Bad time for costly rental property standards

A housing shortage is the wrong time to whack rental property owners with thousands of dollars of additional compliance requirements, Tenancies War spokesman Mike Butler said today.

The new standards, announced today, will require rental properties to have a living room heater, insulation above the current requirement, extractor fans in bathrooms and rangehoods in kitchens, a ground moisture barrier to stop rising damp, adequate drainage, as well as draught-stopping tape.

The additional insulation requirement is the biggie and it looks like Housing and Urban Development Minister Phil Twyford has let the insulation industry write the rules, Mr Butler said.

Official advice to the Minister was that the optimum cost-benefit is to the 1978 standard of R 1.9 in ceilings, as currently required, and anything over that has diminishing benefit, he said.

Moreover, underfloor insulation reduces heat loss to such a small degree that it is wasted money, he said.

Yet the Minister has gone ahead and whacked rental property owners with the most extreme 2008 option of R 2.9 in ceilings, which means that all insulation will have to be redone, which must be a dream result for the insulation industry, Mr Butler said.

Today around the country there will be rental property owners who thought they were doing the right thing by installing insulation as required who now find out that they have to do it all over again, he said.

Claims by the Minister to justify his standards turned out to be wrong, Mr Butler said.

The World Health Organisation never recommended a minimum indoor temperature, as the discussion document claimed.

The Building Research Association of New Zealand found that only 2.7 percent of renters thought their dwelling was cold and damp, which is hardly a crisis, Mr Butler said. (See The proposed healthy homes regulations: an assessment http://www.tailrisk.co.nz/documentlist)

There is not a crisis in the condition of rental property. There is a crisis in the availability of rental property and Mr Twyford’s extra compliance requirements will make this worse, Mr Butler said.

“Owners have three options: Absorb the extra costs, raise rents, or sell. Ask any accountant. Owners are selling,” Mr Butler said. “Then where will renters live?”

Stop the War on Tenancies is a group that since last October has been highlighting the evidence that successive governments have ignored while creating rental property policy.

Capital gains tax plan not geared for capital losses

The fact that the Tax Working Group wants to ring-fence capital losses shows that they haven’t come to grips with how a proposed capital gains tax would work when assets are losing value, Tenancies War spokesman Mike Butler said today.

“Property values have been increasing for a relatively long time so that the proposals released today appear to have assumed that prices will continue to increase forever, creating a goldmine for the Government”, Mr Butler said.

But the golden weather for investors is ending. The proposed capital gains tax comes on top of a raft of punitive changes for rental property owners which make property investment no longer attractive, driving property values down, he said.

Talk to any accountant. Now, many owners are unloading rental properties that have become loss-making liabilities and the Tax Working Group appears to have resorted to loss ring-fencing to avoid giving capital loss refunds to investors, Mr Butler said.

“It won’t be a matter of investors timing the sale of assets to their advantage,” he said.

“It will simply be a matter of investors selling for whatever they can to stop haemorrhaging cash to a loss-making investment,” he said.

We already have 116,000 negatively geared rental property owners who declare an average annual loss of $7138 who will sell if losses are ring-fenced if and when the Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Bill becomes law.

Without those 116,000 owners, by the time a capital gains tax may become law the property investment environment will be vastly different than it is now with many selling at a loss, he said.

Weakness on capital losses is just one of the many problems with the proposal.

Capital gains will be charged at 33 percent for the majority of taxpayers – one of the most punitive capital gains tax regimes in the world, and more than twice the rate proposed by the Labour Party at the 2011 and 2014 elections.

The announcement of the proposed new tax was badly timed and coincided with news that more than 10,000 people are now waiting for a state house when under the previous government it was around 4000, he said.

Where will renters live when rental properties will be even harder to find than now? Mr Butler said

Stop the War on Tenancies is a group that since last October has been highlighting the evidence that successive governments have ignored while creating rental property policy.

What evidence-based ‘healthy home’ standards look like

Evidence-based rental property standards would require ceiling insulation to the 1978 standard, no subfloor insulation, and nothing more, Tenancies War spokesman Mike Butler said today.

Advice to the Government obtained under the Official Information Act (See http://tenancieswar.nz/healthy-homes-legislation/)  shows no support for the claim that heat pumps, extra insulation, extractor fans, draught-proofing, and moisture-proofing, which soon may be imposed under the Healthy Homes Guarantee Act, would keep 10,800 children out of hospital each year.

The World Health Organisation never recommended a minimum indoor temperature, as the discussion document claimed, and the Building Research Association of New Zealand found that only 2.7 percent of renters thought their dwelling was cold and damp, which is hardly a crisis, Mr Butler said. (See The proposed healthy homes regulations: an assessment http://www.tailrisk.co.nz/documentlist)

We already have standards for rental property and if Housing and Urban Development Minister Phil Twyford followed advice, the standards he would confirm under regulation would be thus:

  • Heating: A tenant should be able to use whatever he or she chooses to plug in so long as it is safe. Both fixed and portable heaters can deliver sufficient warmth. Last year, Housing New Zealand found that a number of tenants would not use 15,000 fixed heaters recently installed because they were not what they were used to. (see  http://tenancieswar.nz/2018/10/09/complaints-show-problem-with-heaters-in-rentals/?fbclid=IwAR3uFj9j1V95oRmjDl1Q_TbFpWNXJxXMfpFtJO1aWezlB-JxOxipfoG2PxE ) The high price of electricity is the greatest barrier to poor people turning on the heater, not the presence or absence of a heater. Wood-burners are useful for those who prefer a fire.
  • Insulation: Ceiling insulation to the 1978 standard of R1.9 for most of the North Island should be the standard because it has the greatest impact and anything over that has diminishing cost-effectiveness. Underfloor insulation is a waste of money because it hardly reduces heat loss. Owners forced to install it should be compensated.
  • Ventilation: Windows that may be opened is a basic standard of ventilation and have been required since 1947 under Home Improvement Regulations of that year. There is no solid evidence that mould is a serious issue in rental properties.
  • Draught-proofing: Residents will protect themselves from draughts when they need to and any serious issues may be remedied through discussion with the owner. Requiring draught-stopping tape in gaps greater than 3mm in 588,700 rental properties is absurd.
  • Moisture-proofing: No evidence has been offered to prove all rental properties suffer from rising damp. The evidence is that 2.7 percent are perceived as cold and damp. Dampness problems are remedied by discussion with the owner or through the Tenancy Tribunal.

The outrageous $4000 dob-in-your landlord incentive imposed by the previous government should be dropped, he said.

The attempt to blame housing-related hospitalisations of 10,800 children annually on the condition of 588,700 rental properties while ignoring 1.1 million owner-occupied properties and not accounting for overcrowding is deceitful, he said.

Up to $7000 of extra spending per property may be required if every rental property required a heat pump, extra insulation, extractor fans, as well as the suggested draught-proofing and moisture proofing and this would have little benefit, Mr Butler said. (See http://tenancieswar.nz/2018/11/)

The money for extra compliance can only come by way of a rent increase from the tenant who is in effect being forced into buying extra appliances and building material without necessarily wanting it, he said.

A more-effective way ahead should be driven by owners and tenants in which any issues with heating, insulation, ventilation, draught and moisture proofing could be sorted out by agreement, he said.

Stop the War on Tenancies is a group that since last October has been highlighting the evidence that successive governments have ignored while creating rental property policy.

116,000 loss-making rental property owners may sell

Confirmation from Inland Revenue last week that 116,000 owners declared a loss on earnings in the 2016/17 tax year shows that ring-fencing of tax losses for rental properties could soon result in 116,000 fewer rentals, Tenancies War spokesman Mike Butler said today.

“The response to my request under the Official Information Act also said that the average loss declared by each owner was $7138, and that includes both individual and non-individual (trusts, partnerships and companies) taxpayers”, Mr Butler said.

Owners who run a rental property at a loss do so to claim the losses against tax paid on their day job to get a refund.

“Advice to the Government (see http://tenancieswar.nz/other/loss-ring-fencing/)  about the impact of loss ring-fencing has proceeded without knowing how many private rental property owners are negatively geared”, he said.

“A figure of 40 percent was given in that advice without stating the total number of private rental property owners. The 116,000 number is much higher than I expected”, he said.

“Once an owner has to top-up his or her rental with $138 every week from the day job with a greatly reduced chance of ever getting it back, it won’t be long before that owner decides to sell,” he said.

“Inland Revenue and MBIE advised the Government early last year that ring-fencing losses would result in the sale of an unknown number of properties to owner occupiers, reducing availability of rentals and increasing rents by around 10 percent”, Mr Butler said.

MBIE thought the housing shortage would increase by 16,600 over the two years from 2018, accounting for 6000 Kiwibuild homes over that period.

“The briefing papers were done under the expectation that KiwiBuild would deliver 6000 dwellings in two years”, he said.

But just three weeks ago, Housing and Urban Development Minister Phil Twyford said he could not guarantee that the Government will meet its target of having 1000 KiwiBuild houses built by July so the 6000-extra-dwelling figure is off the table, he said.

“If every negatively-geared owner sold to an owner-occupier, and if each owner sold one property, the shortfall would be more like 116,000 properties, not 16,600”, he said.

It’s decision time for negatively-geared owners, but it is also decision time for the Government that may unwittingly create a further massive shortfall of rental properties by not listening to advice, he said.

Stop the War on Tenancies is a group that since last October has been highlighting the evidence that successive governments have ignored while creating rental property policy.

Submissions on the bill close on February 28. To make a submission, go to https://www.parliament.nz/en/pb/sc/make-a-submission/document/52SCFE_SCF_BILL_82431/taxation-annual-rates-for-2019-20-gst-offshore-supplier