as it is more commonly known. The BTR model is an emerging and fast-growing model, particularly in the UK.

Not to get confused with ‘Rent to Buy’ schemes which have been suggested as a potential fix to the Kiwibuild fiasco, BTR is large real estate developments specifically built as long term rental accommodation. With the vast majority of rental accommodation being owned by small scale, amateur landlords who often fail to deliver a good consumer experience, BTR looks like a viable option. 

How does BTR work?

David Faulkner was invited to be the Chair of the first Build to Rent conference in New Zealand

Developers and large scale investment companies will build purpose-built rental accommodation, usually in the way of apartment blocks or high-density housing. These developments will be sold to investors who will own shares in the development meaning that you do not own an individual unit.

The shareholders will then be paid dividends in way of rent payments, usually at a yield of around 4% per annum. The more shares you own in the development, the more you earn as a return. These units will then be rented out to the public, usually on a lease for between three to seven years. However, unlike a typical fixed-term tenancy, the tenant will be free to give notice when they choose. The benefits of this are obvious to tenants. They have long term security without the fear of being ousted by the landlord for whatever the reason may be. 

Tenants will also have the benefit of living in tailored apartments where maintenance requests will be dealt with immediately rather than having to deal with a private landlord who doesn’t want to spend the money and often takes the least expensive option available to them. Therefore the tenants in BTR accommodation will be living in a superior product, paying a set rent that increases usually in line with inflation and they do not have to worry about dealing with landlords who refuse or who cannot afford to maintain the property.

BTR properties are also pet-friendly and the tenants are free to make minor modifications as well. It all sounds too good to be true. 

The Build to Rent Conference

On the 19th of September, the very first Build to Rent Conference was held in Auckland and I was invited to be the Chairperson for the Conference. It was a huge privilege to be invited to do this and I also believed it would be a great way to learn about a concept I knew little about. The day was extremely insightful and I left the Conference believing that although it will not solve all our housing issues, it will certainly go some way to being part of a solution. To fix housing in New Zealand it will need a collective approach by a variety of state and private enterprises. A number of the presenters and panellists had had first-hand experience working with the BTR Sector and in particular, within the UK. One presenter had worked on the Wembley Park BTR development in London by the iconic Wembley Stadium whilst another had worked with the transformation of the Olympic Village in East London which had been converted into BTR accommodation. 

The model looks like a perfect fit for places such as Auckland and in particular Wellington, which is a city bursting at the seams.

Build communities that thrive, not ghettoes of crime

The key to success is ensuring that the product is built with quality materials and with a focus on building communities that support families. Apartment blocks will come with a number of shared facilities such as gymnasiums, swimming pools and shared community living spaces.

The infrastructure has to be right as well. Sufficient roads with places to park your vehicles, as well as close proximity to major transport hubs, are all key components that have to be taken into account. Other key factors that have to be right as well are things such as schooling, daycare centres, shops and entertainment. 

As a teenager growing up in the North West of England, I well remember some of the high-density high rise towers that became ghettoes of crime and poverty. This was predominately due to the lack of good infrastructure, employment issues and poorly maintained buildings. The same mistakes cannot be made in developing major projects like this in New Zealand.

One of the major talking points around the entire conference was that many Millenials no longer saw value in owning their own property and when you look at how society is evolving, you can see the logic to their thinking.

As a tenant, you no longer have the burden of paying rates, maintenance, insurance on the property and interest on mortgage payments.

They are not tenants, they are your customers

New Ground Capital is building this 230 apartment complex in Queenstown where 80 apartments will be allocated as long term rental accommodation

Paul Winstanley, Head of Research at JLL New Zealand and a man with extensive experience with BTR in the UK summed up the concept wonderfully well. He stated that you need to remove the word tenant and call them customers. This is their home and you have to respect this. Property Management becomes a concierge service for the occupants of the developments.

In another presentation, Dr Natalie Allen, Director of innovative urban strategy company The Urban Advisory demonstrated how BTR was working around different cities in Europe. Many developments had shared spaces which included kitchens, games rooms and community centres. These hosted a number of different functions for residents such as coffee groups for young stay at home parents, cooking classes, even whiskey tasting evenings. Neighbours got to know each other and communities thrived as a whole.

People lived in the developments for years which helped build a community spirit. Children went to the same schools and developed roots which benefited them in their upbringing.

Overall, the concept was working extremely well and the BTR proved to be a safe investment for any potential investor who took a long term approach to build for their retirement. With chic and modern designed complexes which had smart home devices to help run your apartment efficiently and environmentally friendly, it is very hard to find flaws with the concept of BTR. 

There are issues however that do need to be addressed.

Not a solution for the lower class

This is a concept aimed at the middle class and does very little to solve issues at the lower socio-economic end of the spectrum. This means that at the lower end of the market, where the majority of the problems lie within our societies, there is little benefit for the tenants of tired, cold and damp properties of suburbs such as Manuwera or Naenae.

These properties are generally in poor condition leading to health issues of the occupants who can never truly settle in their homes. The houses are typically reaching the end of their shelf life and are costly to run which has major consequences long term not only for the occupants but also on the environment.

There are also big question marks as to how the Residential Tenancies Act applies to BTR. Matt Heal who presented at the conference is already involved in BTR developments in New Zealand with housing projects in Auckland and Queenstown. Matt gave a wonderful presentation on how BTR works. When I questioned him around how their leases work he explained that tenants sign a fixed-term lease for three years but are free to give 90 days notice when they want to vacate. I’m not sure how this would be interpreted in Tenancy Tribunal if someone challenged this and applied.

What will become of the 90 days ‘no cause’ eviction?

I left the conference believing that our tenancy laws and our industry have to adapt and evolve. Many components of the Residential Tenancies Act are no longer fit for purpose and maybe the current Government is right to remove the 90 days ‘no cause’ evictions. However, Paul Winstanley did give a warning to the New Zealand Government. Do not hammer the private rental sector and in particular, ‘Mum and Dad’ landlords. This happened to a degree in the UK and it has also happened here which has added to the rental squeeze.

Build to Rent will not solve housing issues for lower-income tenants in places such as South Auckland

The biggest discussion point around the proposed changes to the RTA will be the removal of the 90 days ‘no cause’ evictions. Currently, the landlord does not have to give a reason if they want to give notice. Although I do really understand the concerns of landlords and there are serious health and safety concerns for Property Managers as well, I firmly believe that the benefit of ensuring that tenants have a safe and secure home outweighs the needs of the private landlord. The vast majority of tenants simply want a warm dry place to call home and they want to establish roots in a community. The threat of losing the property is always hanging over them. Issues that will be too difficult to solve will be if a landlord wants to sell the property vacant. I can understand why a landlord may want to do this and in my opinion, that is a valid reason to give notice.

I am comfortable with the removal of the 90 days ‘no cause’ eviction however certain conditions must apply. Tenancy Tribunal is slow, cumbersome and many would say inconsistent. We have to see serious improvements in regards to how our Tribunal system works. Although I have no data to prove this, I do suspect that there are huge inconsistencies with the decisions that come from certain adjudicators and if you have to go to Tribunal to be able to give notice to a tenant you need to have a fast, fair and robust Tribunal process. Would it be too much to try and get the wait time for a hearing down to one week? That is what we should be aiming for.

With over 32,000 applications to the Tribunal every year, of which 85% are made by landlords, this number will only increase if landlords have to apply to Tribunal to get a problematic tenant out and then, they have to have enough evidence to do so.

A great place to start with improvements is to remove rent arrears only cases from the slow laborious process that is the Tribunal. 69% of all Tribunal applications have a component of rent arrears in the application. Rent arrears only applications should be done remotely to save time and speed up the entire Tribunal process. Landlords should not have to wait to remove problematic tenants the same way tenants should not have to wait for basic repairs to be undertaken to their home.

BTR part of a wider collaborative approach

There will be multiple ideas as to how to improve housing and in particular security of tenure.  Owning your own home will be out of reach for many Kiwis due to high prices and the inability to save due to so much of their income going on rent. However, BTR will have an overall positive effect. The concept may be able to be taken out of the cities into some of our provincial centres such as New Plymouth, Tauranga and Nelson, however, developers will need to do their research before undertaking such projects. 

The major take away point of the entire Conference was this. We simply have to look after tenants better than how we currently do. They are paying consumers and they deserve better. There will always be bad tenants as there are bad landlords, but overall if you treat them with respect and dignity, they will respond in kind. We all have to adapt and work together to improve the renting experience in New Zealand.


Interview with Ashley Giles of LPMA New Zealand

The LPMA Conference of New Zealand is just around the corner in September. We decided to catch up with the head of LPMA NZ, Ashley Giles who is also part owner of award-winning Auckland based company Wendell Property Management. We chew the fat about the state of the industry in New Zealand, what the future of Property Management and housing looks like as well as how to run a carbon zero Property Management business. We also have tickets to give away for LPMA (NZ) 2019!!


Is this man the biggest threat to the Property Management industry?

  • Wellington City Council set to become a Property Management company if Mayor Justin Lester is re-elected

  • A bold new initiative to control rents or an attack on free enterprise as Lester looks to control the market

Lets put our cards on the table before we start. Wellington is the city I call home. I have lived here for five years with my family and we absolutely love the place. Yes, it has its pitfalls. The city feels like its crumbling as building after building is closed due to earthquake risk. The infrastructure and road network no longer feels as though it is fit for purpose and trying to get across the city can be an absolute nightmare. However, we live in a fantastic beautiful and vibrant city with plenty to see and do. The views are stunning, the harbour is picturesque and there is no shortage of great walks, vibrant coffee culture and some amazing craft beers. 

Wellington, however, has a big, big problem.

Mayor of Wellington, Justin Lester is proposing a radical solution for the Capital's rental crisis.

A perfect storm for rent increases

Rents have skyrocketed in the city with one councillor stating that Wellington will become a 'ghetto for the middle class' if rents continue to rise. And rise they have to unprecedented levels that widen the gap between the haves and have nots. According to Homes.co.nz, the capital has surpassed Auckland for rents with median rent sitting at $658 per week whilst Auckland is now at $627 per week. The situation we have now was entirely predictable and anybody with a basic understanding of economics could foresee what was going to happen.

Nearly two years ago on December 2017, I spoke at an investment seminar in Wellington saying that we were creating a 'perfect storm' for rent increases in the capital. I argued that the following would cause rents to increase by 10% over the next 12 months.

  • An anti-landlord Government making changes to legislation and taxation in an attempt to force landlords to sell properties and subsequently reducing stock.
  • Letting fees being put on to landlords who will in turn increase rents.
  • First-year student fee's being wiped meaning more people heading to the universities putting a greater demand on rental accommodation.
  • A Labour-led Government traditionally leads to an increase in governmental jobs putting further demand on rents and house prices in the capital.
  • A lack of building activity within the residential sector and a shortage of tradespeople leading to an increase in costs for people wanting to build.
  • Legislation forcing landlords to invest in their rental properties with the inception of the Healthy Homes Guarantee Bill.
  • An estimated increase in the population of about 65,000 over the next 30 years, contributing to demand outstripping supply.

There is no satisfaction in gloating and saying 'I told you so' as it was so obvious that this was going to happen. Anyone with a grasp of reality could have predicted this. A new government came to power with a philosophy that everyone would live in affordable, warm and dry homes. The subsequent outcome has lead to a shortage of stock and forced rents to increase to dangerously high levels. 

Milton Friedman would probably turn in his grave if he saw what Mayor of Wellington, Justin Lester was proposing

The public sector looks to control the market. Will it work?

In February 2018 I wrote an article about the unforeseen consequences that this well-intentioned ideology would have. I quoted the famous American economist Milton Friedman who famously once said - ‘If you put the federal government in charge of the Sahara Desert, in five years there’d be a shortage of sand.’

Clearly, Justin Lester, the Mayor of Wellington doesn't share Milton's views as the public sector is threatening to intervene in the private rental market. If Lester is re-elected as Mayor, the Wellington City Council are poised to become the first public sector Property Management company for private landlords and it will not be used as social housing. It will be renting properties on the open market in an attempt to control rents in the city. 

A trial for future changes in legislation?

It is a bold, ambitious and in our opinion, a highly controversial plan.

What the Mayor is proposing is that private landlords lease their properties to the council for a period of 10 years at market rent. The council would then sub-lease the properties on the open market at a reduced rate in an attempt to control the market. The council will have a clause written into the agreement that the rents will only increase in line with inflation for the duration of the tenancy. One suspects that this Labour based council will guarantee the lease to the tenants for a period of 10 years but they will also give the tenants the ability to give notice so tenants feel as though they have security and flexibility. Great news if you are a tenant.

This could be the blueprint for radical reform to the Residential Tenancies Act as Lester and his council could be acting as a guinea pig for the Labour-led coalition as they struggle to get a handle on the housing crisis in New Zealand. 

If they can pull it off, and it’s a very big if, other councils may follow suit which would be a major threat to Property Management companies across the country.

There are over 10,000 bonds lodged a year in the capital with rents increasing annually by approximately 10%. Inflation is growing at 1.5%

Thousands of properties required to make a difference

What will it take to make the idea work?

The council would have to sign up literally thousands of rental properties to be in a position where they can influence the market. Also, will ratepayers be happy about subsidising a giant public property management company?

The costs of running such as beast would be substantial. 

If you subsidised rents by $50 per week and let's say the council have 2,500 properties, that is a bill of $6,500,000 that the ratepayers have to pick up. And this is based on achieving 100% occupancy with no defaults on rent.

Then you would have the operational costs of running such a project. Let’s say you have 30 staff working on the project as well as all the typical expenses, I doubt you’d get much change on $10,000,000 per annum.

For this to have any impact on the rental market, we have to work out how many properties the council would have to manage to make an impact on rents. Let's look at how many rental properties there are in Wellington and to do this, we have to look at statistics from the Tenancy Services.

Wellington city has a population of about 216,000. This excludes the wider region which has a population of nearly half a million. We have collected a list of bonds lodged in Wellington over the last 12 months from statistics on the Tenancy Services website. From the period of August 2018 to July 2019, over 10,000 bonds have been lodged across the city with median rents increasing by 9.6% over the same period. With annual inflation running at a stagnant 1.5%, you can see the predicament facing the city. Increases by this amount are unsustainable.

Bonds Lodged Wellington, August 2018 to July 2019: Over 10,000

If the average length of a tenancy is about 2.5 years this would mean that Wellington would have approximately 25,000 to 30,000 rental properties owned by the private rental sector. For the Council to have any influence on the rental market, it would need to have secured at least 10% of these properties to have any influence on the market. That would mean 2,500 to 3,000 rental properties would be acquired by around 2,000 private landlords. 

If they can pull this off, expect to see Justin Lester walking up on stage at REINZ and LPMA Award ceremonies in 2020 taking out the Business Development Manager of the Year award!!

What could the impact be for the Property Management industry?

If, and it is a very big if, the council are successful, Property Management companies may find themselves at risk, and not just in Wellington as other councils may replicate this initiative. Why would you pay 8 to 10% for your property to be managed when the council will do it for free for 10 years and guarantee the rent. Think about it! If you are a landlord with no intention of selling for at least the next 10 years, on the surface, it looks like a no brainer. I simply give the council my property, they pay me market rent for 10 years and I do nothing other than pay for the odd bit of maintenance.

But is it the state's job to compete with the private sector? Surely this is an attack on free enterprise. One could even argue it is a step towards socialism. The state taking over the running of a sector that has been dominated by private Property Management companies is a scary thought.

Running a business is far from easy and the prospect of trying to compete with a giant subsidised Property Management company offering a free service for landlords is a daunting prospect for many business owners across the capital.

As an industry, we have been constantly under attack and now it appears that we are being blamed for over-inflated rental prices. The reality is basic economics along with added costs have driven up rents and this idea feels like the left-wing of the political spectrum is clutching at straws.

Why stop at rentals? 

The council could become a giant real estate company, buy properties off vendors at market price and on-sell them at a reduced rate in an attempt to control house prices. All this subsidised by the Wellington ratepayers of course. We could have a Wellington City Council petrol station company, subsidising petrol or how about a Wellington City Council power company, offering reduced power prices for tenants. The list goes on and on.

Increase supply and remove red tape

If the Wellington City Council really wants to help, then the focus should be on increasing the city's supply and making sure that the right type of properties are being built. New Zealand desperately needs three-bedroom housing and plenty of it. All across New Zealand, with the exemption of Christchurch, we have seen the wrong types of properties being built. Ironically, Christchurch is the one city in New Zealand that is relatively affordable and that is purely down to supply meeting demand. 

Look at the apartment market in Auckland, it is saturated with one and two-bedroom apartments, there is no shortage of property there. If it isn’t apartments, then its four-bedroom McMansions in the suburbs that have been built. We need to look at future demographics and build what our population needs. Plenty of compact three-bedroom housing close to the city with strong infrastructure to keep people moving is the key to any city’s success.

Instead of trying to control rents, why not subsidise landlords to install solar power?

Rather than subsidising rents, why not reduce the cost of obtaining consents or subsidise landlords to put solar power on rental properties to reduce the operational costs for tenants. It is in nobodies interest other than a handful of greedy landlords to have over-inflated rents in any of our cities and towns. If people have no disposable income, the economy will grind to halt and we will find ourselves staring down the barrel of a recession. 

So my advice to Mr Lester is to learn from your mistakes. At the last election, he campaigned on introducing the Rental Warrant of Fitness and look at how that turned out? You could count the landlords who used it on one hand.

As demonstrated, the cost of operating such a beast will be extensive and who is going to train them on how to do it? If the council acquired a flood of properties, someone has to do the basic donkey work that a Property Manager does day in day out. Who foots the bill if a property is trashed or damaged? And do ratepayers really feel happy that their hard-earned income is spent in such a frivolous way?

Yet again, this is an example of an idea thrown up out of desperation without proper consultation with industry experts. But hey, they know best, don’t they? Just look at the success of the Warrant of Fitness.

One understands the motives and we wholeheartedly agree that rents increasing at such a rate will have damaging consequences for the region as a whole. This idea, however, will not work. Increasing the supply and improving the current rental stock is the only thing that will work. 

 


Interview with a Legend: The career of Bob Walters

He has been called the Godfather of Property Management. Bob Walters is simply, a Property Management legend. After nearly half a century working within the industry, we talk to Bob Walters about his career within the Property Management industry. From his early days, door-knocking in Western Sydney to collect rent in the '70s, all the way through to the beginning of LPMA and his journey to becoming the leading trainer and consultant both sides of the Tasman. Bob has simply done it all. In this 45 minute interview with Director of Real iQ, David Faulkner, Bob talks about his journey and gives an insight into what he believes the future of Property Management will look like.


Will the Rental Warrant of Fitness finally find a healthy home?

  • Will New Zealand follow suit of Wales and regulate landlords?

  • We believe the Rental Warrant of Fitness will be used as a tool to measure enforcement of Healthy Homes standards

After much discussion and debate, finally, we have the proposed standards announced for the Healthy Homes Guarantee Bill (HHG). The deadline will come a lot quicker for most landlords than what they will realise, particularly because any fixed term tenancies will have to comply within 90 days of a tenancy being renewed post 1st July 2021. We actually believe that it may not be achievable if landlords up and down the country do not act now and in particular with moisture barriers and insulation top ups.

However, what has yet to be decided is how the Healthy Homes Guarantee will be enforced and policed.

The Tenancy Compliance and Investigation Team (TCIT) are simply not going to have the resources to ensure that all properties comply with the HHG standards and an alternative tool for measuring compliance will have to be developed and implemented to ensure that landlords fulfil their obligations under the new standards.

This is where the Rental Warrant of Fitness (RWOF) will likely finally find its home.

Wellington introduced the voluntary Rental Warrant of Fitness scheme. Take up has been virtually zero

Whilst the dates have been confirmed for compliance, Government is still to decide on what documentation the landlord will have to provide to prove compliance. However, the obvious document to use will be the RWOF which was developed by Prof. Phillipa Howden-Chapman and her team at Otago University. The RWOF has been over a decade in the making and has been financed by public funding. It was developed due to the poor condition of many of our rental properties across the country and the obvious health concerns of people living in these properties. It has powerful support within the political circles both at a local and national level.

Wellington City Council launched a voluntary RWOF scheme after Mayor Justin Lester was elected nearly three years ago, though it has to be said, take up has been embarrassingly poor and the scheme can only be described as a flop. However, that is not to say that the scheme will not work or will not find a purpose if it is made compulsory. The HHG standards will have to be monitored and policed with implementation being registered, and the RWOF could be the perfect tool to do this.

How will the Rental Warrant of Fitness work?

 The RWOF manual makes a recommendation that rental properties will need to be assessed every three years and the concept is similar to the Warrant of Fitness you undertake for your car. At this stage, the RWOF covers 29 separate criteria and is a simple pass/fail concept, meaning that the property will have to clear every one of the 29 criteria to pass.

Although the criteria will have to amend slightly to cover off the Healthy Homes standards, it will become the perfect tool to cover off compliance of rental properties. Similar proposals are being made in the UK where we see more compliance around rental properties. Each property has to have an Energy Performance Certification (EPC) and this must reach a minimum standard in order to be rented out. On top of this, there has been a proposal that all rental properties undertake a ‘Property MoT test’ to tackle sub-standard rental properties. Here in New Zealand, we seem to follow similar trends in regard to the UK property legislation and we see no reason why this wouldn’t be the case here.

What the process may look like

  • At commencement date of standards, all rental properties will have to undertake the RWOF to assess compliance.
  • If they pass, a certificate of approval will be issued and displayed so any tenant or prospective tenant will see that the house is compliant.
  • If they fail, the landlord will be given a timeframe to ensure that the property comes up to standard or they will be in breach of Landlords Responsibilities and may face exemplary damages as the house will not be fit for purpose.
  • If the house continues to fail the RWOF, Tenancy Tribunal may issue a work order to ensure that maintenance is carried out so it will pass or else it will not be able to be rented.
  • Assessors will be trained, certified and registered. These potentially could be Property Managers though there may be issues around a ‘conflict of interest’ if they are managing the properties that they are assessing for compliance.
  • Every three years, a WOF will be undertaken which will include measurement of insulation to ensure that any degradation is identified and ‘top-ups’ are undertaken as and when necessary.
  • Tenanted properties that do not have a WOF undertaken will be ‘red-flagged’ and will be reported to the Tenancy Compliance and Investigation Team.

Should a national database of landlords be developed?

 The obvious issue that arises with the implementation of such a policy is how do you identify the rental properties? The likelihood is rogue landlords will simply just ignore the scheme and will take the punt that they will not get caught out. With an estimated 400,000 landlords in New Zealand, there will be obvious issues around monitoring and identifying everyone. If only a handful of landlords participate in the scheme, then it will lose all credibility as has been the case in Wellington.

One solution could be to have a national register of landlords who will either have to undergo some basic training under the Residential Tenancies Act or they will have to engage a fully qualified Property Manager.

Once they have undertaken the training, landlords will go onto the national register as will their properties. Property Management companies who manage properties for landlords will also have to register the properties under management as well.

Wales regulates landlords

There is a similar scheme that has been developed in Wales. Rent Smart Wales was set up in 2015. If you are a landlord or an agent for the landlord, you have to be licensed under the Welsh Assembly to operate and this means compulsory training.

Frank Webster from the UK explains how Rent Smart Wales works at the Generation of Change Conference

There are clear benefits to implementing such a scheme. This means that landlords are better educated and understand what their rights and responsibilities are, and the initiative seems to have had some success. If a landlord does not want to undertake the training, they simply engage a qualified and registered Property Manager to take on the responsibility. The upshot is that tenants will be better serviced living in better quality rental properties and cowboy operators will be identified and put out of business.

There are other benefits as well.

At the moment, there is limited data available to monitor the actual real-time number of rental properties in New Zealand. Such a scheme will mean that regulators will be able to identify potential issues around supply and demand for rental properties and whether there are any trends around lack of compliance. We will also be able to identify easily what percentage of the housing stock is in the private rental sector.

If a landlord fails to register under this scheme, they will face exemplary damages, though the penalties landlords face at the moment simply do not go far enough.

At the recent Generation of Change Property Management Conference in Wellington, the keynote speaker from England, Frank Webster highlighted that authorities in the UK now have the ability to fine non-compliant landlords on the spot with penalties of up to 20,000 GBP. In New Zealand, landlords face a fraction of this under the Residential Tenancies Act and some landlords will analyse the cost versus risk and simply not bother. If penalties were more aligned to the UK, then many landlords will see the risk being too great and will comply.

The Rent Smart Wales scheme could be the answer to regulating landlords

There is obvious concern that many landlords may just sell up, leading to a greater shortage of rental properties across New Zealand. This is already happening, leading to unprecedented rent rises in many of our centres. In some central suburbs of Wellington, median rents have increased by as much as 25% in the last twelve months. This is unsustainable and not healthy for the country.

Other risks are that landlords will choose to use platforms such as Airbnb as there are not the same legislation requirements that landlords have to abide by. Governments around the world are tackling the Airbnb conundrum as this is also contributing to a shortage of rental accommodation in other places around the world. Our Government will need to be decisive to ensure that we do not see too much stock moving to the short-term market. Taxation and limits around the use of Airbnb are ways that cities and countries are dealing with this issue.

Are we overcomplicating the issue?

Throughout all the hot air that comes from both sides of the debate, there is a simple question that seems to be ignored.

Is it too much to ask that every New Zealander lives in a warm, dry and safe home?

In our opinion, this should not be too much to ask. Every Kiwi should be able to live in a home that is warm and dry.

If you are a landlord who thinks otherwise, then in you should really sell up and put your money elsewhere. If you are a Property Manager, leave the industry and get another job.

In our opinion, the Government has got the standards right and any good landlord who maintains their property should have no issue in complying with the new standards. The timeframe may be an issue as most tenancies we see are fixed term, meaning that compliance will be closer to 2021 rather than 2024. We also would not be surprised to see longer fixed term tenancies being utilised more to take the pressure off landlords so they can comply by 1 July 2024.

Places like Dunedin or in the deep south may struggle, especially many of the old student properties and we have highlighted this in previous articles, but long term, New Zealand as a whole will benefit.

What we have to ensure is that compliance is effectively enforced, and this will not be easy to do. The whole credibility of the standards will be put at risk if we fail to enforce these standards and New Zealand’s most vulnerable citizens continue to live in substandard accommodation.

The Timeline to compliance

Type of tenancy or landlord
The date of compliance
Private Rental Sector
  • The rental property will have to comply with the standards within 90 days of the renewal or start of a new tenancy after 1st July 2021.
  • All other cases will be 1st July 2024
Boarding Houses
  • A single compliance date of 1 July 2021
Tenancies under Housing New Zealand
  • These tenancies must comply by 1 July 2023

The Standards for the Healthy Homes Guarantee Bill

Standards Requirements
Heating The minimum achievable indoor temperature must 18-degree Celsius. A fixed form of approved heating in living spaces
Insulation The minimum level of the ceiling and underfloor insulation must have a minimum thickness of 120mm
Ventilation Ventilation must include openable windows in the living room, dining room, kitchen and bedrooms. Also, an appropriately sized extractor fan in rooms with a bath or shower or indoor cooktop
Moisture Landlords must ensure efficient drainage and guttering, downpipes and drains. If a rental property has an enclosed subfloor, it must have a ground moisture barrier if it’s possible to install one
Draught stopping Landlords must stop any unnecessary gaps or holes in walls, ceilings, windows, floors, and doors that cause noticeable draughts. All unused chimneys and fireplaces must be blocked.