In recent months, we have seen some significant changes that will increase the cost of being a landlord.
We are likely to see rents increase maybe as much as 10% before the end of the year as landlords try to recover the increase in costs. The reality is that if you are a landlord you are in business and any business needs to make money to survive.
What are the changes that will increase rents so dramatically?
- The introduction of the new Health and Safety at Work Act (HSWA).
- Proposed changes to the Residential Tenancies Act (RTA) around insulation and smoke alarms.
- The Recent ruling by the High Court that means tenants are no longer responsible for careless damage to the property.
- The increase in rental properties with Methamphetamine contamination
The new Health and Safety at Work Act
Landlords and Property Managers are slowly coming to terms with how this will impact our industry. The new law identifies that a Person Conducting a Business or Undertaking (PCBU) has a duty of care to its workers, to other people and must provide a safe workplace. A PCBU is a business or a sole trader.
Is a private landlord a PCBU?
Yes, they are. This means that they will be affected by this new legislation and must take steps to ensure that they comply. The other point to note is how the new HSWA relates to the Residential Tenancies Act (RTA). Section 45 of the RTA states that landlords must comply with all requirements of building, health and safety and any enactment. The RTA and the HSWA talk to each other. If a house is non-compliant then a landlord may also be in breach of the HSWA as well as the RTA.
Fines for failing to comply with the HSWA are enormous and will frighten many landlords. We will see an increase in landlords getting their properties professionally managed. This is the big difference between here and Australia. In New Zealand about 40% are managed compared to nearer 90% in Australia. The risk of a landlord facing litigation in Australia is far greater so most get their properties managed. The same will eventually happen in New Zealand.
However, the cost of running a business will increase and Property Management companies will be far less willing to negotiate on fees as their profit margins will be slashed. You will also see Tradies increase their fees to cover the costs of compliance.
Because of this, landlords will want more rent to cover the increased costs they face with regards to compliance around the HSWA.
Changes to the Residential Tenancies Act around insulation and smoke alarms
As of July 2016, it is likely that a new bill will be passed meaning that landlords will have to state the level of insulation in the property on Tenancy Agreements. Then, by July 2019, it will be likely that all rental properties will have to have underfloor and ceilings insulated. The cost of doing this will be around $4000 per property.
Then we look at the risks around smoke alarms. The proposed changes to the RTA will make it clearer who is responsible for smoke alarms and where they have to be located. Under the proposed changes, landlords will be responsible at the commencement of the tenancy and tenants will be responsible during the tenancy.
In Australia, annual testing of smoke alarms is a big business and the same will gradually happen in New Zealand. Again, expect to see the tenant wear the cost of this though power bills will be reduced as the quality of our rental stock gradually improves.
Tenants no longer liable for accidental damages
A landmark case recently ruled in favour of tenants who accidentally caused damage to their rental property through a fire that cost over $200,000 in damages. This means that tenants will be no longer responsible for damages that they have caused through negligence. Again, the consequences of this landmark ruling are huge. Tenants can cause damage to properties and all they have to say is that it was an accident and they are in the clear.
Insurance companies will no doubt increase premiums to cover the increased risk that they are exposed to. Again, don’t expect landlords to just suck it up without trying offset these costs to the tenant.
Fear of Methamphetamine Contamination
We constantly hear in the news of properties being gutted due to being contaminated with Methamphetamine. There has also been debate as to whether houses will need to be tested for ‘Meth’ in between tenancies so the house will comply with the RTA and the HSWA. Whether this is true or not is debatable but one thing is certain, more and more houses are being tested positive for ‘Meth’.
Therefore, more landlords may well take this stance of getting their properties tested between tenancies to prevent and deter prospective ‘Meth’ producers from renting. The average cost of a swab test is around $200 so again do not be surprised to see this passed on to tenants. You will also see more landlords take out Landlord Insurance which is different from their rental property insurance. This protects them from loss of rental and wilful damage caused by the tenant.
These increases will put a huge burden on the landlord.
You cannot expect landlords to simply accept the increase of these costs and wear it without any impact on the tenant. Tenants will not like it but they will also find themselves paying more to help cover the increase costs around being a landlord.
Written by David Faulkner, Director of John Crocker and Associates Ltd.