What the proposed ban on letting fees will mean for the rental market
If the Government really wanted to help renters, it should be regulating the property management market, the Real Estate Institute says.
Housing Minister Phil Twyford has tabled a bill that would ban charging letting fees to tenants.
But the chief executive of the Real Estate Institute of New Zealand (REINZ), Bindi Norwell, said: “What’s really important from our perspective, we’ve been advocating for a while now that we have some regulation in this market, because at the moment any person can be a property management without having all the right things in place.”
Currently, there was no accreditation or qualification needed to become a property manager.
Last week, Twyford said letting fees were “an unjustifiable tax on renters” and a method of “gouging renters”.
Landlords could charge new tenants for letting the property to them, nominally to cover fees they have paid letting agents, with no maximum.
“I don’t know of any other area of the law where two parties can contract for a provision of services but then charge a third party,” he said.
Real Estate Institute chief executive, Bindi Norwell, speaking to realtors in Timaru. JOHN BISSET/FAIRFAX NZ
WHO WILL PAY?
REINZ is also worried about who will now pay letting fees.
“There’s concern around who is actually going to pay for the letting fee now to cover the cost of the property management industry, given that they do provide a service,” Norwell said.
REINZ had been canvassing members on the proposed ban and received a “mixed reaction”.
“Most are broadly supportive of initiatives that will support consumers because I know that setting up a property can be very expensive and anything that helps support consumers lessen their expenses is welcome…
“I think people are working through how it is going to impact them as well. Some are of the view that these fees are going to passed on to landlords as well. Ultimately, landlords may pass it on to renters anyway.
Letting fees covered property inspections, advertising, viewings, background checks on tenants, liaison with landlords and processing the tenancy agreement, Norwell said.
“So actually, they do quite a lot of work. So someone has got to pay for that.”
The National Party’s housing spokeswoman, Judith Collins, has said landlords would simply pass on the costs to tenants in the form of higher rents.
“If landlords have to pay the cost, they will have to get the money back from somewhere, or else they simply take the hit,” she said.
However, Tywford didn’t expect rents to rise.
Asked if that was a cost that landlords should bear as they were the ones purchasing a letting agent’s services, Norwell said: “Chronologically, it does make sense for that, yes … It does feel like that’s the right logical area for it to sit.
“What’s really important, if they did hand that on [to tenants], it’s all about transparency, I think. So people need to feel there is a transparent process that if they’re going to pay a fee, what does that cover?
“I think the more up front that is and the more clear that is, the better it is for the industry.”
Real Estate Institute of New Zealand is concerned about who will end up paying letting fees if Phil Twyford’s proposed ban on them is introduced. MAARTEN HOLL/STUFF
A DIFFERENT WAY
The New Zealand Property Investors’ Federation (NZPIF) said rather than banning tenants from paying the letting fee, whoever got the benefit should pay it.
“If a landlord contracts a property manager to find them a tenant but not continue to manage the property, then they should pay the fee. Under the current system, if it is difficult to find a tenant, landlords will often pay the fee to make the process easier,” the NZPIF said in a statement.
“Likewise, if it is hard for tenants to find rental accommodation (as it is at present) then the tenants should be able to pay the fee so they increase their choice of property and their chance of securing a rental.”
NZPIF added: “The Ministry of Business, Innovation and Employment states that ‘in 2017, of the total 175,081 bonds lodged, 53.6 per cent were lodged by property management companies and it is likely a large proportion of them charged a letting fee.
“As owner managers cannot charge a letting fee, that means that more than half the properties let last year did not have a letting fee attached to them. Tenants currently have a choice of whether they pay a letting fee or not.”
The NZPIF accepted that paying all the moving in costs of a new tenancy was difficult.
“Even if rental prices do move up a little, spreading out the cost for tenants will still be a benefit for them. Unfortunately this will affect all tenants rather than the half that currently pay a letting fee.”
In England, Wales and Ireland, all fees and costs were required to be displayed so tenants could understand them.
“An alternative may be to follow most of the UK and require fees to be displayed and perhaps allow the letting fee to be paid off over, say, a six month period to reduce the impact of moving costs.”
Phil Twyford, Labour MP for Te Atatū and Minister for Housing and Urban Development and Transport. BRADEN FASTIER
THE EFFECT ON RENTAL NUMBERS
Norwell said the institute was trying to determine if the proposed ban, if passed, would reduce the number of short term rentals on the market.
However, it hoped it would not.
“We hope that they [landlords] are OK with paying for a service, because ultimately that’s better for them and they will benefit.
“It will be a factor when people are thinking about whether they want to be a landlord or have a number of properties … it really will depend on their particular circumstances.”
Asked if the ban would reduce the number of rentals on the market, Norwell said: “I just think there’s a number of factors acting on the rental market at the moment, particularly for the property investors. So the increasing – all these regulations that are coming out … the letting fees are a potential [extra] cost, so there’s uncertainty around that.
“Whether that ultimately reduces the rental stock, we don’t know. What we don’t want is the rental stock to reduce too much because we already have a shortage and that’s why we need more supply.”
WHAT A LETTING FEE IS FOR
Sometimes a letting fee is charged by a letting agent or solicitor to grant or assign a tenancy.
Letting fees are allowed under tenancy law (Residential Tenancies Act) but only letting agents or a landlord’s solicitor are allowed to charge this fee.
A letting fee covers the cost of putting a tenancy in place. It covers the cost for time involved by the letting agent for things like:
– Holding open homes
– Reviewing applications from prospective tenants
– Preparing tenancy agreements and conducting the initial property inspection
Letting fees can vary, but are normally one week’s rent plus GST.
The tenancy agreement must state whether there is a letting fee. If the tenant signs or agrees to the tenancy, they must pay the letting fee.
A letting fee cannot be charged to renew or extend a tenancy.
The National Party’s housing spokeswoman, Judith Collins, has said landlords would simply pass on the costs to tenants in the form of higher rents. MAARTEN HOLL/STUFF
