Are Govt controls the answer to the ‘broken’ housing market?

By Peter Lewis

In the time since the recent British elections the results have received little in-depth coverage and analysis in our local media. Apart from the shocked surprise at the outcome by many of those closet-socialists active in the media, most commentators have shrugged their shoulders and gone back to analyzing Trump.

Yet it is interesting to look not only at the overall result but the ebbs and flows of the various UK electorates and the population profiles within and consider how this may reflect potential changes in the New Zealand political arena.

Generally, in mature democratic democracies, politics becomes a competition between two major political parties. For most of recent history, these parties tend to comprise a Conservative party mainly supported by the farming and white-collar business and professional sectors who promote policies intended to create wealth, and a Socialist party supported by blue-collar voters and those who derive their income from the public purse who promote policies intended to distribute that wealth.

However, we now see that these distinctions are breaking down, not only in those who support such parties but also within the parties themselves. This has been coupled with the recent advent of a professional political class. In the past, an individual would move out into the working world, achieve some success and reputation within that sphere, and then be sufficiently motivated both by their own experiences and the experiences of those around them to progress into political action. These people, those who possess actual real-world experience, have now been replaced by theoreticians, those who have formulated their ideas and beliefs second hand by reading, listening and absorbing the pre-packaged opinions of others.

The quite rapid changes in the nature of employment have hastened these changes. Gone are the days when you joined a major employer on entering the workforce and stayed there, secure and well-fed, until you eventually achieved the gold watch and the retirement cheque. As well as now moving from company to company, perhaps from occupation to occupation, many people have also ended up in the gig economy. Self-employed contractors are not now just highly qualified professional experts and consultants, they can be Uber drivers, Airbnb operators and cleaners.  This is insecure employment, vulnerable to any sudden changes in the political or economic environment, and carrying few if any employment benefits.

We can now see that, in the UK elections, many traditionally blue-collar voters abandoned Corbyn’s socialist promises to nationalize this and tax that and opted for more certainty, less change, and (by leaving the EU) reducing the risk of Johnny Foreigner coming in and stealing their jobs. The number of voters choosing this option vastly outnumbered those holding secure office jobs in large prosperous cities who’d like to remain in the EU because it makes it just so much easier to pop over to Majorca for their summer holidays. Thus the working class are now tending to vote conservative while the educated and professional middle class veer towards socialism. Generally, it would seem that  more insecure you feel about your current status in society these days the more conservative you will become.

Our own two socialist parties now strongly exhibit this trend. Gone are the muscular horny-handed manual workers from both the political and electorate ranks of the Labour party, while the ranks of the Greens have, right from the start, been heavily populated by schoolteachers and academics. These days, to become a Labour party MP, forget the hammer and sickle, move from University into either an MPs support staff role or take a job in an NGO, cultivate contacts within your local part branch, and prepare to pounce when the time is right. For National, there is a similar route – possibly moving from University though a top law or accounting firm and on to the governing board of a multinational company before gracefully accepting the offer of a seat in the Beehive.

Thus we now get a Government almost entirely consisting of people who have grown up and matured in a social and economic hot-house, the path smoothed out in front of them and with minimal exposure to the vicissitudes and tribulations of the real world. Having always been able to view humanity from the top down with an air of supreme detachment, they are then able to formulate and enunciate grandiose plans that are quite detached from reality and practicality. The result? –  we end up with lofty promises to end homelessness, reduce child poverty and build 100,000 affordable homes within ten years. After hubris comes Kiwibuild.

Our housing market may well be ‘broken’, as Shamubeel Eaqub claims. However, is introducing a plethora of controls, regulations and taxes the answer? Real world experience indicates probably not. You and I fortunately live in a country where most of us have access to a vast array of clean and generally wholesome reasonably priced food available in almost unlimited quantities. Sure, there are rules around food storage, handling, and other health-related issues, but there is no overriding and controlling Ministry of Food arranging the supply and marketing, it comes to us by the magic of the free market. Yet in societies where rationing, government control, ten year plans and state food markets are imposed we invariably find food shortages, endemic corruption, high prices and poor customer service, sometimes even ending in famine.

So if freeing up the market so that it expedites efficiency and supply works for the food industry, why would it not also work for housing? Do we really expect that the current plethora of limitations, consents, restrictions, imposed costs, red tape, tax penalties, and over-the-top requirements will provide a responsive and freely functioning lowest possible cost housing and residential rental market? And if it does not, will imposing even more of such demands as prescribed by those MBAs and Ph.Ds now holding the reins of power prove to be the solution?

Back out in the heat and dust of the real world, well away from the air-conditioned four-windowed lofty high-rise corner offices of downtown Wellington or Auckland, I suspect not.

Peter Lewis is the vice president of both the Auckland Property Investors’ Association and the New Zealand Property Investors’ Federation. 

Damage, meth tinkering tangles tenancy law

Political meddling with the Residential Tenancies Act regarding damage to rental properties, meth contamination, and living in garages, has just made tenancy law more complex and litigious, Tenancies War spokesman Mike Butler said today

Residential Tenancies Amendment Bill (No 2), which seeks to address issues related to liability for damage, methamphetamine contamination, and living in garages, passed its third reading on Wednesday. The bill:

  1. Makes tenants liable for careless damage up to four weeks of rent or their landlord’s insurance excess, whichever is lower.
  2. Extends the definition of “residential premises” to ensure that all premises which are used or intended to be used for residential occupation are covered by the Residential Tenancies Act,
  3. Provides yet another regime to address any health risks of any harmful substance in rental properties, including methamphetamine.
  4. Enables tenancies where contamination has been established to be terminated in two days.

“The architect of this bill, Nick Smith, and the current Minister responsible, Kris Faafoi, should explain how limiting a tenant’s liability for accidental destruction of, let’s say, a $500,000 house, to four week’s rent, is either fair or just,” Mr Butler said.

Tenancy Tribunal hearings concerning damage will become more complex and many more cases will be appealed through the court system, as you can see from the following clause that says:

(a) it is for the landlord to prove—
(i) that any damage is not fair wear and tear; and
(ii) that any destruction or damage occurred in circumstances described in subsection (1)(b); and
(iii) that any insurance moneys are irrecoverable for the reasons described in subsection (3A)(a); and
(b) it is for the tenant to prove—
(i) that any destruction or damage was not intentionally done or caused as described in subsection (1)(a); and
(ii) that any destruction or damage was not caused by a careless act or omission described in subsection (2).

“Moreover, the bill fails to address a substantial legal anomaly in that people who wilfully damage rental property manage to escape the consequences of a wilful damage conviction under the Crime Act, which carries a jail term of seven years,” he said.

“Regarding contaminants, the issue of evidence of harm has been avoided, and the bill assumes that current level of 15 millionths of a gram per 100 square centimetres is a meaningful indicator of harm, which it is not,” Mr Butler said.

“The bill should have simply stated that the onus was on anyone claiming harm from a contaminated tenancy to provide evidence of harm,” Mr Butler said.

Treating garages as residential premises to extend coverage of the RTA to them so that they confirmed as non-residential is the sort of thing that gives rise to the expression “the law is an ass”, he said.

“This bill, that seeks to clean up messes created by the Tenancy Tribunal, the Court of Appeal, and the previous Government, has just made the issues more unfair and complex and litigious,” 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 and law.

Loss ring-fencing ups war on renters and owners

The largely unreported end of the ability of rental property owners to claim losses against other income shows that the Government is unaware of the scale of the problem it is creating with accommodation, Tenancies War spokesman Mike Butler said today

The Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Bill quietly became law while we were distracted with a Cabinet reshuffle that demoted Housing Minister Phil Twyford.

Under the vague sub heading “Allocation of deductions for excess residential land expenditure”, the omnibus tax Act:

(a) limits a person’s deductions for expenditure incurred in relation to residential land to income derived from the land;

(b) suspends deductions for the excess expenditure for the income year in which the expenditure is incurred;

(c) provides that the excess amounts are carried forward to later income years in which the person derives residential income; and

(d) releases the excess amounts on fully-taxed disposals of land.

Inland Revenue said in various statements that 116,000 owners declared an average loss of $7138 ($137 a week) on earnings in the 2016/17 tax year, bringing an average tax benefit of $2000 a year to each, creating a total cost of $232-million to them.

“The Minister responsible for this, Revenue Minister Stuart Nash, is probably unaware that losses accrue at the first stages of a property investing career, and that as debt is reduced and income increases, investors become taxpayers, with some paying tens of thousands of dollars in tax each year,” Mr Butler said.

“Rental property owners who are losing money now face a choice — raise the rent to cover the loss, absorb the loss to apply it in the future to any profit, or sell,” he said.

“With rents at historic highs it is unlikely owners could add an average extra $137 every week to rents,” Mr Butler said.

“This means owners must choose between hanging on or selling,” he said. “The short answer is to sell, with stand-alone dwellings going to first home buyers.”

“With loss-making owners selling and the prospect of an extended and more fraught period of trading at a loss creating a barrier to new investors, the Minister has just sped up the reduction of the supply of rental property,” Mr Butler said.

“As a result, rents will continue to rise and homelessness will increase,” he said.

The problem for everyone is that the Government is in denial that the policies it is enacting to solve a housing crisis are making the crisis exponentially worse, Mr Butler said.

Labour, New Zealand First, and the Green Party voted in favour on the third reading of the bill on June 20, while National and Jamie Lee Ross voted against it. Hansard has no record of a vote by the ACT Party.

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.

Hopefully pragmatism will replace Twyford’s agendas

Tenants and owners may hope that some pressure may have gone now that Phil Twyford is no longer Housing Minister, paying the price for the political embarrassment that KiwiBuild became, Tenancies War spokesman Mike Butler said today.

His tinkering with rental property standards and tenancy law helped hike rents and drove a number to sell, creating a new housing crisis, Mr Butler said.

Insulation standards based on optimum costs and benefits had already been set by the previous government and Mr Twyford’s requirement for additional insulation would incur extra costs for little extra benefit, he said.

Requiring a fixed heater makes little sense when there is a wide range of affordable heaters that tenants already use to suit their needs, he said.

Installing extractor fans, which are costly, difficult to install, or have an opening window in the way, is in many cases a waste of money. Properties may be ventilated by opening windows.

The $200 million Mr Twyford allocated to the charity Housing First to house 1000 people over four years at a cost of $961 per person per week, relies on leasing properties from the private sector that have been difficult to find, Mr Butler said.

Mr Twyford’s somewhat desperate “build-to-rent” proposal would require substantial Government financial support and guarantees to get off the ground, just like the failed KiwiBuild programme, and would mean high-density, large apartment blocks that most likely would end up as ghettos, he said.

Whether the new Housing Minister, Megan Woods, is pragmatic or agenda-based remains to be seen, Mr Butler said.

The decider will be whether she proceeds with tinkering with the Residential Tenancies Act that would end the contractual rights of owners to end tenancies, and remove the ability to sell with vacant possession, as Housing New Zealand requires when buying properties from private owners, he said.

Stop the War on Tenancies is a group that since last October has been highlighting the errors made by successive governments while creating rental property policy.

See CHB 86-year-old moves out https://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=12238724

See Housing shortage first hurdle, https://i.stuff.co.nz/business/property/105735200/housing-shortage-first-hurdle-as-housing-first-moves-to-marlborough

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