Would Muller fix Labour’s rental property failures?

Since any promises made by former National Party leader Simon Bridges are effectively void, the new leader, Todd Muller, should tell New Zealand’s 290,000 residential rental property owners whether he supports Labour disastrous experiments or whether he intends to restore some sanity to the sector.

Currently, the sector remains frozen under the Covid-19 Response (Urgent Management Measures) Legislation Act which over-rode previous tenancy termination agreements, extended the period of allowed unpaid rent from 21 days to 60 days, and imposed a $6500 fine on any owners who put a step wrong.

During the lockdown, the Government continued pushing through changes to the Residential Tenancies Act that:

  1. Require 118 days of unpaid rent before the Tenancy Tribunal may end a tenancy because of unpaid rent. Currently, 21 days’ arrears are sufficient to end a tenancy.
  2. Require three disturbances in three months before the Tenancy Tribunal could end a tenancy because of anti-social behaviour.
  3. Remove a property owner’s contractual right to end a tenancy – the so-called 90-day no-reason termination.

Rental property owners would like to know whether, before the election, a National Party under Mr Muller vote against those amendments.

We are not the only group to say that the current Government’s housing policies have been a rolling maul of incompetence.

  1. KiwiBuild promised 100,000 new homes in a decade yet in three years was only able to deliver 1535 houses.
  2. The waiting list for state houses reached a whopping 16,309 applicants by March 31 this year, more than double the number when the coalition government was formed in 2017.
  3. Changed tax rules hit on March 31 this year. This ring-fencing of rental property losses will tip up to 116,000 negatively geared owners out of the sector, according to documents obtained under the Official Information Act.
  4. Expensive and poorly conceived regulations on rental properties presented as guaranteeing a “healthy home” brought a regime of spot checks, narking, and massive fines on owners. This will drive more out of the sector once they take effect in the middle of next year.

If Mr Muller becomes Prime Minister, would he:

  1. Work with the private sector to build homes.
  2. Work with rather than against rental property owners to increase the supply of housing.
  3. Revisit the so-called “healthy homes” regulations as his predecessor promised. They should be changed from punitive regulations to recommendations and widened to include other methods to reach the recommended goals (such as shower domes instead of extractor fans). Standards for housing are nothing new and have existed here since 1947 under the Housing Improvement Regulations.

Stop the War on Tenancies is a group that since October 2018 has been highlighting the failures of successive governments while creating rental property policy and law.

The costs of rental property ownership

If you own your own home you will know that the costs of property ownership are constant, substantial and inescapable. Even for those owners who are fortunate enough to have no mortgage to pay, the bills for council rates, insurance, maintenance, repairs, power and water are unavoidable.

Yet somehow there is a wide-spread belief that this does not hold true for rental property.

Although many tenants, having never owned property themselves, are firmly convinced that their landlord fritters away the entire rent payments they receive on frivolous things of no lasting value, you would expect that those politicians, bureaucrats and lawmakers who do have the benefit of property ownership would actually realise that this cannot be true.

I have recently completed my draft 2019-20 accounting summaries, and some of the ratios they reveal may be of interest.

I have a long term-rental property portfolio, with the last property bought in late 2015, and all of these rentals are located in the Auckland southern suburbs. Over many years I have paid down most of the borrowings, so my mortgages are now quite a low percentage of my property values.

The rent I received works out at just under five percent of estimated current property values. A bit higher than if I just deposited the money in the bank to be sure, but then factor in that the time and effort devoted over the year to property and tenant management adds up to a lot more sweat and stress than just inspecting a bank statement once a month.

Like any asset, rental property takes money to maintain, and failure to do this can lead to rapid and substantial deterioration that is costly to rectify.  Quite frequently, the maintenance costs on a rental property are even higher than on a similar owner-occupied property. Human nature is such that few people treat as asset they rent as well and carefully as an asset they actually own. For instance, nobody bothers to wash a rental car.

In my case the repairs and maintenance bills add up to 20 percent of the rent received. Sure, this includes one full professional external house repaint and one substantial bathroom plumbing upgrade, but then such costs are an integral part of maintaining the value of any long-term real asset investment.

Then we come to some of the less tangible items. Insurance premiums take 4.4 percent of rent received and the Council rates add up to 7.7 percent. Like any business there are also the costs of running a vehicle, paying the accountant, bank fees and a few other minor items.

After allowing for all of these expenses I eventually end up with an income of around one third of rent received for all of my time, risk, effort and investment.  As you can see, the return on the capital involved is not that great given the work it all entails and, despite popular opinion, the overheads are actually quite high.

These figures show the unworldliness of those who believe that all the rent they pay goes only into the landlord’s pocket, where it is then spent in a wasteful manner on high living and expensive toys. In my case, I need that money to survive.

There are those who would say “but look at the return you are getting against the price you paid all those years ago to buy that property”.

However any business must compare today’s costs and incomes against today’s asset values. We do not expect a supermarket to keep its food prices down because the value of the supermarket land and buildings have increased over the years.

In the current lock-down, there are many people who are demanding that landlords (both residential and commercial) should reduce or not even ask for rent payments. “After all”, they say “You are now getting a rent holiday, you should pass that on!”. Wrong. There is no holiday and no subsidy, only the deferring of repayments to some later date, and the interest still accumulates and must eventually be paid.

In my own case, if I reduced a tenant’s rent by one third – say from $450 to $300 – I would effectively then get no income from that property, income which I need to put food on my own table. Anything more than a one third reduction would mean that I am then subsidising my tenants living costs at my own expense.

A recent Property Investors Federation survey has found that rental property owners are affected by the Covid-19 situation just like tenants and all other New Zealanders. Most rental property providers do not own vast numbers of properties, 90% of landlords owning just one or two rentals. The majority of these people have another source of income apart from the rent they receive, but this survey study found that almost 60% of providers have lost either part or all of their other income.

So we need realism here. We do not expect health workers, teachers, or emergency personnel to work for nothing. Those who grow, transport and supply us with food are still being paid for their efforts, and rightly so. Therefore, why expect those private individuals who rent out housing to families who cannot buy their own to do so for no return?

By Peter Lewis, who is vice-president of the Auckland Property Investors Association.

Solve housing problem or punish landlords?

Still simmering away below the Covid-19 virus activity is the Coalition Government’s proposed “reform” of the Residential Tenancy Act. Written submissions closed back in March, and oral submissions are being heard right now.

There are calls for the Government to place all such non-urgent business on hold while the current state of emergency exists, as the restrictions now in force hamper the full and democratic procedures that normally function when Parliament is in session. However, despite all the other travails the country is facing, they seem to be absolutely determined to proceed with this one.

Looking at the propose amendments I can see that they are based on a certain view of the rental housing market and of the overall supply of housing within New Zealand.

For at least twenty years New Zealand Governments of all political persuasions have tried to ‘solve the housing crisis’ by enacting various pieces of legislation. Looking at the latest statistics, there can be no doubt that these measures have failed, and failed comprehensively.

There are more than 600,000 rental households in New Zealand with about a million people living in them, up from 453,000 in 2013 and 388,000 in 2006.

The proportion of households that rent has risen from 27 per cent in 1999 to 32 per cent now – and rental households generally have more people in them than owner-occupied housing.

The government cannot build public housing fast enough, and now there are over 14,000 tenants on the public housing waiting list, more than twice as many as there were back in 2017.

That is not 14,000 individuals, but 14,000 prospective tenants, including their families. We could be talking over 33,000 people here.

Around 85% of rental properties are provided by private landlords and 90% of those privately-owned rentals are provided by Ma-and-Pa  landlords who, individually, own just one or two rentals.

In some cases, these landlords rely on those rents to put food in front of their own families.

The public housing sector is and always has been a very small part of our rental housing market, and each publicly owned rental inevitably requires open-ended taxpayer support. The reality is that the Government is a high-cost and inefficient landlord.

Most of the political initiatives around rental housing in recent years have been based on dogma and false assumptions.

All the legislation that has been enacted in recent years has been based on the institutional belief that private landlords are wealthy large-scale operators who habitually hold all the power over their tenants and not only make large-scale profits out of their affairs but are then, somehow, able to avoid paying any tax on those profits.

This view of the rental housing market is totally wrong and entirely misrepresents the way it operates.

Most Kiwi residential landlords are the hard-working, thrifty and goal-orientated individuals that any sane society should cherish and nourish, not vilify and punish. Yet that’s what both the recent and the proposed legislation sets out to do, penalize these people who, I can remind those pushing this legislation, are all voters.

Given my experience, background and industry involvement I think you can assume that I know what I am talking about, but not once, in my almost 30 years as a landlord, has any Government representative come to me and said “We have a rental housing problem. How do you suggest we could work together to improve the situation?”

No-one can be forced to be a residential landlord. If passed, this legislation will give residential landlords another very good reason to exit the market, but what they are then going to do with the resultant huge number of un-housed tenants is anyone’s guess.

That is going to be their problem.

But they should care, because the homelessness in New Zealand is set to get a lot worse. And Government actions intended to create open-ended tenancies and unilaterally impose large fines on landlords will be pretty much entirely to blame for that.

The Government has a choice here. They can work towards solving the rental housing problem or they can punish landlords.

They must choose one, they cannot do both.

By Peter Lewis, who is vice-president of the Auckland Property Investors Association.

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. 

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